As filed with the Securities and Exchange Commission on August 13, 2003
Securities Act Registration No. 811-1424
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. Post-effective Amendment No.
(Check appropriate box or boxes)
AIM EQUITY FUNDS
----------------------------------------
(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza, Suite 100, Houston, Texas 77046
----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (713) 626-1919
Name and Address of Agent for Service: Copy to:
NANCY L. MARTIN, ESQUIRE MARTHA J. HAYS, ESQUIRE
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll, LLP
11 Greenway Plaza 1735 Market Street
Suite 100 51st Floor
Houston, TX 77046 Philadelphia, PA 19103
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
The titles of the securities being registered are AIM Blue Chip Fund
Classes A, B, C and Investor Class; AIM Large Cap Basic Value Fund Classes A, B,
C and Investor Class; and AIM Large Cap Growth Fund Classes A, B, C and Investor
Class. No filing fee is due in reliance on Section 24(f) of the Investment
Company Act of 1940.
(INVESCO LOGO)
INVESCO GROWTH FUND,
A PORTFOLIO OF INVESCO STOCK FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
August 25, 2003
Dear Shareholder:
As you may be aware, AMVESCAP PLC, the parent company of your Fund's
investment advisor, has undertaken an integration initiative for its North
American mutual fund operations.
In the first phase of the integration initiative, A I M Distributors, Inc.
became the sole distributor for all AMVESCAP PLC mutual funds in the United
States. A I M Distributors, Inc. is now the distributor for all INVESCO Funds
(including your Fund) and the AIM Funds.
AMVESCAP PLC also reviewed all INVESCO Funds and AIM Funds and concluded
that it would be appropriate to reduce the number of smaller and less efficient
funds that compete for limited shareholder assets and to consolidate certain
funds having similar investment objectives and strategies. Your Fund is one of
the funds that AMVESCAP PLC recommended, and your Board of Directors approved,
be consolidated with another fund. The attached proxy statement/prospectus seeks
your approval of this consolidation.
As part of the integration initiative, AMVESCAP PLC has recommended
restructuring the advisory and administrative servicing arrangements so that A I
M Advisors, Inc. is the advisor and administrator for all INVESCO Funds and AIM
Funds. Your Board has approved a new advisory agreement under which A I M
Advisors, Inc. will serve as the investment advisor for your Fund. The portfolio
management team for your Fund will not change as a result of this restructuring.
The attached proxy statement/prospectus seeks your approval of this new
investment advisory agreement. If approved, this new agreement will become
effective only if shareholders do not approve the proposal to consolidate your
Fund.
The integration initiative also calls for changing the organizational
structure of the INVESCO Funds and the AIM Funds. To accomplish this goal,
AMVESCAP PLC has recommended that all INVESCO Funds and AIM Funds organized as
Maryland corporations change their form and state of organization to Delaware
statutory trusts. Your Board has approved redomesticating your Fund as a series
of a Delaware statutory trust. The attached proxy statement/prospectus seeks
your approval of this redomestication. If approved, the redomestication will
become effective only if shareholders do not approve the proposal to consolidate
your Fund.
Finally, the independent directors of your Board believe that your
interests would best be served if the INVESCO Funds and the AIM Funds had a
unified board of directors/trustees. The attached proxy statement/prospectus
seeks your vote in favor of the persons nominated to serve as directors.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote your shares in person. If you
expect to attend the meeting in person, or have questions, please notify us by
calling (800) 952-3502. You may also vote your shares by telephone or through a
website established for that purpose by following the instructions that appear
on the enclosed proxy card. If we do not hear from you after a reasonable amount
of time, you may receive a telephone call from our proxy solicitor, Georgeson
Shareholder Communications Inc., reminding you to vote your shares.
Sincerely,
-s- Raymond R. Cunningham
Raymond R. Cunningham
President
INVESCO GROWTH FUND,
A PORTFOLIO OF INVESCO STOCK FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 21, 2003
TO THE SHAREHOLDERS OF INVESCO GROWTH FUND:
We cordially invite you to attend our Special Meeting of Shareholders to:
1. Approve an Agreement and Plan of Reorganization (the "Agreement")
under which all of the assets of your Fund, an investment portfolio of
INVESCO Stock Funds, Inc. ("Company"), will be transferred to AIM Large Cap
Growth Fund ("Buying Fund"), an investment portfolio of AIM Equity Funds
("Buyer"), Buying Fund will assume the liabilities of your Fund and Buyer
will issue shares of each class of Buying Fund to shareholders of the
corresponding class of shares of your Fund.
2. Elect 16 directors to the Board of Directors of Company, each of
whom will serve until his or her successor is elected and qualified.
3. Approve a new investment advisory agreement with A I M Advisors,
Inc. for your Fund.
4. Approve an Agreement and Plan of Reorganization (the "Plan") which
provides for the redomestication of Company as a Delaware statutory trust
and, in connection therewith, the sale of all of Company's assets and the
dissolution of Company as a Maryland corporation.
5. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies
or their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on July 25, 2003 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment of
the Special Meeting.
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
THE ACCOMPANYING PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
COMPANY. YOU MAY ALSO VOTE YOUR SHARES BY TELEPHONE OR THROUGH A WEBSITE
ESTABLISHED FOR THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY
MATERIALS. YOUR VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE
SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY
EXECUTING AND SUBMITTING A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION
TO THE SECRETARY OF COMPANY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
-s- Glen A. Payne
Glen A. Payne
Secretary
August 25, 2003
<Table>
INVESCO GROWTH FUND, AIM LARGE CAP GROWTH FUND,
A PORTFOLIO OF A PORTFOLIO OF
INVESCO STOCK FUNDS, INC. AIM EQUITY FUNDS
4350 SOUTH MONACO STREET 11 GREENWAY PLAZA, SUITE 100
DENVER, COLORADO 80237 HOUSTON, TEXAS 77046-1173
(800) 525-8085 (800) 347-4246
</Table>
COMBINED PROXY STATEMENT AND PROSPECTUS
AUGUST 25, 2003
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
INVESCO Growth Fund (your Fund). The Special Meeting will be held on October 21,
2003. We intend to mail this Proxy Statement/Prospectus, the enclosed Notice of
Special Meeting of Shareholders and the enclosed proxy card on or about August
25, 2003 to all shareholders entitled to vote.
At the Special Meeting, we are asking shareholders of your Fund to vote on
four Proposals. The first Proposal to be voted on is an Agreement and Plan of
Reorganization (the "Agreement") which provides for the combination of your
Fund, an investment portfolio of INVESCO Stock Funds, Inc. ("Company"), with AIM
Large Cap Growth Fund ("Buying Fund"), an investment portfolio of AIM Equity
Funds ("Buyer") (the "Reorganization").
Under the Agreement, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund and Buyer will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of your Fund, as set forth on Exhibit A.
The value of your account with Buying Fund immediately after the
Reorganization will be the same as the value of your account with your Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No sales charges will be imposed in connection with
the Reorganization.
The Board of Directors of Company (the "Board") has approved the Agreement
and the Reorganization as being advisable and in the best interests of your
Fund.
Company and Buyer are both registered open-end management investment
companies that issue their shares in separate series. Your Fund is a series of
Company and Buying Fund is a series of Buyer. INVESCO Funds Group, Inc.
("INVESCO") serves as the investment advisor to your Fund and A I M Advisors,
Inc. ("AIM") serves as the investment advisor to Buying Fund. Both AIM and
INVESCO are wholly owned subsidiaries of AMVESCAP PLC ("AMVESCAP"), an
independent global investment management company.
The investment objective of Buying Fund is similar to that of your Fund in
that both seek long-term growth of capital, although your Fund seeks income as a
secondary objective. See "Comparison of Investment Objectives and Principal
Strategies."
This Proxy Statement/Prospectus sets forth the information that you should
know before voting on the Agreement and the other Proposals described below. It
is both the Proxy Statement of your Fund and the Prospectus of Buying Fund. You
should read and retain this Proxy Statement/Prospectus for future reference.
The Prospectus of your Fund dated November 30, 2002, as supplemented
December 5, 2002, April 11, 2003, June 30, 2003, August 1, 2003 and August 14,
2003 (the "Selling Fund Prospectus"), together with the related Statement of
Additional Information dated November 30, 2002, as supplemented August 14, 2003,
are on file with the Securities and Exchange Commission (the "SEC"). The Selling
Fund Prospectus is incorporated by reference into this Proxy
Statement/Prospectus. The Prospectus of Buying Fund dated July 21, 2003 (the
"Buying Fund Prospectus"), and the related Statement of
i
Additional Information dated July 21, 2003 and the Statement of Additional
Information relating to the Reorganization dated August 15, 2003, are on file
with the SEC. The Buying Fund Prospectus is incorporated by reference into this
Proxy Statement/Prospectus and a copy of the Buying Fund Prospectus is attached
as Appendix II to this Proxy Statement/Prospectus. The Statement of Additional
Information relating to the Reorganization dated August 15, 2003 also is
incorporated by reference into this Proxy Statement/Prospectus. The SEC
maintains a website at www.sec.gov that contains the Prospectuses and Statements
of Additional Information described above, material incorporated by reference,
and other information about Company and Buyer.
Copies of the Buying Fund Prospectus, the Selling Fund Prospectus and the
related Statements of Additional Information are available without charge by
writing to A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739,
or by calling (800) 347-4246. Additional information about your Fund and Buying
Fund may be obtained on the internet at www.aiminvestments.com.
The remaining three Proposals to be voted on are: the election of 16
directors to the Board of Directors of Company; the approval of a new advisory
agreement with AIM for your Fund; and the approval of an Agreement and Plan of
Reorganization (the "Plan") which provides for the redomestication of Company as
a Delaware statutory trust and, in connection therewith, the sale of all of
Company's assets and the dissolution of Company as a Maryland corporation. The
Board has approved the nomination of the persons set forth in this Proxy
Statement/Prospectus for election as directors of Company and has approved the
new advisory agreement with AIM. Finally, the Board has approved the Plan as
being advisable.
All four Proposals are being submitted to you to implement an integration
initiative undertaken by AMVESCAP with respect to its North American mutual fund
operations, which includes your Fund.
Company has previously sent to shareholders the most recent annual report
for your Fund, including financial statements, and the most recent semiannual
report succeeding the annual report, if any. If you have not received such
report(s) or would like to receive an additional copy, please contact A I M Fund
Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, or call (800)
347-4246. Such report(s) will be furnished free of charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
INTRODUCTION................................................ 1
PROPOSAL 1 -- APPROVAL OF THE AGREEMENT TO COMBINE YOUR FUND
AND BUYING FUND............................................. 2
SUMMARY..................................................... 2
The Reorganization........................................ 2
Comparison of Investment Objectives and Principal
Strategies............................................. 3
Comparison of Principal Service Providers................. 5
Comparison of Performance................................. 5
Comparison of Fees and Expenses........................... 5
Comparison of Multiple Class Structures................... 5
Comparison of Sales Charges............................... 6
Comparison of Distribution, Purchase and Redemption
Procedures and Exchange Rights......................... 7
The Board's Recommendation on Proposal 1.................. 7
RISK FACTORS................................................ 8
Risks Associated with Buying Fund......................... 8
Comparison of Risks of Buying Fund and Your Fund.......... 8
INFORMATION ABOUT BUYING FUND............................... 9
Description of Buying Fund Shares......................... 9
Management's Discussion of Fund Performance............... 9
Financial Highlights...................................... 9
ADDITIONAL INFORMATION ABOUT THE AGREEMENT.................. 9
Terms of the Reorganization............................... 9
The Reorganization........................................ 9
Board Considerations...................................... 10
Other Terms............................................... 11
Federal Income Tax Consequences........................... 11
Accounting Treatment...................................... 12
RIGHTS OF SHAREHOLDERS...................................... 12
General................................................... 12
Liability of Shareholders................................. 13
Election of Directors/Trustees; Terms..................... 13
Removal of Directors/Trustees............................. 13
Meetings of Shareholders.................................. 13
Liability of Directors/Trustees and Officers;
Indemnification........................................ 14
Dissolution and Termination............................... 14
Voting Rights of Shareholders............................. 14
Dissenters' Rights........................................ 14
Amendments to Organization Documents...................... 15
CAPITALIZATION.............................................. 15
INTERESTS OF CERTAIN PERSONS................................ 16
LEGAL MATTERS............................................... 17
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND...... 17
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION................................................ 17
</Table>
iii
<Table>
<Caption>
PAGE
----
PROPOSAL 2 -- ELECTION OF DIRECTORS......................... 18
Background................................................ 18
Structure of the Board of Directors....................... 18
Nominees for Directors.................................... 18
The Board's Recommendation on Proposal 2.................. 22
Current Committees of the Board........................... 22
Board and Committee Meeting Attendance.................... 24
Future Committee Structure................................ 24
Director's Compensation................................... 25
Current Retirement Plan for Directors..................... 25
Current Deferred Compensation Plan........................ 26
New Retirement Plan for Directors......................... 26
New Deferred Compensation Agreements...................... 27
Officers of Company....................................... 27
Security Ownership of Management.......................... 27
Director Ownership of Your Fund's Shares.................. 28
PROPOSAL 3 -- APPROVAL OF A NEW INVESTMENT ADVISORY
AGREEMENT................................................. 28
Background................................................ 28
Your Fund's Current Investment Advisor.................... 29
The Proposed New Investment Advisor for Your Fund......... 29
Positions with AIM Held by Company's Directors or
Executive Officers..................................... 29
Terms of the Current Advisory Agreement................... 29
Additional Services Provided by INVESCO and its
Affiliates............................................. 31
Advisory Fees Charged by AIM for Similar Funds it
Manages................................................ 31
Terms of the Proposed Advisory Agreement.................. 31
Factors the Directors Considered in Approving the Advisory
Agreement.............................................. 35
The Board's Recommendation on Proposal 3.................. 37
PROPOSAL 4 -- APPROVAL OF THE PLAN TO REDOMESTICATE COMPANY
AS A DELAWARE STATUTORY TRUST............................... 37
Background................................................ 37
Reasons for the Proposed Redomestication.................. 37
What the Proposed Redomestication Will Involve............ 38
The Federal Income Tax Consequences of the
Redomestication........................................ 39
Appraisal Rights.......................................... 40
The Trust Compared to Company............................. 40
The Board's Recommendation on Proposal 4.................. 41
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING............ 41
Proxy Statement/Prospectus................................ 41
Time and Place of Special Meeting......................... 41
Voting in Person.......................................... 41
Voting by Proxy........................................... 41
Voting by Telephone or the Internet....................... 42
Quorum Requirement and Adjournment........................ 42
Vote Necessary to Approve Each Proposal................... 42
</Table>
iv
<Table>
<Caption>
PAGE
----
Proxy Solicitation........................................ 43
Other Matters............................................. 43
Shareholder Proposals..................................... 43
Ownership of Shares....................................... 43
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 44
Fees Paid to the Auditor Related to Company............... 44
Fees Paid to the Auditor Not Related to Company........... 44
</Table>
EXHIBIT A.....Classes of Shares of Your Fund and Corresponding Classes of Shares
of Buying Fund
EXHIBIT B.................Comparison of Performance of Your Fund and Buying Fund
EXHIBIT C...............................Comparison Fee Table and Expense Example
EXHIBIT D............................................Director Compensation Table
EXHIBIT E....................................................Officers of Company
EXHIBIT F.......................................Security Ownership of Management
EXHIBIT G......................................Director Ownership of Fund Shares
EXHIBIT H........Principal Executive Officer and Directors of AIM Advisors, Inc.
EXHIBIT I..............................Compensation to INVESCO Funds Group, Inc.
EXHIBIT J...Fees Paid to INVESCO Funds Group, Inc. and Affiliates in Most Recent
Fiscal Year
EXHIBIT K.............................Advisory Fee Schedules for Other AIM Funds
EXHIBIT L............................Proposed Compensation to AIM Advisors, Inc.
EXHIBIT M...........Shares Outstanding of Each Class of Your Fund on Record Date
EXHIBIT N.......................................Ownership of Shares of Your Fund
EXHIBIT O.....................................Ownership of Shares of Buying Fund
APPENDIX I.....Agreement and Plan of Reorganization for Your Fund (to Effect the
Reorganization)
APPENDIX II............................................Prospectus of Buying Fund
APPENDIX III............................Discussion of Performance of Buying Fund
APPENDIX IV........Form of Investment Advisory Agreement with AIM Advisors, Inc.
APPENDIX V.....Agreement and Plan of Reorganization for Your Fund (to Effect the
Redomestication)
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTOR, AIM LIFETIME AMERICA, AIM LINK, AIM INSTITUTIONAL FUNDS,
AIMFUNDS.COM, LA FAMILIA AIM DE FONDOS, LA FAMILIA AIM DE FONDOS AND DESIGN,
INVIERTA CON DISCIPLINA AND INVEST WITH DISCIPLINE ARE REGISTERED SERVICE MARKS
AND AIM BANK CONNECTION, AIM INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM
PRIVATE ASSET MANAGEMENT AND DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE
ASSETS AND DESIGN, AIM INVESTMENTS, AIM INVESTMENTS AND DESIGN, MYAIM.COM, THE
AIM COLLEGE SAVINGS PLAN, AIM SOLO 401(k) AND YOUR GOALS. OUR SOLUTIONS. ARE
SERVICE MARKS OF AIM MANAGEMENT GROUP INC.
INVESCO, THE OPEN CIRCLE DESIGN, INVESCO FUNDS, INVESCO FUNDS GROUP,
INVESCO -- YOUR GLOBAL INVESTMENT PARTNER AND YOU SHOULD KNOW WHAT INVESCO KNOWS
ARE REGISTERED SERVICE MARKS OF AMVESCAP PLC.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
v
INTRODUCTION
Your Fund is one of 46 portfolios advised by INVESCO and Buying Fund is one
of 86 portfolios advised by AIM. Proposals 1 through 4 that you are being asked
to vote on relate to or result from an integration initiative announced on March
27, 2003, by AMVESCAP, the parent company of AIM and INVESCO, with respect to
its North American mutual fund operations. The primary components of AMVESCAP's
integration initiative are:
- Using a single distributor for all AMVESCAP mutual funds in the United
States. To that end, A I M Distributors, Inc., the distributor for the
retail mutual funds advised by AIM (the "AIM Funds"), replaced INVESCO
Distributors, Inc. as the distributor for the retail mutual funds advised
by INVESCO (the "INVESCO Funds") effective July 1, 2003.
- Integrating back office support and creating a single platform for back
office support of AMVESCAP's mutual fund operations in the United States,
including such support services as transfer agency and information
technology. One result of this integration will be that shares of the AIM
Funds and shares of the INVESCO Funds generally will be able to be
exchanged for shares of the same or a similar class of each other.
- Rationalizing and streamlining of the various AIM Funds and INVESCO
Funds. In that regard, AMVESCAP has undertaken an extensive review of
these funds and concluded that it would be appropriate to reduce the
number of smaller and less efficient funds that compete for limited
shareholder assets and to consolidate certain funds having similar
investment objectives and strategies. Reducing both the number of AIM
Funds and INVESCO Funds will allow AIM and INVESCO to concentrate on
managing their core products. The Reorganization is one of a number of
fund reorganizations proposed by AMVESCAP as a result of this review
process. AMVESCAP's belief is that the Reorganization will allow Buying
Fund the best available opportunities for investment management, growth
prospects and potential economies of scale. Proposal 1 relates to this
component of AMVESCAP's integration initiative.
- Rationalizing the contractual arrangements for the provision of
investment advisory and administrative services to the AIM Funds and the
INVESCO Funds. The objective of this component is to have AIM assume
primary responsibility for the investment advisory, administrative,
accounting and legal and compliance services for the INVESCO Funds. To
implement this component, each INVESCO Fund is seeking shareholder
approval to enter into a new investment advisory agreement with AIM.
These changes will simplify AMVESCAP's mutual fund operations in the
United States in that there will be a uniform arrangement for investment
management for both the AIM Funds and the INVESCO Funds. Proposal 3
relates to this component of AMVESCAP's integration initiative.
- Simplifying the organizational structure of the AIM Funds and the INVESCO
Funds so that they are all organized as Delaware statutory trusts, using
as few entities as practicable. To implement this component, each AIM
Fund and each INVESCO Fund that currently is organized as a Maryland
corporation is seeking shareholder approval to redomesticate as a new
Delaware statutory trust, which also should provide these Funds with
greater flexibility in conducting their business operations. In addition,
certain series portfolios of AIM Funds with few portfolios are seeking
shareholder approval to be restructured as new series portfolios of
existing AIM Funds that are organized as Delaware statutory trusts.
Proposal 4 relates to this component of AMVESCAP's integration
initiative.
In considering the integration initiative proposed by AMVESCAP, the
directors of the INVESCO Funds and the directors/trustees of the AIM Funds who
are not "interested persons" (as defined in the Investment Company Act of 1940
(the "1940 Act")) of the Funds or their advisors determined that the
shareholders of both the AIM Funds and the INVESCO Funds would benefit if one
set of directors/ trustees was responsible for overseeing the operation of both
the AIM Funds and the INVESCO Funds and the services provided by AIM, INVESCO
and their affiliates. Accordingly, these directors/trustees
1
agreed to combine the separate boards and create a unified board of
directors/trustees. Proposal 2 relates to the election of directors of your
Fund.
You are being asked to approve Proposals 2 through 4 so that, in the event
that Proposal 1 is not approved, your Fund will still be able to take advantage
of these other benefits of AMVESCAP's integration initiative. We will be unable
to determine whether a particular Proposal other than Proposal 1, if approved,
should go forward until we have determined whether Proposal 1 has been approved.
Therefore, even if you vote in favor of Proposal 1, it is still important that
you vote on each remaining Proposal. For information about the Special Meeting
and voting on Proposals 1 through 4, see "Information About the Special Meeting
and Voting." For a description of the vote necessary to approve each of
Proposals 1 through 4, see "Information About the Special Meeting and
Voting -- Vote Necessary to Approve Each Proposal."
PROPOSAL 1 --
APPROVAL OF THE AGREEMENT
TO COMBINE YOUR FUND AND BUYING FUND
SUMMARY
The Board, including the independent directors, has determined that the
Reorganization is advisable and in the best interests of your Fund and that the
interests of the shareholders of your Fund will not be diluted as a result of
the Reorganization. The Board believes that a larger combined fund should be
more viable and have greater market presence and should have greater investment
leverage in that portfolio managers should have broader investment opportunities
and lower trading costs. The Board also believes that a larger combined fund
should result in greater operating efficiencies by providing economies of scale
to the combined fund in that certain fixed costs, such as legal, accounting,
shareholder services and director/trustee expenses, will be spread over the
greater assets of the combined fund. For additional information concerning the
factors the Board considered in approving the Agreement, see "Additional
Information About the Agreement -- Board Considerations."
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Agreement. For
more complete information, please read this entire Proxy Statement/Prospectus.
THE REORGANIZATION
The Reorganization will result in the combination of your Fund with Buying
Fund. Your Fund is a series of Company, a Maryland corporation. Buying Fund is a
series of Buyer, a Delaware statutory trust.
If shareholders of your Fund approve the Agreement and other closing
conditions are satisfied, all of the assets of your Fund will be transferred to
Buying Fund and Buying Fund will assume the liabilities of your Fund, and Buyer
will issue shares of each class of Buying Fund to shareholders of the
corresponding class of shares of your Fund, as set forth on Exhibit A. For a
description of certain of the closing conditions that must be satisfied, see
"Additional Information About the Agreement -- Other Terms."
The shares of Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the net value of the assets of your Fund
transferred to Buying Fund. The value of your account with Buying Fund
immediately after the Reorganization will be the same as the value of your
account with your Fund immediately prior to the Reorganization. A copy of the
Agreement is attached as Appendix I to this Proxy Statement/Prospectus. See
"Additional Information About the Agreement."
Company and Buyer will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Reorganization will constitute a tax-free
reorganization for Federal income tax purposes. Thus, shareholders will not have
to pay additional Federal income tax as a result of the Reorganization except to
the extent your Fund disposes of securities at a net gain in anticipation of the
Reorganization, which gain
2
would be included in a taxable distribution. See "Additional Information About
the Agreement -- Federal Income Tax Consequences."
No sales charges will be imposed in connection with the Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Your Fund and Buying Fund pursue similar investment objectives in that both
seek long-term growth of capital, although your Fund seeks income as a secondary
objective. Your Fund and Buying Fund also hold similar securities. As a result,
the Reorganization is not expected to cause significant portfolio turnover or
transaction expenses from the sale of securities that are incompatible with the
investment objective of Buying Fund.
The investment objectives or goals of your Fund are classified as
fundamental, which means that the Board cannot change them without shareholder
approval. The investment objective of Buying Fund is not classified as
fundamental, which means that the Board of Trustees of Buyer can change it
without shareholder approval. Having the ability to change the investment
objective without shareholder approval allows the Board of Trustees to respond
more quickly and efficiently to changing market conditions and to save Buying
Fund and its shareholders money by eliminating the need to solicit proxies to
obtain shareholder approval to change an investment objective to respond to
changing market conditions.
A description of the fundamental and non-fundamental restrictions and
policies applicable to your Fund and Buying Fund can be found in each Fund's
Statement of Additional Information. While your Fund and Buying Fund have
slightly different approaches to disclosing and characterizing these
restrictions and policies, in substance your Fund and Buying Fund operate under
the same general restrictions and are subject to the same general policies.
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and
Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of your Fund and Buying
Fund in the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
<Table>
<Caption>
INVESCO GROWTH FUND AIM LARGE CAP GROWTH FUND
(YOUR FUND) (BUYING FUND)
------------------- -------------------------
Investment Objective
- - long-term capital growth and current - long-term growth of capital
income
Investment Strategies
- - invests at least 65% of its net assets in - invests at least 80% of its assets in
common stocks of large companies securities of large-capitalization
companies
- - may invest in preferred stocks (which - in complying with the foregoing
generally pay higher dividends than common requirement, Buying Fund will invest
stocks) and debt instruments that are primarily in marketable equity securities,
convertible into common stocks, as well as including convertible securities, but its
in securities of foreign companies investments may include synthetic
instruments such as warrants, futures,
options, exchange-traded funds and
American Depositary Receipts
</Table>
3
<Table>
<Caption>
INVESCO GROWTH FUND AIM LARGE CAP GROWTH FUND
(YOUR FUND) (BUYING FUND)
------------------- -------------------------
- - defines large companies as companies that - considers a company to be a
are included in the Russell 1000(R) Growth large-capitalization company if it has a
Index at the time of purchase, or if not market capitalization, at the time of
included in that Index, have market purchase, no smaller than the smallest
capitalizations of at least $5 billion at capitalized company included in the
the time of purchase Russell 1000(R) Index during the most
recent 11-month period (based on month-end
data) plus the most recent data during the
current month
- - core of its investments have been - portfolio managers may focus on securities
concentrated in recent years in the of companies with market capitalizations
securities of three or four dozen large that are within the top 50% of stocks in
companies the Russell 1000(R) Index at the time of
purchase
- - may invest up to 25% of its assets in - may invest up to 25% of its total assets
securities of non-U.S. issuers (securities in foreign securities
of Canadian issuers and American
Depositary Receipts are not subject to
this 25% limitation)
- - INVESCO actively manages and trades the - may engage in active and frequent trading
portfolio
- - may invest in companies that have similar - no corresponding strategy
lines of business (for example, financial
services, health, or technology) and are
grouped together in broad categories
called sectors
- - invests primarily in equity securities and - portfolio managers purchase securities of
equity-related instruments that INVESCO a limited number of large-cap companies
believes will rise in price faster than that they believe have the potential for
other securities, as well as in options above- average growth in revenues and
and other investments whose values are earnings
based upon the values of equity securities
- - INVESCO seeks securities that meet the
following standards:
- Exceptional Growth: The markets and
industries they represent are growing
significantly faster than the economy
as a whole
- Leadership: They are leaders, or
emerging leaders, in these markets,
securing their positions through
technology, marketing, distribution, or
some other innovative means
- Financial validation: Their returns, in
the form of sales unit growth, rising
operating margins, internal funding and
other factors, demonstrate exceptional
growth and leadership
- - "bottom up" research, focusing on company
fundaments and growth prospects, and
considering dividend payment records or
potential future capacity to pay dividends
- - no corresponding strategy - for cash management purposes, may hold a
portion of its assets in cash or cash
equivalents, including shares of
affiliated money market funds
</Table>
4
COMPARISON OF PRINCIPAL SERVICE PROVIDERS
The following is a list of the current principal service providers for your
Fund and Buying Fund.
<Table>
<Caption>
SERVICE PROVIDERS
------------------------------------------------------------
INVESCO GROWTH FUND AIM LARGE CAP GROWTH FUND
SERVICE (YOUR FUND) (BUYING FUND)
- ------- ------------------- -------------------------
Investment Advisor............. INVESCO Funds Group, Inc.* A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Distributor.................... A I M Distributors, Inc.** A I M Distributors, Inc.
11 Greenway Plaza, Suite 100 11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 Houston, Texas 77046-1173
Administrator.................. INVESCO Funds Group, Inc.*** A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Custodian...................... State Street Bank and Trust State Street Bank and Trust
Company Company
Transfer Agent and Dividend
Disbursing Agent............... INVESCO Funds Group, Inc.**** A I M Fund Services, Inc.
Independent Auditors........... PricewaterhouseCoopers LLP Ernst & Young LLP
</Table>
- ---------------
* If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as investment advisor for your Fund effective
November 5, 2003.
** A I M Distributors, Inc. replaced INVESCO Distributors, Inc. as distributor
of your Fund effective July 1, 2003.
*** If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as administrator for your Fund effective
November 5, 2003.
**** A I M Fund Services, Inc. will replace INVESCO as transfer agent and
dividend disbursing agent for your Fund on or about October 1, 2003.
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31 for Investor Class shares of your Fund and Class A shares of Buying
Fund can be found at Exhibit B. Also included as part of Exhibit B is a table
showing the average annual total returns for the periods indicated for your Fund
and Buying Fund, including sales charges. For more information regarding the
total return of your Fund, see the "Financial Highlights" section of the Selling
Fund Prospectus, which has been made a part of this Proxy Statement/Prospectus
by reference. For more information regarding the total return of Buying Fund,
see "Information About Buying Fund -- Financial Highlights." Past performance
cannot guarantee comparable future results.
COMPARISON OF FEES AND EXPENSES
A comparison of shareholder fees and annual operating expenses of each
class of shares of your Fund, as of July 31, 2002, and Buying Fund, as of
October 31, 2002, expressed as a percentage of net assets ("Expense Ratio"), can
be found at Exhibit C. Pro forma estimated Expense Ratios for each class of
shares of Buying Fund after giving effect to the Reorganization are also
provided as of October 31, 2002 as part of Exhibit C.
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of your Fund that are available to
investors and the corresponding share classes of Buying Fund that shareholders
of your Fund will receive in the Reorganization can be found as Exhibit A. In
addition to the share classes of Buying Fund listed on Exhibit A, Class R shares
of
5
Buying Fund are available to investors. This class is not involved in the
Reorganization. For information regarding the features of the various share
classes of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
COMPARISON OF SALES CHARGES
No initial sales charges are applicable to shares of Buying Fund received
by holders of your Fund's shares in connection with the Reorganization. No
redemption of your Fund's shares that could cause the imposition of a contingent
deferred sales charge ("CDSC") will result in connection with the
Reorganization. The holding period for purposes of determining whether to charge
a CDSC upon redemptions of shares of Buying Fund received by holders of your
Fund's shares in connection with the Reorganization will begin at the time your
Fund's shares were originally purchased.
The chart below provides a summary for comparison purposes of the initial
sales charges and CDSCs applicable to each class of shares of your Fund and
Buying Fund. The fee tables at Exhibit C include comparative information about
maximum initial sales charges on purchases of Class A shares of your Fund and
Buying Fund and the maximum CDSC on redemptions of certain classes of shares of
your Fund and Buying Fund. For more detailed information on initial sales
charges, including volume purchase breakpoints and waivers, and reductions of
CDSCs over time, see the Selling Fund Prospectus and the Buying Fund Prospectus.
<Table>
<Caption>
CLASS A CLASS B CLASS C
------- ------- -------
- - subject to an initial - not subject to an initial - not subject to an initial
sales charge* sales charge sales charge
- - may be subject to a CDSC - subject to a CDSC on - subject to a CDSC on
on redemptions made certain redemptions made certain redemptions made
within 18 months from the within 6 years from the within 12 months from the
date of certain large date of purchase date of purchase***
purchases**
</Table>
<Table>
<Caption>
CLASS R CLASS K
(BUYING FUND ONLY) (YOUR FUND ONLY) INVESTOR CLASS
------------------ ---------------- --------------
- - not subject to an initial - not subject to an initial - not subject to an initial
sales charge sales charge sales charge
- - may be subject to a CDSC - may be subject to a CDSC - not subject to a CDSC
on redemptions made on redemptions made
within 12 months from the within 12 months from the
date of certain purchases date of certain purchases
</Table>
- ---------------
* Both your Fund and Buying Fund waive initial sales charges on Class A shares
for certain categories of investors, including certain of their affiliated
entities and certain of their employees, officers and directors/trustees and
those of their investment advisor.
** For qualified plans investing in Class A shares of your Fund, this period is
12 months rather than 18 months.
*** Prior to August 18, 2003, Class C shares of your Fund are subject to a CDSC
on certain redemptions made within 13 months from the date of purchase. This
13 month period changes to 12 months effective August 18, 2003.
The CDSC on redemptions of shares of Buying Fund is computed based on the
lower of their original purchase price or current market value. Prior to August
18, 2003, the CDSC on redemptions of shares of your Fund is computed based on
their original purchase price. This method of computation changes to conform to
Buying Fund's method of computation effective August 18, 2003.
6
COMPARISON OF DISTRIBUTION, PURCHASE AND REDEMPTION PROCEDURES AND EXCHANGE
RIGHTS
Shares of your Fund and Buying Fund are distributed by A I M Distributors,
Inc. ("AIM Distributors"), a registered broker-dealer and wholly owned
subsidiary of AIM. AIM Distributors replaced INVESCO Distributors, Inc. as
distributor of your Fund effective July 1, 2003.
Both your Fund and Buying Fund have adopted a distribution plan that allows
the payment of distribution and service fees for the sale and distribution of
the shares of each of their respective classes. Both your Fund and Buying Fund
have engaged AIM Distributors to provide such services either directly or
through third parties. The fee tables at Exhibit C include comparative
information about the distribution and service fees payable by each class of
shares of your Fund and Buying Fund. Overall, each class of shares of Buying
Fund has the same or lower aggregate distribution and service fees as the
corresponding class of shares of your Fund.
Although there are differences in the purchase, redemption and exchange
procedures of your Fund and Buying Fund as of the date of this Proxy
Statement/Prospectus, it is currently anticipated that the purchase, redemption
and exchange procedures of your Fund and/or Buying Fund will be changed so that
they are substantially the same prior to the consummation of the Reorganization.
For information regarding the current purchase, redemption and exchange
procedures of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
As of the date of this Proxy Statement/Prospectus, shares of your Fund
generally may be exchanged for shares of the same or a similar class of funds
within the INVESCO Family of Funds and shares of Buying Fund generally may be
exchanged for shares of the same or a similar class of funds within The AIM
Family of Funds(R). It is currently anticipated that, prior to the consummation
of the Reorganization, shares of The AIM Family of Funds(R) and shares of the
INVESCO Family of Funds generally will be able to be exchanged for shares of the
same or a similar class of each other. If this exchangeability feature is not
offered to shareholders prior to the consummation of the Reorganization, the
consummation of the Reorganization will be delayed until such time as it is
offered. See "Additional Information About the Agreement -- The Reorganization."
For more detailed information regarding the current exchange rights of your Fund
and Buying Fund, see the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
THE BOARD'S RECOMMENDATION ON PROPOSAL 1
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
7
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with Buying
Fund.
There is a risk that you could lose all or a portion of your investment in
Buying Fund. The value of your investment in Buying Fund will go up and down
with the prices of the securities in which Buying Fund invests. The prices of
equity securities change in response to many factors including the historical
and prospective earnings of the issuer, the value of its assets, general
economic conditions, interest rates, investor perceptions and market liquidity.
The value of the convertible securities in which Buying Fund may invest
also will be affected by market interest rates, the risk that the issuer may
default on interest or principal payments and the value of the underlying common
stock into which the securities may be converted. Specifically, since these
types of convertible securities pay fixed interest and dividends, their values
may fall if market interest rates rise and rise if market interest rates fall.
Additionally, an issuer may have the right to buy back certain of the
convertible securities at a time and at a price that is unfavorable to Buying
Fund.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
Buying Fund may participate in the initial public offering (IPO) market in
some market cycles. Because of Buying Fund's small asset base, any investment
Buying Fund may make in IPOs may significantly affect Buying Fund's total
return. As Buying Fund's assets grow, the impact of IPO investments will
decline, which may reduce the effect of IPO investments on Buying Fund's total
return.
Active trading of Buying Fund's securities may increase short-term gains
and losses, which may affect the taxes you have to pay. If Buying Fund engages
in active trading in portfolio securities, it may incur increased transaction
costs, which can lower the actual return on your investment.
An investment in Buying Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
The risks associated with an investment in your Fund are similar to those
described above for Buying Fund because of the similarities in their investment
objectives and strategies. Set forth below is a discussion of certain risks that
differ between Buying Fund and your Fund. You can find more detailed
descriptions of specific risks associated with your Fund in the Selling Fund
Prospectus.
Your Fund is less diversified than Buying Fund. As a result, its
performance is affected to a greater extent by the performance of any individual
security it holds than is the performance of Buying Fund.
Your Fund may also focus its investments in one or more sectors, resulting
in the risk that a certain sector may underperform other sectors or the market
as a whole. If the portfolio managers allocate more of your Fund's portfolio
holdings to a particular economic sector, as compared to Buying Fund, your
Fund's overall performance will be more susceptible to the economic, business,
or other developments which generally affect that sector.
Buying Fund may participate in the IPO market in some market cycles, while
your Fund generally will not purchase IPOs as part of its principal investment
strategy and therefore is generally not subject to the risks associated with
IPOs.
8
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund are redeemable at their net asset value (subject, in
certain circumstances, to a contingent deferred sales charge) at the option of
the shareholder or at the option of Buyer in certain circumstances. Each share
of Buying Fund represents an equal proportionate interest in Buying Fund with
each other share and is entitled to such dividends and distributions out of the
income belonging to Buying Fund as are declared by the Board of Trustees of
Buying Fund. Each share of Buying Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of Buying Fund is
subject to different sales loads, conversion features, exchange privileges and
class-specific expenses. When issued, shares of Buying Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are freely
transferable. Other than the automatic conversion of Class B shares to Class A
shares, there are no conversion rights.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A discussion of the performance of Buying Fund taken from its annual report
to shareholders for the fiscal year ended October 31, 2002 is set forth in
Appendix III to this Proxy Statement/Prospectus.
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
"Financial Highlights" section of the Buying Fund Prospectus, which is attached
to this Proxy Statement/Prospectus as Appendix II.
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Appendix I to this
Proxy Statement/Prospectus.
THE REORGANIZATION
Consummation of the Reorganization (the "Closing") is expected to occur on
November 3, 2003, at 8:00 a.m., Eastern Time (the "Effective Time") on the basis
of values calculated as of the close of regular trading on the New York Stock
Exchange on October 31, 2003 (the "Valuation Date"). At the Effective Time, all
of the assets of your Fund will be delivered to Buyer's custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of the
liabilities of your Fund and delivery by Buyer directly to the holders of record
as of the Effective Time of the issued and outstanding shares of each class of
your Fund of a number of shares of each corresponding class of Buying Fund
(including, if applicable, fractional shares rounded to the nearest thousandth),
having an aggregate net asset value equal to the value of the net assets of your
Fund so transferred, assigned and delivered, all determined and adjusted as
provided in the Agreement. Upon delivery of such assets, Buying Fund will
receive good and marketable title to such assets free and clear of all liens.
In order to ensure continued qualification of your Fund for treatment as a
"regulated investment company" for tax purposes and to eliminate any tax
liability of your Fund arising by reason of undistributed investment company
taxable income or net capital gain, Company will declare on or prior to the
Valuation Date to the shareholders of your Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(a) all of your Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year
9
ended July 31, 2003 and for the short taxable year beginning on August 1, 2003
and ending on the Closing and (b) all of your Fund's net capital gain recognized
in its taxable year ended July 31, 2003 and in such short taxable year (after
reduction for any capital loss carryover).
Buying Fund will proceed with the Reorganization if the shareholders of
your Fund approve the Agreement.
It is anticipated that, prior to the Closing, shares of The AIM Family of
Funds(R) and shares of the INVESCO Family of Funds generally will be able to be
exchanged for shares of the same or a similar class of each other. If this
exchangeability feature is not offered to shareholders prior to the Closing, the
Closing will be postponed until a mutually acceptable date not later than
December 31, 2003 (the "Termination Date").
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Company will redeem the outstanding
shares of your Fund from shareholders in accordance with its Charter and the
Maryland General Corporation Law.
BOARD CONSIDERATIONS
AMVESCAP initially proposed that the Board consider the Reorganization at a
telephone meeting of the Board held on May 5, 2003. Preliminary discussions of
the Reorganization took place at the May 5, 2003 telephone meeting and at an
in-person meeting of the Board held on May 13-15, 2003. A special task force of
the Board met to consider the Reorganization on June 3, 2003. The Board
determined that the Reorganization is advisable and in the best interests of
your Fund and will not dilute the interests of your Fund's shareholders, and
approved the Agreement and the Reorganization, at an in-person meeting of the
Board held on June 9, 2003.
Over the course of the three Board meetings, the Board received from AIM
and INVESCO written materials that contained information concerning your Fund
and Buying Fund, including comparative total return and fee and expense
information, a comparison of investment objectives and strategies of your Fund
and Buying Fund and pro forma expense ratios for Buying Fund. AIM and INVESCO
also provided the Board with written materials concerning the structure of the
proposed Reorganization and the Federal tax consequences of the Reorganization.
In evaluating the Reorganization, the Board considered a number of factors,
including:
- The investment objective and principal investment strategies of your Fund
and Buying Fund.
- The comparative expenses of your Fund and Buying Fund and the pro forma
expenses of Buying Fund after giving effect to the Reorganization.
- The comparative performance of your Fund and Buying Fund.
- The comparative sizes of your Fund and Buying Fund.
- The consequences of the Reorganization for Federal income tax purposes,
including the treatment of capital loss carryforwards, if any, available
to offset future capital gains of both your Fund and Buying Fund.
- Any fees and expenses that will be borne directly or indirectly by your
Fund or Buying Fund in connection with the Reorganization.
The Board noted that AMVESCAP, on behalf of INVESCO, will bear the costs
and expenses incurred in connection with the Reorganization.
The Board also noted that no sales charges or other charges would be
imposed on any of the shares of Buying Fund issued to the shareholders of your
Fund in connection with the Reorganization.
Based on the foregoing and the information presented at the three Board
meetings discussed above, the Board determined that the Reorganization is
advisable and in the best interests of your Fund and will
10
not dilute the interests of your Fund's shareholders. Therefore, the Board
recommends the approval of the Agreement by the shareholders of your Fund at the
Special Meeting.
AMVESCAP initially proposed that the Board of Trustees of Buyer consider
the Reorganization at an in-person meeting of the Board of Trustees held on May
13-14, 2003, at which preliminary discussions of the Reorganization took place.
The Board of Trustees of Buyer determined that the Reorganization is in the best
interests of Buying Fund and will not dilute the interests of Buying Fund
shareholders, and approved the Agreement and the Reorganization, at an in-person
meeting of the Board of Trustees held on June 10-11, 2003.
OTHER TERMS
If any amendment is made to the Agreement which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, the Agreement may be amended without
shareholder approval by mutual agreement of the parties.
Company and Buyer have made representations and warranties in the Agreement
that are customary in matters such as the Reorganization. The obligations of
Company and Buyer pursuant to the Agreement are subject to various conditions,
including the following mutual conditions:
- the assets of your Fund to be acquired by Buying Fund shall constitute at
least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by your Fund immediately
prior to the Reorganization;
- Buyer's Registration Statement on Form N-14 under the Securities Act of
1933 (the "1933 Act") shall have been filed with the SEC and such
Registration Statement shall have become effective, and no stop-order
suspending the effectiveness of the Registration Statement shall have
been issued, and no proceeding for that purpose shall have been initiated
or threatened by the SEC (and not withdrawn or terminated);
- the shareholders of your Fund shall have approved the Agreement; and
- Company and Buyer shall have received an opinion from Ballard Spahr
Andrews & Ingersoll, LLP that the consummation of the transactions
contemplated by the Agreement will not result in the recognition of gain
or loss for Federal income tax purposes for your Fund, Buying Fund or
their shareholders.
The Board of Directors of Company and the Board of Trustees of Buyer may
waive without shareholder approval any default by Company or Buyer or any
failure by Company or Buyer to satisfy any of the above conditions as long as
such a waiver is mutual and will not have a material adverse effect on the
benefits intended under the Agreement for the shareholders of your Fund. The
Agreement may be terminated and the Reorganization may be abandoned at any time
by mutual agreement of the parties, or by either party if the shareholders of
your Fund do not approve the Agreement or if the Closing does not occur on or
before the Termination Date.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and published judicial decisions, all of which are
subject to change. The principal Federal income tax consequences that are
expected to result from the Reorganization, under currently applicable law, are
as follows:
- the Reorganization will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code;
11
- no gain or loss will be recognized by your Fund upon the transfer of its
assets to Buying Fund solely in exchange for shares of Buying Fund and
Buying Fund's assumption of the liabilities of your Fund or on the
distribution of those shares to your Fund's shareholders; notwithstanding
the foregoing, no conclusion is expressed as to the effect of the
Reorganization on your Fund or any shareholder of your Fund with respect
to any asset as to which any unrealized gain or loss is required to be
recognized for Federal income tax purposes at the end of a taxable year
(or on the termination or transfer of a taxpayer's rights (or
obligations) with respect to such asset) under a mark-to-market system of
accounting;
- no gain or loss will be recognized by Buying Fund on its receipt of
assets of your Fund in exchange for shares of Buying Fund issued directly
to your Fund's shareholders;
- no gain or loss will be recognized by any shareholder of your Fund upon
the exchange of shares of your Fund for shares of Buying Fund;
- the tax basis of the shares of Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's tax basis
of the shares of your Fund surrendered in exchange therefor;
- the holding period of the shares of Buying Fund to be received by a
shareholder of your Fund will include the period for which such
shareholder held the shares of your Fund exchanged therefor, provided
that such shares of your Fund are capital assets in the hands of such
shareholder as of the Closing; and
- the tax year of your Fund will end on the date of the Closing, and Buying
Fund will thereafter succeed to and take into account any capital loss
carryover and certain other tax attributes of your Fund, subject to all
relevant conditions and limitations on the use of such tax benefits.
Neither Company nor Buyer has requested or will request an advance ruling
from the IRS as to the Federal tax consequences of the Reorganization. As a
condition to Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a
favorable opinion to Company and Buyer as to the foregoing Federal income tax
consequences of the Reorganization, which opinion will be conditioned upon,
among other things, the accuracy, as of the Effective Time, of certain
representations of Company and Buyer upon which Ballard Spahr Andrews &
Ingersoll, LLP will rely in rendering its opinion. The conclusions reached in
that opinion could be jeopardized if the representations of Company or Buyer are
incorrect in any material respect.
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND'S SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganization will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to Buying Fund of the assets of your Fund will
be the same as the book cost basis of such assets to your Fund.
RIGHTS OF SHAREHOLDERS
GENERAL
Company is a Maryland corporation. Buyer is a Delaware statutory trust.
There is much that is similar between Maryland corporations and Delaware
statutory trusts. For example, the responsibilities, powers and fiduciary duties
of the directors of Company are substantially similar to those of the trustees
of Buyer.
There are, however, certain differences between the two forms of
organization. The operations of Company, as a Maryland corporation, are governed
by its Articles of Incorporation, and any restatements,
12
amendments and supplements thereto (the "Articles of Incorporation"), and
applicable Maryland law. The operations of Buyer, as a Delaware statutory trust,
are governed by its Amended and Restated Agreement and Declaration of Trust, as
amended (the "Declaration of Trust"), and applicable Delaware law.
LIABILITY OF SHAREHOLDERS
Shareholders of a Maryland corporation generally do not have personal
liability for the corporation's obligations, except that a shareholder may be
liable to the extent that he or she receives any distribution which exceeds the
amount which he or she could properly receive under Maryland law or where such
liability is necessary to prevent fraud.
The Delaware Statutory Trust Act provides that shareholders of a Delaware
statutory trust shall be entitled to the same limitations of liability extended
to shareholders of private for-profit corporations. There is, however, a remote
possibility that, under certain circumstances, shareholders of a Delaware
statutory trust might be held personally liable for the trust's obligations to
the extent the courts of another state that does not recognize such limited
liability were to apply the laws of such state to a controversy involving such
obligations. The Declaration of Trust provides that shareholders of the Trust
shall not be subject to any personal liability for acts or obligations of the
Trust and that every written agreement, obligation or other undertaking made or
issued by the Trust shall contain a provision to the effect that shareholders
are not personally liable thereunder. In addition, the Declaration of Trust
provides for indemnification out of the Trust's property for any shareholder
held personally liable solely by reason of his or her being or having been a
shareholder. Therefore, the risk of any shareholder incurring financial loss
beyond his or her investment due to shareholder liability is limited to
circumstances in which the Trust itself is unable to meet its obligations and
the express disclaimer of shareholder liabilities is determined not to be
effective. Given the nature of the assets and operations of the Trust, the
possibility of the Trust being unable to meet its obligations is considered
remote, and even if a claim were brought against the Trust and a court
determined that shareholders were personally liable, it would likely not impose
a material obligation on a shareholder.
ELECTION OF DIRECTORS/TRUSTEES; TERMS
The shareholders of Company have elected a majority of the directors of
Company. Each director serves until a successor is elected, subject to his or
her earlier death, resignation or removal in the manner provided by law (see
below). In the case of a vacancy on the Board of Directors (other than a vacancy
created by removal by the shareholders), a majority of the directors may appoint
a successor to fill such vacancy. The right of the Board of Directors to appoint
directors to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
The shareholders of Buyer have elected a majority of the trustees of Buyer.
Such trustees serve for the life of Buyer, subject to their earlier death,
incapacitation, resignation, retirement or removal (see below). In the case of
any vacancy on the Board of Trustees, a majority of the trustees may appoint a
successor to fill such vacancy. The right of the Board of Trustees to appoint
trustees to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
REMOVAL OF DIRECTORS/TRUSTEES
A director of Company may be removed by the affirmative vote of a majority
of the holders of a majority of the outstanding shares of Company.
A trustee of Buyer may be removed at any time by a written instrument
signed by at least two-thirds of the trustees or by vote of two-thirds of the
outstanding shares of Buyer.
MEETINGS OF SHAREHOLDERS
Company is not required to hold annual meetings of shareholders and does
not intend to do so unless required by the 1940 Act. The bylaws of Company
provide that a special meeting of shareholders may be
13
called by the president or, in his or her absence, the vice-president or by a
majority of the Board of Directors or holders of shares entitled to cast at
least 10% of the votes entitled to be cast at the special meeting. Requests for
special meetings must, among other things, state the purpose of such meeting and
the matters to be voted upon. No special meeting need be called to consider any
matter previously voted upon at a special meeting called by the shareholders
during the preceding twelve months, unless requested by a majority of all shares
entitled to vote at such meeting.
Buyer is not required to hold annual meetings of shareholders unless
required by the 1940 Act and does not intend to do so. The bylaws of Buyer
provide that any trustee may call a special meeting of shareholders and the
trustees shall call a special meeting of the shareholders solely for the purpose
of removing one or more trustees upon written request of the holders of not less
than 10% of the outstanding shares of Buyer. Special meetings may be called for
the purpose of electing trustees or for any other action requiring shareholder
approval, or for any matter deemed by the trustees to be necessary or desirable.
LIABILITY OF DIRECTORS/TRUSTEES AND OFFICERS; INDEMNIFICATION
Maryland law permits a corporation to eliminate liability of its directors
and officers to the corporation or its stockholders, except for liability
arising from receipt of an improper benefit or profit and from active and
deliberate dishonesty. The Articles of Incorporation eliminate director and
officer liability to the fullest extent permitted under Maryland law. Under
Maryland law, indemnification of a corporation's directors and officers is
mandatory if a director or officer has been successful on the merits or
otherwise in the defense of certain proceedings. Maryland law permits
indemnification for other matters unless it is established that the act or
omission giving rise to the proceeding was committed in bad faith, a result of
active and deliberate dishonesty, or one in which a director or officer actually
received an improper benefit.
Delaware law provides that trustees of a statutory trust shall not be
liable to the statutory trust or its shareholders for acting in good faith
reliance on the provisions of its governing instrument and that the trustee's
liabilities may be expanded or restricted by such instrument. Under the
Declaration of Trust, the trustees and officers of Buyer are not liable for any
act or omission or any conduct whatsoever in their capacity as trustees, except
for liability to the trust or shareholders due to willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of trustee. Delaware law allows a statutory trust to
indemnify and hold harmless any trustee or other person against any and all
claims and demands. The Declaration of Trust provides for the indemnification of
its trustees and officers to the extent that such trustees and officers act in
good faith and reasonably believe that their conduct is in the best interests of
Buyer, except with respect to any matter in which it has been determined that
such trustee acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
DISSOLUTION AND TERMINATION
Maryland law provides that Company may be dissolved by the vote of a
majority of the Board of Directors and two-thirds of the shares entitled to vote
on the dissolution; however the Articles of Incorporation reduce the required
shareholder vote from two-thirds to a majority of the shares entitled to vote on
the dissolution.
Pursuant to the Declaration of Trust, Buyer or any series or class of
shares of beneficial interest in Buyer may be terminated by: (1) a majority
shareholder vote of Buyer or the affected series or class, respectively; or (2)
if there are fewer than 100 shareholders of record of Buyer or of such
terminating series or class, the trustees pursuant to written notice to the
shareholders of Buyer or the affected series or class.
VOTING RIGHTS OF SHAREHOLDERS
Shareholders of a Maryland corporation such as Company are entitled to vote
on, among other things, those matters which effect fundamental changes in the
corporate structure (such as a merger, consolidation or sale of substantially
all of the assets of the corporation) as provided by Maryland law.
14
The Declaration of Trust grants shareholders power to vote only with
respect to the following: (i) election of trustees, provided that a meeting of
shareholders has been called for that purpose; (ii) removal of trustees,
provided that a meeting of shareholders has been called for that purpose; (iii)
termination of Buyer or a series or class of its shares of beneficial interest,
provided that a meeting of shareholders has been called for that purpose; (iv)
sale of all or substantially all of the assets of Buyer or one of its investment
portfolios; (v) merger or consolidation of Buyer or any of its investment
portfolios, with certain exceptions; (vi) approval of any amendments to
shareholders' voting rights under the Declaration of Trust; and (vii) approval
of such additional matters as may be required by law or as the trustees, in
their sole discretion, shall determine.
DISSENTERS' RIGHTS
Under Maryland law, shareholders may not demand the fair value of their
shares from the successor company in a transaction involving the transfer of the
corporation's assets and are, therefore, bound by the terms of the transaction
if the stock is that of an open-end investment company registered with the SEC
under the 1940 Act and the value placed on the stock in the transaction is its
net asset value.
Neither Delaware law nor the Declaration of Trust confers upon shareholders
rights of appraisal or dissenters' rights.
AMENDMENTS TO ORGANIZATION DOCUMENTS
Consistent with Maryland law, Company reserves the right to amend, alter,
change or repeal any provision contained in the Articles of Incorporation in the
manner prescribed by statute, including any amendment that alters the contract
rights, as expressly set forth in the Articles of Incorporation, of any
outstanding stock, and all rights conferred on shareholders are granted subject
to this reservation. The Board of Directors of Company may approve amendments to
the Articles of Incorporation to classify or reclassify unissued shares of a
class of stock without shareholder approval. Other amendments to the Articles of
Incorporation may be adopted if approved by the affirmative vote of a majority
of all the votes entitled to be cast on the matter. The directors shall have the
power to alter, amend or repeal the bylaws of Company or adopt new bylaws at any
time.
Consistent with Delaware law, the Board of Trustees of Buyer may, without
shareholder approval, amend the Declaration of Trust at any time, except to
eliminate any voting rights pertaining to the shares of Buyer, without approval
of the majority of the shares of Buyer. The trustees shall have the power to
alter, amend or repeal the bylaws of Buyer or adopt new bylaws at any time.
15
CAPITALIZATION
The following table sets forth, as of March 31, 2003, (i) the
capitalization of each class of shares of your Fund, (ii) the capitalization of
each class of shares of Buying Fund, and (iii) the pro forma capitalization of
each class of shares of Buying Fund as adjusted to give effect to the
transactions contemplated by the Agreement.
<Table>
<Caption>
PRO FORMA
YOUR FUND YOUR FUND BUYING FUND BUYING FUND
CLASS A SHARES CLASS K SHARES(1) CLASS A SHARES CLASS A SHARES
-------------- ----------------- -------------- --------------
Net Assets......................... $877,724 $1,582,635 $104,405,822 $106,866,181
Shares Outstanding................. 587,908 1,150,757 14,691,139 15,037,345
Net Asset Value Per Share.......... $ 1.49 $ 1.38 $ 7.11 $ 7.11
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS B SHARES CLASS B SHARES CLASS B SHARES
-------------- -------------- --------------
Net Assets.......................................... $42,038 $98,700,179 $98,742,217
Shares Outstanding.................................. 28,163 14,262,672 14,268,747
Net Asset Value Per Share........................... $ 1.49 $ 6.92 $ 6.92
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS C SHARES CLASS C SHARES CLASS C SHARES
-------------- -------------- --------------
Net Assets.......................................... $2,620,558 $34,180,628 $36,801,186
Shares Outstanding.................................. 1,794,933 4,936,002 5,314,439
Net Asset Value Per Share........................... $ 1.46 $ 6.92 $ 6.92
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INVESTOR CLASS INVESTOR CLASS INVESTOR CLASS
SHARES SHARES(2) SHARES
-------------- -------------- --------------
Net Assets.......................................... $418,616,450 0 $418,616,450
Shares Outstanding.................................. 278,213,858 0 58,905,992
Net Asset Value Per Share........................... $ 1.50 $7.11 $ 7.11
</Table>
<Table>
<Caption>
PRO FORMA
BUYING FUND BUYING FUND
CLASS R SHARES CLASS R SHARES
-------------- --------------
Net Assets.................................................. $731,519 $731,519
Shares Outstanding.......................................... 102,886 102,886
Net Asset Value Per Share................................... $ 7.11 $ 7.11
</Table>
- ---------------
(1) Shareholders of Class K shares of your Fund are receiving Class A shares of
Buying Fund in the Reorganization.
(2) As of March 31, 2003, Investor Class shares of Buying Fund did not exist.
Investor Class shares were added to Buying Fund in connection with the
Reorganization. Investor Class shares of Buying Fund will commence
operations at the net asset value per share of Buying Fund's Class A shares.
Therefore, the Net Asset Value Per Share shown for Investor Class shares of
Buying Fund in the table above is that of Buying Fund's Class A shares.
INTERESTS OF CERTAIN PERSONS
If the Reorganization is consummated, AIM, as the investment advisor of
Buying Fund, will gain approximately $424 million in additional assets under
management (based on your Fund's net assets as of March 31, 2003), upon which
AIM will receive advisory fees. Exhibit C sets forth AIM's advisory fees
applicable to Buying Fund.
16
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the Reorganization
will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market
Street, Philadelphia, PA 19103-7599.
ADDITIONAL INFORMATION ABOUT
BUYING FUND AND YOUR FUND
For more information with respect to Buying Fund concerning the following
topics, please refer to the following sections of the Buying Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference and
which is attached to this Proxy Statement/Prospectus as Appendix II: (i) see
"Performance Information" for more information about the performance of Buying
Fund; (ii) see "Fund Management" for more information about the management of
Buying Fund; (iii) see "Other Information" for more information about Buying
Fund's policy with respect to dividends and distributions; and (iv) see "Other
Information" and "Shareholder Information" for more information about sales
charges, including contingent deferred sales charges, applicable to shares of
Buying Fund, the pricing, purchase, redemption and repurchase of shares of
Buying Fund, tax consequences to shareholders of various transactions in shares
of Buying Fund, distribution arrangements and the multiple class structure of
Buying Fund.
For more information with respect to your Fund concerning the following
topics, please refer to the following sections of the Selling Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference: (i)
see "Fund Performance" for more information about the performance of your Fund;
(ii) see "Fund Management" and "Portfolio Managers" for more information about
the management of your Fund; (iii) see "Share Price" for more information about
the pricing of shares of your Fund; (iv) see "Taxes" for more information about
tax consequences to shareholders of various transactions in shares of your Fund;
(v) see "Dividends And Capital Gain Distributions" for more information about
your Fund's policy with respect to dividends and distributions; and (vi) see
"How To Buy Shares", "How To Sell Shares" and "Your Account Services" for more
information about sales charges, including contingent deferred sales charges,
applicable to shares of your Fund, the purchase, redemption and repurchase of
shares of your Fund, distribution arrangements and the multiple class structure
of your Fund.
INFORMATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual reports which Company
and Buyer have filed with the SEC pursuant to the requirements of the 1933 Act
and the 1940 Act, to which reference is hereby made. The SEC file number of
Company's registration statement containing the Selling Fund Prospectus and
related Statement of Additional Information is Registration No. 811-1474. Such
Selling Fund Prospectus is incorporated herein by reference. The SEC file number
for Buyer's registration statement containing the Buying Fund Prospectus and
related Statement of Additional Information is Registration No. 811-1424. Such
Buying Fund Prospectus is incorporated herein by reference.
Company and Buyer are subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
file reports and other information with the SEC. Reports, proxy material,
registration statements and other information filed by Company and Buyer
(including the Registration Statement of Buyer relating to Buying Fund on Form
N-14 of which this Proxy Statement/Prospectus is a part) may be inspected
without charge and copied at the public reference facilities maintained by the
SEC at Room 1014, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549,
and at the following regional office of the SEC: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained from
the Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC
20549, at the prescribed rates. The SEC maintains a
17
website at www.sec.gov that contains information regarding Company and Buyer and
other registrants that file electronically with the SEC.
PROPOSAL 2 --
ELECTION OF DIRECTORS
BACKGROUND
In considering the integration initiative proposed by AMVESCAP, the
independent directors of the INVESCO Funds and the independent
directors/trustees of the AIM Funds determined that the shareholders of all the
AIM Funds and the INVESCO Funds would benefit if a unified board of
directors/trustees was responsible for overseeing the operation of both the AIM
Funds and the INVESCO Funds and the services provided by AIM, INVESCO and their
affiliates. Accordingly, the Boards of Directors of the INVESCO Funds and the
Boards of Directors/Trustees of the AIM Funds agreed to combine the separate
boards and create a unified board of directors/trustees.
You are being asked to approve Proposal 2 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from having
a combined board of directors.
STRUCTURE OF THE BOARD OF DIRECTORS
The Board currently consists of the following 10 persons: Bob R. Baker,
Sueann Ambron, Victor L. Andrews, Lawrence H. Budner, James T. Bunch, Raymond R.
Cunningham, Gerald L. Lewis, John W. McIntyre, Larry Soll, Ph.D. and Mark H.
Williamson. Eight of the current directors are "independent," meaning they are
not "interested persons" of Company within the meaning of the 1940 Act. Two of
the current directors are "interested persons" because of their business and
financial relationships with Company and INVESCO, its investment advisor, and/or
INVESCO's parent, AMVESCAP. Five of the current directors have declined to stand
for re-election as directors of Company. Therefore, their terms as directors of
Company will end upon the election and qualification of their successor
directors at the Special Meeting.
NOMINEES FOR DIRECTORS
Company's nominating committee (which consists solely of independent
directors) has approved the nomination of five of the 10 current directors, as
set forth below, each to serve as director until his successor is elected and
qualified. In addition, the nominating committee has approved the nomination of
11 new nominees, as set forth below, each to serve as director until his or her
successor is elected and qualified. These 11 new nominees were nominated to
effect the proposed combination of the Boards of Directors/Trustees of the AIM
Funds and the Boards of Directors of the INVESCO Funds.
Each nominee who is a current director serves as a director of the ten
registered investment companies comprising the INVESCO Funds. Each nominee who
is a current director oversees 46 portfolios which comprise the INVESCO Funds.
The business address of each nominee who is a current director is 4350 South
Monaco Street, Denver, Colorado 80237.
Each new nominee serves as a director or trustee of the 17 registered
investment companies comprising the AIM Funds. Each new nominee currently
oversees 86 portfolios which comprise the AIM Funds. The business address of
each new nominee is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
If elected, each nominee would oversee a total of 27 registered investment
companies currently comprising 132 portfolios.
18
NOMINEES WHO CURRENTLY ARE INDEPENDENT DIRECTORS
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S) DURING
NAME AND YEAR OF BIRTH SINCE PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- ------------------------------ --------------------------
Bob R. Baker -- 1936...... 1983 Consultant (2000-present); None
formerly, President and Chief
Executive Officer (1988 -
2000) of AMC Cancer Research
Center, Denver, Colorado;
until mid-December 1988, Vice
Chairman of the Board of First
Columbia Financial
Corporation, Englewood,
Colorado; formerly, Chairman
of the Board and Chief
Executive Officer of First
Columbia Financial
Corporation.
James T. Bunch -- 1942.... 2000 Co-President and Founder of None
Green, Manning & Bunch Ltd.,
Denver, Colorado
(1988-present) (investment
banking firm); Director and
Vice President of Western Golf
Association and Evans Scholars
Foundation; Executive
Committee, United States Golf
Association; formerly, General
Counsel and Director of
Boettcher & Co., Denver,
Colorado; and formerly,
Chairman and Managing Partner,
law firm of Davis, Graham &
Stubbs, Denver, Colorado.
Gerald J. Lewis -- 1933... 2000 Chairman of Lawsuit Resolution General Chemical Group,
Services, San Diego, Inc., Hampdon, New
California (1987-present); Hampshire (1996-present),
formerly, Associate Justice of Wheelabrator Technologies,
the California Court of Inc. (waste management
Appeals; and Of Counsel, law company), Fisher
firm of Latham & Watkins, San Scientific, Inc.
Diego, California (1987-1997). (laboratory supplies),
Henley Manufacturing,
Inc., and California
Coastal Properties, Inc.
Larry Soll,
Ph.D. -- 1942........... 1997 Retired; formerly, Chairman of Synergen Inc. (since
the Board (1987-1994), Chief incorporation in 1982) and
Executive Officer (1982-1989 Isis Pharmaceuticals, Inc.
and 1993-1994) and President
(1982-1989) of Synergen Inc.
(biotechnology company); and
formerly, trustee of INVESCO
Global Health Sciences Fund.
</Table>
19
NOMINEE WHO CURRENTLY IS AN INTERESTED PERSON
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S) DURING
NAME AND YEAR OF BIRTH SINCE PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- ------------------------------ --------------------------
Mark H. Williamson(1) --
1951.................... 1998 Director, President and Chief Director/trustee of each
Executive Officer, A I M of the 17 A I M Funds
Management Group Inc.;
Director, Chairman and
President, A I M Advisors,
Inc. (registered investment
advisor); Director, A I M
Distributors, Inc. (registered
broker dealer); and Chief
Executive Officer of the A I M
Division of AMVESCAP PLC
(2003-present); formerly,
Chief Executive Officer,
Managed Products Division,
AMVESCAP PLC (2001-2002);
Chairman of the Board
(1998-2002), President
(1998-2002) and Chief
Executive Officer (1998-2002)
of INVESCO Funds Group, Inc.
(registered investment
advisor) and INVESCO
Distributors, Inc. (registered
broker dealer); Chief
Operating Officer and Chairman
of the Board of INVESCO Global
Health Sciences Fund; Chairman
and Chief Executive Officer of
NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
</Table>
- ---------------
(1) Mr. Williamson is considered an interested person of Company because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, Company.
NEW NOMINEES WHO WILL BE INDEPENDENT DIRECTORS
<Table>
<Caption>
PRINCIPAL OCCUPATION(S) DURING
NAME AND YEAR OF BIRTH PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ------------------------------ --------------------------
Frank S. Bayley -- 1939...... Of Counsel, law firm of Baker Badgley Funds, Inc.
& McKenzie (registered investment
company)
Bruce L. Crockett -- 1944.... Chairman, Crockett Technology ACE Limited (insurance
Associates (technology company); Captaris, Inc.
consulting company) and (unified messaging provider)
Captaris, Inc. (unified
messaging provider)
</Table>
20
<Table>
<Caption>
PRINCIPAL OCCUPATION(S) DURING
NAME AND YEAR OF BIRTH PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ------------------------------ --------------------------
Albert R. Dowden -- 1941..... Director of a number of public Cortland Trust, Inc.
and private business (Chairman) (registered
corporations, including the investment company); Annuity
Boss Group, Ltd. (private and Life Re (Holdings), Ltd.
investment and management) and (insurance company)
Magellan Insurance Company;
formerly, President, Chief
Executive Officer and
Director, Volvo Group North
America, Inc.; Senior Vice
President, AB Volvo and
director of various affiliated
Volvo Group companies
Edward K. Dunn, Formerly, Chairman, Mercantile None
Jr. -- 1935................ Mortgage Corp.; President and
Chief Operating Officer,
Mercantile-Safe Deposit &
Trust Co.; and President,
Mercantile Bankshares Corp.
Jack M. Fields -- 1952....... Chief Executive Officer, Administaff
Twenty First Century Group,
Inc. (government affairs
company) and Texana Timber LP
Carl Frischling -- 1937...... Partner, law firm of Kramer Cortland Trust, Inc.
Levin Naftalis & Frankel LLP (registered investment
company)
Prema Mathai-Davis -- 1950... Formerly, Chief Executive None
Officer, YWCA of the USA
Lewis F. Pennock -- 1942..... Partner, law firm of Pennock & None
Cooper
Ruth H. Quigley -- 1935...... Retired None
Louis S. Sklar -- 1939....... Executive Vice President, None
Development and Operations,
Hines Interests Limited
Partnership (real estate
development company)
</Table>
21
NEW NOMINEE WHO WILL BE AN INTERESTED PERSON
<Table>
<Caption>
PRINCIPAL OCCUPATION(S) DURING
NAME AND YEAR OF BIRTH PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ------------------------------ --------------------------
Robert H.
Graham(1) -- 1946.......... Director and Chairman, A I M None
Management Group Inc.
(financial services holding
company); and Director and
Vice Chairman, AMVESCAP PLC
(parent of A I M and a global
investment management firm)
and Chairman, AMVESCAP
PLC - A I M Division;
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), A I M Fund
Services, Inc. (registered
transfer agent), and Fund
Management Company (registered
broker dealer); and Chief
Executive Officer AMVESCAP
PLC - Managed Products
</Table>
- ---------------
(1) Mr. Graham will be considered an interested person of Company because he is
a director of AMVESCAP PLC, parent of the advisor to, and principal
underwriter of, Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 2
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" these 16 nominees.
CURRENT COMMITTEES OF THE BOARD
The Board currently has nine standing committees: an audit committee, an
investments and management liaison committee, a brokerage committee, a
derivatives committee, a valuation committee, a legal committee, a compensation
committee, a retirement plan committee and a nominating committee.
AUDIT COMMITTEE
Company has an audit committee established for the purpose of overseeing
the accounting and financial reporting process of Company and audits of the
financial statements of Company. The audit committee is comprised entirely of
independent directors. The committee meets quarterly with Company's independent
accountants and officers to review accounting principles used by Company, the
adequacy of internal controls, the responsibilities and fees of the independent
accountants, and other matters. The current members of the audit committee are
Messrs. Baker, Budner, Lewis and McIntyre.
22
EXECUTIVE COMMITTEE
Company has an executive committee. On occasion, the committee acts upon
the current and ordinary business of Company between the meetings of the Board.
Except for certain powers which, under applicable law, may only be exercised by
the full Board, the committee may exercise all powers and authority of the Board
in the management of the business of Company. All decisions are subsequently
submitted for ratification by the Board. The current members of the executive
committee are Messrs. Baker, Bunch, McIntyre and Williamson.
INVESTMENTS AND MANAGEMENT LIAISON COMMITTEE
Company has an investments and management liaison committee which meets
quarterly with various management personnel of INVESCO in order to facilitate
better understanding of management and operations of Company, and to review
investment, legal and operational matters which have been assigned to the
committee by the Board, in furtherance of the Board's overall duty of
supervision. The current members of the investments and management liaison
committee are Messrs. Andrews, Baker, Bunch, Soll and Dr. Ambron.
BROKERAGE COMMITTEE
Company has a brokerage committee. The committee meets periodically to
review soft dollar and other brokerage transactions by your Fund and to review
policies and procedures of INVESCO with respect to brokerage transactions. It
reports on these matters to the Board. The current members of the brokerage
committee are Messrs. Budner, Bunch and McIntyre.
DERIVATIVES COMMITTEE
Company has a derivatives committee. The committee meets periodically to
review derivatives investments made by your Fund. It monitors the use of
derivatives by your Fund and the procedures utilized by INVESCO to ensure that
the use of such instruments follows the policies adopted by the Board. The
committee reports on these matters to the Board. The current members of the
derivatives committee are Messrs. Andrews, Lewis and Soll.
NOMINATING COMMITTEE
Company has a nominating committee. The committee meets periodically to
review and nominate candidates for positions as independent directors to fill
vacancies on the board of directors. The nominating committee will consider
nominees recommended by shareholders. If a shareholder desires to nominate a
candidate, the shareholder must submit a request in writing to the Chairman of
the nominating committee. The current members of the nominating committee are
Messrs. Baker, Bunch, Lewis and Soll.
LEGAL COMMITTEE
Company has a legal committee. The committee meets periodically to review
compensation arrangements with counsel to Company and to its independent
directors. The committee reports on these matters to the Board. The current
members of the legal committee are Messrs. Bunch, Lewis and McIntyre.
COMPENSATION COMMITTEE
Company has a compensation committee. The committee meets periodically to
review compensation arrangements of Company's independent directors. The
committee reports on these matters to the Board. The current members of the
compensation committee are Messrs. Andrews, Baker, Budner and Soll.
23
VALUATION COMMITTEE
Company has a valuation committee. The committee meets periodically to
review valuation issues regarding investments made by your Fund. The committee
reports on these matters to the Board. The current members of the valuation
committee are Messrs. Baker, Bunch, Cunningham and McIntyre.
RETIREMENT PLAN COMMITTEE
Company has a retirement plan committee. The committee meets periodically
to review Company's retirement arrangements for its independent directors. The
committee reports on these matters to the Board. The current members of the
retirement plan committee are Messrs. Andrews, Baker, Budner, Cunningham and
Soll.
BOARD AND COMMITTEE MEETING ATTENDANCE
During the fiscal year ended July 31, 2003, the Board met eight times, the
audit committee met four times, the executive committee did not meet, the
investments and management liaison committee met four times, the brokerage
committee met four times, the derivatives committee met four times, the
nominating committee met four times, the legal committee met three times, the
compensation committee met two times, and the valuation and retirement plan
committees did not meet. All of the current directors then serving attended at
least 75% of the meetings of the Board or applicable committee during the most
recent fiscal year.
FUTURE COMMITTEE STRUCTURE
As a result of the combination of the Boards of Directors of the INVESCO
Funds and the Boards of Directors/Trustees of the AIM Funds, it is expected that
the Board will adopt a committee structure that is the same as that which is in
effect for the AIM Funds, so that the Board will have four committees: an Audit
Committee, a Committee on Directors/Trustees, an Investments Committee and a
Valuation Committee. These committees are described below.
AUDIT COMMITTEE
The Audit Committee will be comprised entirely of independent directors.
The Audit Committee will be responsible for: (i) the appointment, compensation
and oversight of any independent auditors employed by your Fund (including
resolution of disagreements between your Fund's management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work; (ii) overseeing the financial reporting process of your
Fund; (iii) monitoring the process and the resulting financial statements
prepared by management to promote accuracy of financial reporting and asset
valuation; and (iv) pre-approving permissible non-audit services that are
provided to your Fund by its independent auditors.
COMMITTEE ON DIRECTORS/TRUSTEES
The Committee on Directors/Trustees will be comprised entirely of
independent directors. It will be responsible for: (i) nominating persons who
are not interested persons of Company for election or appointment: (a) as
additions to the Board, (b) to fill vacancies which, from time to time, may
occur in the Board and (c) for election by shareholders of Company at meetings
called for the election of directors; (ii) nominating persons who are not
interested persons of Company for selection as members of each committee of the
Board, including, without limitation, the audit committee, the committee on
directors, the investments committee and the valuation committee, and to
nominate persons for selection as chair and vice chair of each such committee;
(iii) reviewing from time to time the compensation payable to the independent
directors and making recommendations to the Board regarding compensation; (iv)
reviewing and evaluating from time to time the functioning of the Board and the
various committees of the Board; (v) selecting independent legal counsel to the
independent trustees and approving the compensation paid
24
to independent legal counsel; and (vi) approving the compensation paid to
independent counsel and other advisers, if any, to the Audit Committee of
Company.
INVESTMENTS COMMITTEE
The Investments Committee will be responsible for: (i) overseeing the
advisor's investment-related compliance systems and procedures to ensure their
continued adequacy; and (ii) considering and acting, on an interim basis between
meetings of the full Board, on investment-related matters requiring Board
consideration, including dividends and distributions, brokerage policies and
pricing matters.
VALUATION COMMITTEE
The Valuation Committee will be responsible for: (i) periodically reviewing
the advisor's procedures for valuing securities ("Procedures"), and making any
recommendations to the advisor with respect thereto; (ii) reviewing proposed
changes to the Procedures recommended by the advisor from time to time; (iii)
periodically reviewing information provided by the advisor regarding industry
developments in connection with valuation; (iv) periodically reviewing
information from the advisor regarding fair value and liquidity determinations
made pursuant to the Procedures, and making recommendations to the full Board in
connection therewith (whether such information is provided only to the committee
or to the committee and the full Board simultaneously); and (v) if requested by
the advisor, assisting the advisor's internal valuation committee and/or the
full Board in resolving particular valuation anomalies.
DIRECTOR'S COMPENSATION
Each director who is independent is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director of other INVESCO Funds. Each such director receives a fee,
allocated among the INVESCO Funds for which he or she serves as a director,
which consists of an annual retainer component and a meeting fee component.
Information regarding compensation paid or accrued for each continuing
director of Company who was not affiliated with INVESCO during the year ended
December 31, 2002 is found in Exhibit D.
CURRENT RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds have adopted a Retirement Plan
(the "Retirement Plan") and a Deferred Retirement Plan Account Agreement (the
"Account Agreement"). Certain of the independent directors of Company
participate either in the Retirement Plan or in the Account Agreement. Under the
Retirement Plan and the Account Agreement, each participating director who is
not an interested person of the INVESCO Funds and who has served for at least
five years (a "Participating Qualified Director") is entitled to receive a
benefit upon retirement.
Commencing with attainment of age 72 by a Participating Qualified Director
who has elected to participate in the Retirement Plan and who voluntarily
retires prior to reaching age 72, and commencing with the date of retirement of
a Participating Qualified Director who retires upon reaching age 72 or at any
time subsequent to age 72 up to the mandatory retirement age of 75, a
Participating Qualified Director shall receive quarterly payments at an annual
rate of $34,000 (the "Annual Benefit"). Directors who became Participating
Qualified Directors on or before January 1, 2001 who retire upon reaching age 72
(or at age 73 or 74, if the director extends his retirement date for one to two
years, but less than three years) are entitled to payment for one year of twice
the Annual Benefit. Payment of the Annual Benefit will continue for the
remainder of the Participating Qualified Director's life or ten years, whichever
is longer. If a Participating Qualified Director becomes disabled before the
date upon which his or her Annual Benefit payments would normally commence, such
benefit payments will begin. If a Participating Qualified Director dies prior to
the receipt of the Annual Benefit for ten years, the Annual Benefit will be paid
to his/her beneficiary or estate until an aggregate of ten years of payments has
been received. A Participating Qualified Director who has elected to participate
in the Retirement Plan receives no benefits from the Account Agreement. The cost
of the Retirement Plan will be allocated among the INVESCO
25
Funds in a manner determined to be fair and equitable by the committee
administering the Retirement Plan.
A Participating Qualified Director who has elected to participate in the
Account Agreement receives no benefits from the Retirement Plan. Pursuant to the
terms of the Account Agreement, a deferred retirement account is established for
a Qualified Participating Director (the "Account"). The dollar amount credited
to the Account is in an amount which, based upon an assumed account appreciation
rate per annum (currently 5.75%), will provide the Participating Qualified
Director with an account value of $340,000 upon reaching age 72. Once the
initial dollar amount of the Account is established, Account proceeds are
invested in shares of one or more of the INVESCO Funds. The value of the Account
fluctuates with the appreciation or depreciation in the shares of the INVESCO
Funds owned by the Account and Account shares are increased by the amount of any
dividends and capital gains distributions paid with respect to the shares. Upon
retirement, a Participating Qualified Director is entitled to receive the value
in the Account either in a lump sum payment or in payments over a stipulated
number of months. The Account value continues to fluctuate as long as monthly
payments are made. If a Participating Qualified Director becomes disabled or
dies prior to his or her retirement and if, at the time of disability or death,
the value of a Participating Qualified Director's Account is less than $340,000,
the Director or the Director's beneficiary or estate will not be paid the value
in the Account but will receive $34,000 per annum for ten years. If, at the time
of the Participating Qualified Director's death or disability prior to
retirement, the value in the director's Account is $340,000 or more, the
Participating Qualified Director or his or her estate or beneficiary will
receive the value in the Account either in a lump sum or in quarterly
installments. The cost of providing the initial dollar amount to be allocated to
a Participating Qualified Director's Account and the cost of payment of any
death or disability benefit that aggregates more than the Account value will be
allocated among the INVESCO Funds in a manner determined to be fair and
equitable by a committee appointed to administer the Account Agreement.
Company has no stock options, pension, or retirement plans for affiliated
directors of the INVESCO Funds or for management or other personnel, and pays no
salary or compensation to any of its officers.
CURRENT DEFERRED COMPENSATION PLAN
The independent directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds.
Certain of the deferred amounts have been invested in the shares of all INVESCO
Funds except INVESCO Funds offered by INVESCO Variable Investment Funds, Inc.,
in which the directors are legally precluded from investing. Each independent
director may, therefore, be deemed to have an indirect interest in shares of
each such INVESCO Fund, in addition to any INVESCO Fund shares the independent
director may own either directly or beneficially. Each of the independent
directors has agreed to invest a minimum of $100,000 of his or her own resources
in shares of the INVESCO Funds.
Compensation contributed to a deferred compensation plan may constitute all
or a portion of this $100,000 commitment.
NEW RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds intend to adopt a new
retirement plan (the "New Retirement Plan") for the directors of Company who are
not affiliated with INVESCO, which will be effective as of the date of the
Special Meeting. The New Retirement Plan also will be adopted by the Boards of
Directors/Trustees of the AIM Funds. The reason for adoption of the New
Retirement Plan is to provide for consistency in the retirement plans for the
Boards of Directors of the INVESCO Funds and the Boards of Directors/Trustees of
the AIM Funds. The retirement plan will include a retirement policy as well as
retirement benefits for independent directors.
26
The retirement policy will permit each independent director to serve until
December 31 of the year in which the director turns 72. A majority of the
directors will be able to extend from time to time the retirement date of a
director.
Annual retirement benefits will be available to each independent director
of Company and/or the other INVESCO Funds and AIM Funds (each, a "Covered Fund")
who has at least five years of credited service as a director (including service
to a predecessor fund) for a Covered Fund. The retirement benefits will equal
75% of the director's annual retainer paid or accrued by any Covered Fund to
such director during the twelve-month period prior to retirement, including the
amount of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the director. The annual retirement benefits will
be payable in quarterly installments for a number of years equal to the lesser
of (i) ten or (ii) the number of such director's credited years of service. A
death benefit will also be available under the New Retirement Plan that will
provide a surviving spouse with a quarterly installment of 50% of a deceased
director's retirement benefits for the same length of time that the director
would have received the benefits based on his or her service. A director must
have attained the age of 65 (55 in the event of death or disability) to receive
any retirement benefit. Payment of benefits under the New Retirement Plan will
not be secured or funded by Company.
Upon the effectiveness of the New Retirement Plan, the independent
directors will cease to accrue benefits under the Retirement Plan and the
Account Agreement. Messrs. Baker and Soll will not receive any additional
benefits under the Retirement Plan or the Account Agreement, but will be
entitled to amounts which have been previously funded under the Retirement Plan
or the Account Agreement for their benefit. An affiliate of INVESCO will
reimburse Company for any amounts funded by Company for Messrs. Baker and Soll
under the Retirement Plan and the Account Agreement.
NEW DEFERRED COMPENSATION AGREEMENTS
The Boards of Directors of the INVESCO Funds intend to adopt new deferred
compensation agreements which are consistent with the deferred compensation
agreements adopted by the Boards of Directors/Trustees of the AIM Funds.
Pursuant to the new deferred compensation agreements ("New Compensation
Agreements"), a director will have the option to elect to defer receipt of up to
100% of his or her compensation payable by Company, and such amounts are placed
into a deferral account. The deferring directors will have the option to select
various INVESCO Funds in which all or part of their deferral account will be
deemed to be invested. The list of funds may change from time to time and may
include AIM Funds in addition to INVESCO Funds. Distributions from the deferring
directors' deferral accounts will be paid in cash, generally in equal quarterly
installments over a period of up to ten years (depending on the New Compensation
Agreement) beginning on the date selected under the New Compensation Agreement.
The Board, in its sole discretion, will be able to accelerate or extend the
distribution of such deferral accounts after the deferring directors' retirement
benefits commence under the New Retirement Plan. The Board, in its sole
discretion, also will be able to accelerate or extend the distribution of such
deferral accounts after the deferring directors' termination of service as a
director of Company. If a deferring director dies prior to the distribution of
amounts in his or her deferral account, the balance of the deferral account will
be distributed to his or her designated beneficiary. The New Compensation
Agreements will not be funded and, with respect to the payments of amounts held
in the deferral accounts, the deferring directors will have the status of
unsecured creditors of Company and of each other INVESCO Fund or AIM Fund from
which they will be deferring compensation.
OFFICERS OF COMPANY
Information regarding the current officers of Company can be found in
Exhibit E.
SECURITY OWNERSHIP OF MANAGEMENT
Information regarding the ownership of each class of your Fund's shares by
the directors, nominees and current executive officers of Company can be found
in Exhibit F.
27
DIRECTOR OWNERSHIP OF YOUR FUND'S SHARES
The dollar range of equity securities beneficially owned by each continuing
director and nominee as of December 31, 2002 (i) in your Fund and (ii) on an
aggregate basis, in all registered investment companies overseen by the director
within the INVESCO Funds complex can be found in Exhibit G.
PROPOSAL 3 --
APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT
BACKGROUND
INVESCO currently serves as the investment advisor to your Fund. AMVESCAP
has recommended restructuring the advisory and administrative servicing
arrangements so that AIM is the advisor and administrator for all INVESCO Funds
and AIM Funds. Your Board has approved a new advisory agreement under which AIM
will serve as the investment advisor for your Fund. The portfolio management
team for your Fund will not change as a result of this restructuring.
You are being asked to approve Proposal 3 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from a new
investment advisory agreement between AIM and Company.
The Board recommends that you approve the new advisory agreement between
AIM and Company for your Fund. The Board is asking you to vote on this new
agreement because Company may enter into a new advisory agreement for your Fund
only with shareholder approval. If approved, this new agreement would replace
the current advisory agreement between INVESCO and Company for your Fund. The
form of Company's proposed Master Investment Advisory Agreement with AIM is at
Appendix IV.
Under the new arrangements, the advisory fees paid by your Fund will not
change. If shareholders of your Fund approve Proposal 3, Company will also enter
into a new Master Administrative Services Agreement with AIM that will replace
the current Administrative Services Agreement between Company and INVESCO, and
move the provision of certain administrative services currently provided by
INVESCO pursuant to the current advisory agreement between Company and INVESCO
to the Master Administrative Services Agreement with AIM. If the proposed
advisory agreement is approved and these new arrangements are implemented, the
aggregate fees paid by your Fund for advisory and administrative services will
not increase.
Any voluntary or contractual expense limitations and fee waivers that have
been agreed to by INVESCO and Company with respect to your Fund will not be
terminated if the proposed new advisory agreement with AIM is approved. Instead,
AIM will assume INVESCO's obligations with respect to these voluntary and
contractual expense limitations and fee waivers, on the same terms and
conditions.
If INVESCO and Company have entered into voluntary or contractual expense
limitations or fee waivers with respect to your Fund, INVESCO currently is
entitled to reimbursement from a share class of your Fund that has fees and
expenses absorbed pursuant to this arrangement if such reimbursement does not
cause such share class to exceed the expense limitation and the reimbursement is
made within three years after INVESCO incurred the expense. If the proposed new
advisory agreement with AIM is approved, INVESCO will assign to AIM its right to
be reimbursed with respect to fees and expenses absorbed by it. Other than
substituting AIM for INVESCO as the party having the right to be reimbursed,
this assignment will not alter in any way the rights or obligations of your Fund
or its shareholders.
A description of how the proposed advisory agreement differs from the
current advisory agreement is set forth below under "Terms of the Proposed
Advisory Agreement." At an in-person meeting of the Board held on August 12-13,
2003, the Board, including a majority of the independent directors, voted to
recommend that shareholders approve a proposal to adopt the proposed advisory
agreement for your Fund.
28
YOUR FUND'S CURRENT INVESTMENT ADVISOR
INVESCO, the current investment advisor for your Fund, became the
investment advisor for your Fund under the current advisory agreement on July
15, 1999. Your Fund's initial shareholder initially approved the agreement and
your Fund's public shareholders have not subsequently voted on the agreement.
The Board, including a majority of the independent directors, last approved the
current advisory agreement on May 15, 2003.
THE PROPOSED NEW INVESTMENT ADVISOR FOR YOUR FUND
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), a holding company with its principal offices at 11 Greenway Plaza,
Suite 100, Houston, Texas 77046-1173. AIM Management is an indirect wholly owned
subsidiary of AMVESCAP, 30 Finsbury Square, London EC2A1AG, United Kingdom.
AMVESCAP and its subsidiaries are an independent investment management group. A
list of the names, addresses and principal occupations of the principal
executive officer and directors of AIM is in Exhibit H.
POSITIONS WITH AIM HELD BY COMPANY'S DIRECTORS OR EXECUTIVE OFFICERS
Mark H. Williamson, who is a director and/or executive officer of Company,
also is a director and/or officer of AIM. He also beneficially owns shares of
AMVESCAP and/or options to purchase shares of AMVESCAP.
TERMS OF THE CURRENT ADVISORY AGREEMENT
Under the terms of the current advisory agreement with INVESCO for your
Fund, INVESCO acts as investment manager and administrator for your Fund. As
investment manager, INVESCO provides a continuous investment program for your
Fund, including investment research and management, with respect to all
securities, investments and cash equivalents of your Fund. INVESCO also makes
recommendations as to the manner in which voting rights, rights to consent to
actions of your Fund and any other rights pertaining to your Fund's securities
shall be exercised, and calculates the net asset value of your Fund, subject to
such procedures established by the Board and based upon information provided by
your Fund, the custodian of your Fund or other source as designated by the
Board. INVESCO provides sub-accounting, recordkeeping and administrative
services to your Fund under an administrative services agreement. Under the
advisory agreement, as administrator, INVESCO also provides, at its expense and
at the request of your Fund, executive, statistical, administrative, internal
accounting and clerical services and office space, equipment and facilities.
Under the terms of the current advisory agreement, INVESCO has no liability
to Company, your Fund or to your Fund's shareholders or creditors, for any error
of judgment, mistake of law, or for any loss arising out of any investment, nor
for any other act or omission, in the performance of its obligations to Company
or your Fund unless such act or omission involves willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties
under the current advisory agreement.
The current advisory agreement for your Fund continues in effect from year
to year only if such continuance is specifically approved at least annually by
(i) the Board or the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of your Fund, and (ii) the vote of a majority of the
directors of Company who are not interested persons of INVESCO or Company by
votes cast in person at a meeting called for such purpose. The current advisory
agreement provides that the Board, a majority of the outstanding voting
securities of your Fund or INVESCO may terminate the agreement with respect to
your Fund on 60 days' written notice without penalty. The agreement terminates
automatically in the event of its assignment, unless an order is issued by the
SEC conditionally or unconditionally exempting such assignment from the
applicable provisions of the 1940 Act.
29
The current advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of its expenses not assumed by INVESCO, including
without limitation:
- brokerage commissions, issue and transfer taxes and other costs related
to securities transactions;
- fees, charges and expenses related to accounting, custodian, depository,
dividend disbursing agent, dividend reinvestment agent, transfer agent,
registrar, independent pricing services and legal services performed for
your Fund;
- interest on indebtedness incurred by Company or your Fund;
- taxes;
- fees for maintaining the registration and qualification of your Fund or
its shares under federal and state law;
- compensation and expenses of the Board;
- costs of printing and distributing reports, notices of shareholders'
meetings, proxy statements, dividend notices, prospectuses, statements of
additional information and other communications to your Fund's
shareholders, including expenses relating to Board and shareholder
meetings;
- costs, fees and other expenses arising in connection with the
organization and filing of Company's Articles of Incorporation,
determinations of tax status of your Fund, initial registration and
qualification of your Fund's securities under federal and state
securities laws and approval of Company's operations by any other federal
or state authority;
- expenses of repurchasing and redeeming shares of your Fund;
- insurance premiums;
- costs of designing, printing and issuing certificates representing shares
of your Fund;
- extraordinary expenses, including fees and disbursements of Company's
counsel, in connection with litigation by or against Company or your
Fund;
- premiums for the fidelity bond maintained by your Fund pursuant to the
1940 Act (except those premiums that may be allocated to INVESCO as an
insured);
- association and institute dues;
- expenses, if any, of distributing shares of your Fund pursuant to a 12b-1
plan of distribution; and
- all other costs and expenses of your Fund's operations and organization
unless otherwise explicitly provided.
The current advisory agreement requires INVESCO to reimburse your Fund
monthly for any salaries paid by your Fund to officers, directors and full-time
employees of your Fund who are also officers, general partners or employees of
INVESCO or its affiliates. Although INVESCO has this obligation under the
current advisory agreement, your Fund does not pay salaries to its officers,
non-independent directors or employees for services rendered to your Fund.
If, in any given year, the sum of your Fund's expenses exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
promptly reimburse such excess expenses to your Fund pursuant to the current
advisory agreement. Interest, taxes, extraordinary expenses and expenses which
are capitalized are not deemed expenses for purposes of this reimbursement
obligation.
The annual rates at which INVESCO receives fees from your Fund under the
current advisory agreement, the total net assets of your Fund, the dollar
amounts of advisory fees paid to INVESCO by your Fund net of any expense
limitations and the reimbursement, if any, made by INVESCO to your Fund for the
most recent fiscal year are in Exhibit I.
30
ADDITIONAL SERVICES PROVIDED BY INVESCO AND ITS AFFILIATES
INVESCO and its affiliates also provide additional services to Company and
your Fund. INVESCO currently provides or arranges for others to provide
accounting and administrative services to your Fund. INVESCO currently serves as
your Fund's transfer agent. Prior to July 1, 2003, INVESCO Distributors, Inc.
served as the principal underwriter for your Fund. This company is an indirect
wholly owned subsidiary of AMVESCAP, the parent company of INVESCO. Information
concerning fees paid to INVESCO and its affiliates for these services is in
Exhibit J.
ADVISORY FEES CHARGED BY AIM FOR SIMILAR FUNDS IT MANAGES
The advisory fee schedules for other funds advised by AIM with similar
investment objectives as your Fund are in Exhibit K.
TERMS OF THE PROPOSED ADVISORY AGREEMENT
Under the terms of the proposed advisory agreement, AIM would act as
investment manager and administrator for your Fund. As investment manager, AIM
would provide a continuous investment program for your Fund, including
supervision of all aspects of your Funds' operations, including the investment
and reinvestment of cash, securities or other properties comprising your Funds'
assets and investment research and management, subject at all times to the
policies and control of the Board. AIM would also provide administrative
services pursuant to a Master Administrative Services Agreement.
The proposed advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties under the agreement on the part of AIM or any of its officers,
directors, or employees, AIM would not be subject to liability to Company or
your Fund or to any shareholders of your Fund for any act or omission in the
course of, or connected with, rendering services under the agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.
The proposed advisory agreement for your Fund would continue in effect from
year to year only if such continuance is specifically approved at least annually
by (i) the Board or the vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of your Fund, and (ii) the affirmative vote of a
majority of the directors of Company who are not interested persons of AIM or
Company by votes cast in person at a meeting called for such purpose. The
proposed advisory agreement provides that the Board, a majority of the
outstanding voting securities of your Fund or AIM may terminate the agreement
with respect to your Fund on 60 days' written notice without penalty. The
proposed agreement terminates automatically in the event of its "assignment" (as
defined in the 1940 Act).
The proposed advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of the ordinary business expenses incurred in the
operations of your Fund and the offering of its shares. These expenses borne by
your Fund would include, without limitation, brokerage commissions, taxes,
legal, accounting, auditing, or governmental fees, the cost of preparing share
certificates, custodian, transfer and shareholder service agent costs, expenses
of issue, sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, expenses relating to trustees and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by Company on behalf of your
Fund in connection with membership in investment company organizations and the
cost of printing copies of prospectuses and statements of additional information
distributed to your Fund's shareholders.
The compensation to be paid to AIM under the proposed advisory agreement
would be calculated by applying annual rates to the average daily net assets of
your Fund for each calendar year. The annual rates at which AIM will receive
advisory fees from your Fund under the proposed advisory agreement are in
Exhibit L.
If Proposal 3 is approved, Company will be able to take advantage of an
exemptive order obtained from the SEC by AIM and certain of the AIM Funds. This
exemptive order will allow your Fund and
31
each other series portfolio of Company (each, an "Investing Fund") to invest
their uninvested cash in money market funds that have AIM or an affiliate of AIM
as an investment advisor (the "Affiliated Money Market Funds"), provided that
investments in Affiliated Money Market Funds do not exceed 25% of the total
assets of the Investing Fund. AIM will receive advisory fees from the Affiliated
Money Market Fund to the extent an Investing Fund invests uninvested cash in
such Affiliated Money Market Fund. If the Board approves AIM's use of the
exemptive order for Company, AIM intends to waive a portion of the advisory fees
payable by each Investing Fund in an amount equal to 25% of the advisory fee AIM
receives from the Affiliated Money Market Fund as a result of such Investing
Fund's investment of uninvested cash in such Affiliated Money Market Fund.
The primary differences between the current advisory agreement with INVESCO
and the proposed advisory agreement with AIM that the Board approved are to:
- replace INVESCO with AIM as the investment advisor for your Fund;
- move certain administrative services to an administrative services
agreement with AIM;
- expand provisions regarding broker-dealer relationships that are set
forth in the current advisory agreement to make them consistent with
similar provisions in other AIM advisory agreements;
- add provisions relating to certain functions to be performed by AIM in
connection with your Fund's securities lending program;
- change certain obligations regarding payment of expenses of your Fund;
- simplify certain rights applicable to your Fund's right to terminate
advisory services or amend the proposed advisory agreement;
- revise non-exclusivity provisions that are set forth in the current
advisory agreement;
- amend delegation provisions that are set forth in the current advisory
agreement;
- add to the limitation of liability provisions that are set forth in the
current advisory agreement to, among other things, specifically state the
limitation of liability of Company's shareholders; and
- change the governing state law set forth in the current advisory
agreement.
Although certain terms and provisions in the current advisory agreement
with INVESCO and the proposed advisory agreement with AIM are described slightly
differently, there are few substantive differences between these agreements. The
substantive differences are discussed below.
ADMINISTRATIVE SERVICES
For your Fund, the Board, in approving the proposed advisory agreement with
AIM, has approved removing the provision of certain administrative services that
are covered under the current advisory agreement with INVESCO, and consolidating
those administrative services with your Fund's accounting and recordkeeping
services in a new Master Administrative Services Agreement with AIM. The primary
reason for this change is to make your Fund's agreements consistent with similar
agreements for the AIM Funds. If shareholders approve the proposed advisory
agreement, your Fund will continue to receive substantially the same accounting
and administrative services it currently receives and at the same or lower costs
pursuant to the new Master Administrative Services Agreement. As a result, there
would be no loss of services nor would there by any increase in costs borne by
your Fund as a result of the transfer of administrative duties from the advisory
agreement to the Master Administrative Services Agreement.
BROKER-DEALER RELATIONSHIPS AND AFFILIATED BROKERAGE
The current advisory agreement requires INVESCO, when selecting brokers or
dealers, to first obtain the most favorable execution and price for your Fund;
after fulfilling this primary requirement INVESCO may consider, as secondary
factors whether such firms provide statistical research and other information to
INVESCO. The proposed advisory agreement specifies that AIM's primary
consideration in effecting a
32
security transaction will be to obtain the best execution. In selecting
broker-dealers to execute particular transactions, AIM will consider the best
net price available, the reliability, integrity and financial condition of the
broker-dealer, the size of and difficulty in executing the order and the value
of the expected contribution of the broker-dealer to the investment performance
of Company's portfolio funds on a continuing basis. Accordingly, the price to
your Fund in any transaction may be less favorable than that available from
another broker-dealer if the difference is reasonably justified by other aspects
of the fund execution services offered by the broker-dealer. The broker-dealer
relationship provisions of the current advisory agreement with INVESCO for your
Fund do not specify these factors.
Although AIM does not currently execute trades through brokers or dealers
that are affiliated with AIM, the proposed advisory agreement includes a new
provision that would permit such trades, subject to compliance with applicable
federal securities laws, rules, interpretations and exemptions.
SECURITIES LENDING
If your Fund engages in securities lending, AIM will provide it with
investment advisory services and related administrative services. The proposed
advisory agreement includes a new provision that specifies the administrative
services to be rendered by AIM if your Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Administrative services to be provided include: (a) overseeing
participation in the securities lending program to ensure compliance with all
applicable regulatory and investment guidelines; (b) assisting the securities
lending agent or principal (the "agent") in determining which specific
securities are available for loans; (c) monitoring the agent to ensure that
securities loans are effected in accordance with AIM's instructions and with
procedures adopted by the Board; (d) preparing appropriate periodic reports for,
and seeking appropriate approvals from, the Board with respect to securities
lending activities; (e) responding to agent inquiries; and (f) performing such
other duties as may be necessary.
In accordance with an exemptive order issued by the SEC, before your Fund
may participate in a securities lending program, the Board must approve such
participation. In addition, the Board must evaluate the securities lending
arrangements annually, and must determine that it is in the best interests of
the shareholders of your Fund to invest in AIM-advised money market funds any
cash collateral your Fund receives as security for the borrower's obligation to
return the loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees from
these money market funds, because the invested cash collateral will increase the
assets of these funds and AIM receives advisory fees based upon the assets of
these funds.
AIM does not receive any additional compensation for advisory services
rendered in connection with securities lending activities. As compensation for
the related administrative services AIM will provide, your Fund will pay AIM a
fee equal to 25% of the net monthly interest or fee income retained or paid to
your Fund from such activities. AIM intends to waive this fee, and has agreed to
seek Board approval prior to its receipt of all or a portion of such fee.
PAYMENT OF EXPENSES AND RESTRICTIONS ON FEES RECEIVED
Under the current advisory agreement with INVESCO, INVESCO has the
obligation to reimburse your Fund for any salaries paid by your Fund to
officers, non-independent directors and employees of your Fund. Your Fund does
not currently pay any such salaries. Such provision is not included in the
proposed advisory agreement with AIM.
The current advisory agreement provides that if annual fees exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
reimburse any such excess to your Fund. Such state-imposed limitations are no
longer applicable because the National Securities Market Improvements Act of
1996 (NSMIA) preempted state laws under which mutual funds such as your Fund
previously were regulated. Accordingly, under the proposed advisory agreement,
such annual expense limitation has been removed. Removing this state-imposed
annual expense limitation will not result in an increase in fees paid by your
Fund.
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TERMINATION/AMENDMENT RIGHTS
The current advisory agreement with INVESCO provides that Company can
terminate the agreement with INVESCO or amend the terms of the agreement upon
receipt of the affirmative vote of a majority of the outstanding securities (as
defined in the 1940 Act) of all series portfolios of Company. Under the 1940 Act
and the regulations thereunder, as interpreted by the SEC, advisory services
provided to your Fund cannot be terminated or amended without the approval by a
majority of the outstanding securities of your Fund, unless, in the case of an
amendment, the Board may approve the changes. The proposed advisory agreement
simplifies the language regarding termination and amendment of the agreement to
be consistent with the 1940 Act and the regulations thereunder, as interpreted
by the SEC.
NON-EXCLUSIVITY PROVISIONS
The current advisory agreement with INVESCO provides that the services
furnished by INVESCO are not deemed to be exclusive and that INVESCO shall be
entitled to furnish similar services to others, including other investment
companies with similar objectives, and that INVESCO may aggregate orders for its
other customers together with any securities of the same type to be sold or
purchased for your Fund in order to obtain best execution and lower brokerage
commissions. In such event, INVESCO must allocate the securities purchased or
sold and the expenses incurred in the transaction in a manner it considers most
equitable.
AIM has proposed and the Board has agreed that the non-exclusivity
provisions in the proposed advisory agreement with AIM should be divided into
two separate provisions: one dealing with services provided by AIM to other
investment accounts and the other dealing with employees of AIM. Under the new
provisions, AIM will act as investment manager or advisor to fiduciary and other
managed accounts and to other investment companies and accounts, including
off-shore entities or accounts. The proposed advisory agreement states that
whenever your Fund and one or more other investment companies or accounts
advised by AIM have moneys available for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed to
be equitable to your Fund and such other companies and accounts. Such allocation
procedure may adversely affect the size of the positions obtainable and the
prices realized by your Fund. The non-exclusivity provisions of the proposed
advisory agreement also explicitly recognize that officers and directors of AIM
may serve as officers or directors of Company, and that officers and directors
of Company may serve as officers or directors of AIM to the extent permitted by
law; and that officers and directors of AIM do not owe an exclusive duty to
Company. As described above, unlike the current advisory agreement, the proposed
advisory agreement does not require AIM to reimburse Company for any salaries
paid by Company to officers, directors and full-time employees of Company who
are also officers, directors or employees of AIM or its affiliates. Your Fund
does not currently pay any such salaries.
DELEGATION
The current advisory agreement provides that INVESCO may, in compliance
with applicable law and with the prior written approval of your Fund, make use
of affiliated companies and their employees in connection with rendering of the
services required of INVESCO. INVESCO must supervise all such services and
remain fully responsible for the services provided.
The proposed advisory agreement expands the extent to which AIM can
delegate its rights, duties and obligations by expressly providing that AIM may
delegate any or all of its rights, duties or obligations under the agreement to
one or more sub-advisors rather than solely certain specified advisory services.
The proposed advisory agreement also provides that AIM may replace sub-advisors
from time to time, in accordance with applicable federal securities laws, rules
and regulations in effect or interpreted from time to time by the SEC or with
exemptive orders or other similar relief. Any such delegation shall require
approval by the applicable Board and the shareholders unless, in accordance with
applicable federal securities laws, rules, interpretations and exemptions, AIM
is not required to seek shareholder approval of the appointment of a
sub-advisor.
34
LIMITATION OF LIABILITY OF AIM, COMPANY AND SHAREHOLDERS
As described above under the descriptions of the terms of the current
advisory agreement and the proposed advisory agreement, respectively, both
agreements provide limitation of liability for the advisor. The limitation of
liability provisions of the 1940 Act also apply to both INVESCO and AIM in their
capacity as advisor. In addition, the proposed advisory agreement states that no
series of Company shall be liable for the obligations of other series of Company
and the liability of AIM to one series of Company shall not automatically render
AIM liable to any other series of Company. Consistent with applicable law, the
proposed advisory agreement would also include a provision stating that AIM's
obligations under the agreement are not binding on any shareholders of Company
individually and that shareholders are entitled to the same limitation on
personal liability as shareholders of private corporations for profit. The
primary reason for this change is to make your Fund's agreement consistent with
similar agreements for the AIM Funds.
STATE LAW GOVERNING THE AGREEMENT
Questions of state law under the current advisory agreement with INVESCO
are governed by the laws of Colorado. Under the proposed advisory agreement with
AIM, Texas law would apply. The Board determined that, because the services
under the proposed advisory agreement with AIM will primarily be provided in
Texas, it was more appropriate to apply Texas law to the proposed advisory
agreement.
FACTORS THE DIRECTORS CONSIDERED IN APPROVING THE ADVISORY AGREEMENT
At the request of AIM, the Board discussed the approval of the proposed
advisory agreement at an in-person meeting held on August 12-13, 2003. The
independent directors also discussed the approval of the proposed advisory
agreement with independent counsel prior to that meeting. In evaluating the
proposed advisory agreement, the Board requested and received information from
AIM to assist in its deliberations.
The Board considered the following factors in determining reasonableness
and fairness of the proposed changes between the current advisory agreement with
INVESCO and the proposed advisory agreement with AIM:
- The qualifications of AIM to provide investment advisory services. The
Board reviewed the credentials and experience of the officers and
employees of AIM who will provide investment advisory services to your
Fund, and noted that the persons providing portfolio management services
to your Fund would not change if Proposal 3 is approved by shareholders.
- The range of advisory services provided by AIM. The Board reviewed the
services to be provided by AIM under the proposed advisory agreement, and
noted that no material changes in the level or type of services provided
under the current advisory agreement with INVESCO would occur if the
proposed advisory agreement is approved by the shareholders, other than
the provision by AIM of certain administrative services if your Fund
engages in securities lending.
- Qualifications of AIM to provide a range of management and administrative
services. The Board reviewed the general nature of the non-investment
advisory services performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the Board also considered the
organizational structure employed by AIM and its affiliates to provide
those services. The Board reviewed the proposed elimination from the
proposed advisory agreement of the provision of administrative services
to your Fund. The Board also reviewed the proposed form of Master
Administrative Services Agreement, noted that the overall services to be
provided under the existing arrangements and under the proposed Master
Administrative Services Agreements are the same, and concluded that the
overall accounting and administrative services to be provided by AIM
would not change under the combination of the proposed advisory agreement
and the Master Administrative Services Agreement.
35
- The performance record of your Fund. The Board reviewed your Fund's
performance record and determined that AIM has developed the expertise
and resources for managing funds with an investment objective and
strategies similar to those of your Fund and is able, therefore, to
provide advisory and administrative services to your Fund.
- Advisory fees and expenses. The Board examined the expense ratio and the
level of advisory fees for your Fund under the current advisory agreement
and compared them with the advisory fees expected to be incurred under
the proposed advisory agreement. The Board concluded that your Fund's
projected expense ratio and advisory fees under the proposed advisory
agreement were fair and reasonable in comparison with those of other
similar funds (including similar funds advised by AIM) and in light of
the investment management services to be provided by AIM under the
proposed advisory agreement. The advisory fees that are being proposed
under the proposed advisory agreement are the same as the advisory fees
paid to INVESCO under the current advisory agreement, other than the
removal of the reimbursement obligation related to services provided to
both your Fund and AIM by officers and directors which is not currently
applicable, and the provisions that permit AIM's receipt of fees for
providing administrative services in connection with securities lending
activities. Such fees would be paid only to the extent that your Fund
engages in securities lending. The Board noted that AIM intends to waive
its right to receive any fees under the proposed investment advisory
agreement for the administrative services it provides in connection with
securities lending activities. The Board also noted that AIM has agreed
to seek the Board's approval prior to its receipt of all or a portion of
such fees.
- The profitability of AIM. The Board reviewed information concerning the
profitability of AIM's (and its affiliates') investment advisory and
other activities and its financial condition. The Board noted that,
except as described above, no changes to the advisory fees were being
proposed, other than to permit AIM's receipt of fees for providing
services in connection with securities lending, and further noted that
AIM intends to waive its right to receive any such fees and has agreed to
seek the Board's approval prior to its receipt of all or a portion of
such fees. The Board also noted that, in accordance with an exemptive
order issued by the SEC, before your Fund may participate in a securities
lending program, the Board must approve such participation. In addition,
the Board must evaluate the securities lending arrangements annually and
determine that it is in the best interests of the shareholders of your
Fund to invest in AIM-advised money market funds any cash collateral your
Fund receives as security for the borrower's obligation to return the
loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees
from these money market funds, because the invested cash collateral will
increase the assets of these funds and AIM receives advisory fees based
upon the assets of these funds. The Board noted that the cash collateral
relates to assets of your Fund that have already been invested, and the
investment of the cash collateral is intended to benefit your Fund by
providing it with additional income. The Board also noted that an
investment of the cash collateral in an AIM-advised money market fund
would have a positive effect on the profitability of AIM.
- The terms of the proposed advisory agreement. The Board reviewed the
terms of the proposed advisory agreement, including changes being made to
clarify or expand non-exclusivity, delegation and liability provisions,
to separate administrative services from advisory services and to have
AIM assist your Fund if it engages in securities lending. The Board
determined that these changes reflect the current environment in which
your Fund operates, and that AIM should have the flexibility to operate
in that environment.
After considering the above factors, the Board concluded that it is in the
best interests of your Fund and its shareholders to approve the proposed
advisory agreement between Company and AIM for your Fund.
The Board reached this conclusion after careful discussion and analysis.
The Board believes that it has carefully and thoroughly examined the pertinent
issues and alternatives. In recommending that you approve the proposed advisory
agreement, the independent directors have taken the action which they
36
believe to be in your best interests. In so doing, they were advised by
independent counsel, retained by the independent directors and paid for by
Company, as to the nature of the matters to be considered and the standards to
be used in reaching their decision.
If approved, the proposed advisory agreement will become effective on
November 5, 2003, and will expire, unless renewed, on or before June 30, 2005.
If shareholders of your Fund do not approve Proposal 3, the current advisory
agreement with INVESCO will continue in effect for your Fund.
THE BOARD'S RECOMMENDATION ON PROPOSAL 3
The Board, including the independent directors, unanimously recommends that
you vote "FOR" this Proposal.
PROPOSAL 4 --
APPROVAL OF THE PLAN
TO REDOMESTICATE COMPANY AS A DELAWARE STATUTORY TRUST
BACKGROUND
Company currently is organized as a Maryland corporation. AMVESCAP has
identified each series portfolio of Company as appropriate to be redomesticated
as a new series portfolio of a newly created open-end management investment
company organized as a statutory trust under the Delaware Statutory Trust Act
(the "Trust").
If Proposal 1 is approved by the shareholders of your Fund, your Fund will
be combined with Buying Fund and will not be redomesticated as a new series
portfolio of the Trust. You are being asked to approve Proposal 4 so that, in
the event that Proposal 1 is not approved, your Fund will still be able to
benefit from redomesticating as a new series portfolio of the Trust.
The Board has approved the Plan, which provides for a series of
transactions to convert your Fund and each other series portfolio of Company
(each, a "Current Fund") to a corresponding series (a "New Fund") of the Trust.
Under the Plan, each Current Fund will transfer all its assets to a
corresponding New Fund in exchange solely for voting shares of beneficial
interest in the New Fund and the New Fund's assumption of all the Current Fund's
liabilities (collectively, the "Redomestication"). A form of the Plan relating
to the proposed Redomestication is set forth in Appendix V.
Approval of the Plan requires the affirmative vote of a majority of the
issued and outstanding shares of Company. The Board is soliciting the proxies of
the shareholders of your Fund to vote on the Plan with this Proxy
Statement/Prospectus. The Board is soliciting the proxies of the shareholders of
Company's other series portfolios to vote on the Plan with a separate proxy
statement.
The Redomestication is being proposed primarily to provide Company with
greater flexibility in conducting its business operations. The operations of
each New Fund following the Redomestication will be substantially similar to
those of its predecessor Current Fund. As described below, the Trust's
Declaration of Trust differs from Company's Articles of Incorporation in certain
respects that are expected to improve Company's and each Current Fund's
operations. The Trust, like Company, will operate as an open-end management
investment company registered with the SEC under the 1940 Act.
REASONS FOR THE PROPOSED REDOMESTICATION
The Redomestication is being proposed because, as noted above, INVESCO and
the Board believe that the Delaware statutory trust organizational form offers a
number of advantages over the Maryland corporate organizational form. As a
result of these advantages, the Delaware statutory trust organizational form has
been increasingly used by mutual funds, including the majority of the AIM Funds.
The Delaware statutory trust organizational form offers greater flexibility
than the Maryland corporate form. A Maryland corporation is governed by the
detailed requirements imposed by Maryland corporate
37
law and by the terms of its Articles of Incorporation. A Delaware statutory
trust is subject to fewer statutory requirements. The Trust will be governed
primarily by the terms of its Declaration of Trust. In particular, the Trust
will have greater flexibility to conduct business without the necessity of
engaging in expensive proxy solicitations to shareholders. For example, under
Maryland corporate law, amendments to Company's Articles of Incorporation would
typically require shareholder approval. Under Delaware law, unless the
Declaration of Trust of a Delaware statutory trust provides otherwise,
amendments to it may be made without first obtaining shareholder approval. In
addition, unlike Maryland corporate law, which restricts the delegation of a
board of directors' functions, Delaware law permits the board of trustees of a
Delaware statutory trust to delegate certain of its responsibilities. For
example, the board of trustees of a Delaware statutory trust may delegate the
responsibility of declaring dividends to duly empowered committees of the board
or to appropriate officers. Finally, Delaware law permits the trustees to adapt
a Delaware statutory trust to future contingencies. For example, the trustees
may, without a shareholder vote, change a Delaware statutory trust's domicile or
organizational form. In contrast, under Maryland corporate law, a company's
board of directors would be required to obtain shareholder approval prior to
changing domicile or organizational form.
The Redomestication will also have certain other effects on Company, its
shareholders and management, which are described below under the heading "The
Trust Compared to Company."
WHAT THE PROPOSED REDOMESTICATION WILL INVOLVE
To accomplish the Redomestication, the Trust has been formed as a Delaware
statutory trust pursuant to its Declaration of Trust, and each New Fund has been
established as a series portfolio of the Trust. On the closing date, each
Current Fund will transfer all of its assets to the corresponding classes of the
corresponding New Fund in exchange solely for a number of full and fractional
classes of shares of the New Fund equal to the number of full and fractional
shares of common stock of the corresponding classes of the Current Fund then
outstanding and the New Fund's assumption of the Current Fund's liabilities.
Immediately thereafter, each Current Fund will distribute those New Fund shares
to its shareholders in complete liquidation of such Current Fund. Upon
completion of the Redomestication, each shareholder of each Current Fund will be
the owner of full and fractional shares of the corresponding New Fund equal in
number and aggregate net asset value to the shares he or she held in the Current
Fund. As soon as practicable after the consummation of the Redomestication, each
Current Fund will be terminated and Company will be dissolved as a Maryland
corporation.
The obligations of Company and the Trust under the Plan are subject to
various conditions stated therein. To provide against unforeseen events, the
Plan may be terminated or amended at any time prior to the closing of the
Redomestication by action of the Board, notwithstanding the approval of the Plan
by the shareholders of any Current Fund. However, no amendments may be made that
would materially adversely affect the interests of shareholders of any Current
Fund. Company and the Trust may at any time waive compliance with any condition
contained in the Plan, provided that the waiver does not materially adversely
affect the interests of shareholders of any Current Fund.
The Plan authorizes Company to acquire one share of each class of each New
Fund and, as the sole shareholder of the Trust prior to the Redomestication, to
do each of the following:
- Approve with respect to each New Fund a new investment advisory agreement
with AIM with an effective date of November 5, 2003 that will be
substantially identical to that described in Proposal 3 and a new
investment advisory agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing investment
advisory agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. Information on
the new advisory agreement, including a description of the differences
between it and Company's current advisory agreement, is set forth above
under Proposal 3. If Proposal 3 is not approved by shareholders of a
Current Fund, Company will approve for the corresponding New Fund an
investment advisory agreement with INVESCO that is substantially
identical to such Current Fund's existing investment advisory agreement
with INVESCO.
38
- Assuming that Proposal 3 is approved by shareholders, approve with
respect to each New Fund a new administrative services agreement with AIM
with an effective date of November 5, 2003 that will be substantially
identical to the new administrative services agreement with AIM that will
be entered into by Company if shareholders approve Proposal 3 and a new
administrative services agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing administrative
services agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. If Proposal 3
is not approved by shareholders of a Current Fund, Company will approve
for the corresponding New Fund an administrative services agreement with
AIM that is substantially identical to such Current Fund's existing
administrative services agreement with INVESCO.
- Approve with respect to each New Fund a distribution agreement with AIM
Distributors. The proposed distribution agreement will provide for
substantially identical distribution services as currently provided to
each corresponding Current Fund by AIM Distributors.
- Approve a distribution plan pursuant to Rule 12b-1 under the 1940 Act
with respect to each class of each New Fund that will be substantially
identical to the corresponding Current Fund's existing distribution plan
for that class.
- Approve with respect to each New Fund a custodian agreement with State
Street Bank and Trust Company and a transfer agency and servicing
agreement with A I M Fund Services, Inc., each of which currently
provides such services to the corresponding Current Fund, and a multiple
class plan pursuant to Rule 18f-3 of the 1940 Act which will be
substantially identical to the multiple class plan that has been approved
by the Board for the corresponding Current Fund and which is expected to
become effective prior to the consummation of the Redomestication.
- Elect the directors of Company as the trustees of the Trust to serve
without limit in time, except as they may resign or be removed by action
of the Trust's trustees or shareholders, and except as they retire in
accordance with the Trust's retirement policy for trustees. The Trust's
retirement policy for trustees will replace Company's retirement policy
for directors.
- Ratify the selection of PricewaterhouseCoopers LLP, the accountants for
each Current Fund, as the independent public accountants for each New
Fund.
- Approve such other agreements and plans as are necessary for each New
Fund's operation as a series of an open-end management investment
company.
The Trust's transfer agent will establish for each shareholder an account
containing the appropriate number of shares of each class of each New Fund. Such
accounts will be identical in all respects to the accounts currently maintained
by Company's transfer agent for each shareholder of the Current Funds. Shares
held in the Current Fund accounts will automatically be designated as shares of
the New Funds. Certificates for Current Fund shares issued before the
Redomestication will represent shares of the corresponding New Fund after the
Redomestication. Shareholders of the New Funds will not have the right to demand
or require the Trust to issue share certificates. Any account options or
privileges on accounts of shareholders under the Current Funds will be
replicated on the New Fund account. No sales charges will be imposed in
connection with the Redomestication.
Assuming your approval of Proposal 4, Company currently contemplates that
the Redomestication will be consummated on November 4, 2003.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE REDOMESTICATION
Company and the Trust will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Redomestication will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. Accordingly,
the Current Funds, the New Funds and the shareholders of the New Funds will
recognize no gain or loss for Federal income tax purposes as a result of the
Redomestication. Shareholders of the Current Funds should consult their tax
advisers regarding the effect, if any, of the Redomestication
39
in light of their individual circumstances and as to state and local
consequences, if any, of the Redomestication.
APPRAISAL RIGHTS
Appraisal rights are not available to shareholders. However, shareholders
retain the right to redeem their shares of the Current Funds or the New Funds,
as the case may be, at any time before or after the Redomestication.
THE TRUST COMPARED TO COMPANY
STRUCTURE OF THE TRUST
The Trust has been established under the laws of the State of Delaware by
the filing of a certificate of trust in the office of the Secretary of State of
Delaware. The Trust has established series corresponding to and having identical
designations as the series portfolios of Company. The Trust has also established
classes with respect to each New Fund corresponding to and having identical
designations as the classes of each Current Fund. Each New Fund will have the
same investment objectives, policies, and restrictions as its predecessor
Current Fund. The Trust's fiscal year is the same as that of Company. The Trust
will not have any operations prior to the Redomestication. Initially, Company
will be the sole shareholder of the Trust.
As a Delaware statutory trust, the Trust's operations are governed by its
Declaration of Trust and Amended and Restated Bylaws and applicable Delaware law
rather than by Company's Articles of Incorporation and Amended and Restated
Bylaws and applicable Maryland law. Certain differences between the two
domiciles and organizational forms are summarized below. The operations of the
Trust will continue to be subject to the provisions of the 1940 Act and the
rules and regulations thereunder.
TRUSTEES OF THE TRUST
Subject to the provisions of the Declaration of Trust, the business of the
Trust will be managed by its trustees, who have all powers necessary or
convenient to carry out their responsibilities. The responsibilities, powers,
and fiduciary duties of the trustees of the Trust are substantially the same as
those of the directors of Company.
The trustees of the Trust would be those persons elected at this Special
Meeting to serve as directors of Company. Information concerning the nominees
for election as directors of Company is set forth above under Proposal 2.
SHARES OF THE TRUST
The beneficial interests in the New Funds will be represented by
transferable shares, par value $0.01 per share. Shareholders do not have the
right to demand or require the Trust to issue share certificates. The trustees
have the power under the Declaration of Trust to establish new series and
classes of shares; Company's directors currently have a similar right. The
Declaration of Trust permits the trustees to issue an unlimited number of shares
of each class and series. Company is authorized to issue only the number of
shares specified in the Articles of Incorporation and may issue additional
shares only with Board approval and after payment of a fee to the State of
Maryland on any additional shares authorized.
Your Fund currently has the classes of shares set forth in Exhibit A. The
Trust has established for each New Fund the classes that currently exist for its
predecessor Current Fund. Except as discussed in this Proxy
Statement/Prospectus, shares of each class of each New Fund will have rights,
privileges, and terms substantially similar to those of the corresponding class
of the Current Fund.
For a discussion of certain differences between and among Company's
Articles of Incorporation and Amended and Restated Bylaws and Maryland law and
the Trust's Declaration of Trust and Amended and Restated Bylaws and Delaware
law, see "Rights of Shareholders" in Proposal 1 above. The foregoing
40
discussion and the discussion under the caption "Rights of Shareholders" in
Proposal 1 above is only a summary of certain differences and is not a complete
description of all the differences. Shareholders should refer to the provisions
of the governing documents of Company and Trust and state law directly for a
more thorough comparison. Copies of the Articles of Incorporation and Amended
and Restated Bylaws of Company and of the Declaration of Trust and the Trust's
Amended and Restated Bylaws are available to shareholders without charge upon
written request to Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 4
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
PROXY STATEMENT/ PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed proxy
card because the Board is soliciting your proxy to vote at the Special Meeting
and at any adjournments of the Special Meeting. This Proxy Statement/Prospectus
gives you information about the business to be conducted at the Special Meeting.
However, you do not need to attend the Special Meeting to vote your shares.
Instead, you may simply complete, sign and return the enclosed proxy card or
vote by telephone or through a website established for that purpose.
Company intends to mail this Proxy Statement/Prospectus, the enclosed
Notice of Special Meeting of Shareholders and the enclosed proxy card on or
about August 25, 2003 to all shareholders entitled to vote. Shareholders of
record as of the close of business on July 25, 2003 (the "Record Date") are
entitled to vote at the Special Meeting. The number of shares outstanding of
each class of shares of your Fund on the Record Date can be found at Exhibit M.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETING
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
VOTING IN PERSON
If you do attend the Special Meeting and wish to vote in person, we will
provide you with a ballot prior to the vote. However, if your shares are held in
the name of your broker, bank or other nominee, you must bring a letter from the
nominee indicating that you are the beneficial owner of the shares on the Record
Date and authorizing you to vote. Please call Company at (800) 952-3502 if you
plan to attend the Special Meeting.
VOTING BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote.
If you properly fill in and sign your proxy card and send it to us in time
to vote at the Special Meeting, your "proxy" (the individual named on your proxy
card) will vote your shares as you have directed. If you sign your proxy card
but do not make specific choices, your proxy will vote your shares as
41
recommended by the Board as follows and in accordance with management's
recommendation on other matters:
- FOR the proposal to approve the Agreement.
- FOR the election of all 16 nominees for director.
- FOR the proposal to approve a new investment advisory agreement with AIM
for your Fund.
- FOR the proposal to approve the Plan.
Your proxy will have the authority to vote and act on your behalf at any
adjournment of the Special Meeting.
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of Company in writing to the address of Company set forth on the cover
page of this Proxy Statement/Prospectus before the Special Meeting that you have
revoked your proxy. In addition, although merely attending the Special Meeting
will not revoke your proxy, if you are present at the Special Meeting you may
withdraw your proxy and vote in person. Shareholders may also transact any other
business not currently contemplated that may properly come before the Special
Meeting in the discretion of the proxies or their substitutes.
VOTING BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established for
that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist for Proposals 1 and 3 if shareholders entitled to vote one-third of
the issued and outstanding shares of your Fund on the Record Date are present at
the Special Meeting in person or by proxy. A quorum will exist for Proposals 2
and 4 if shareholders entitled to vote one-third of the issued and outstanding
shares of Company on the Record Date are present at the Special Meeting in
person or by proxy.
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a broker
has not received voting instructions from a shareholder and is barred from
voting the shares without shareholder instructions because the proposal is
non-routine.
Abstentions and broker non-votes will count as shares present at the
Special Meeting for purposes of establishing a quorum.
If a quorum is not present at the Special Meeting or a quorum is present
but sufficient votes to approve a Proposal are not received, the persons named
as proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote FOR a Proposal in favor of such an
adjournment and will vote those proxies required to be voted AGAINST such
Proposal against such adjournment. A shareholder vote may be taken on a Proposal
in this Proxy Statement/Prospectus prior to any such adjournment if sufficient
votes have been received and it is otherwise appropriate.
VOTE NECESSARY TO APPROVE EACH PROPOSAL
Proposals 1 and 3. Approval of Proposals 1 and 3 requires the lesser of
(a) the affirmative vote of 67% or more of the voting securities of your Fund
present or represented by proxy at the Special Meeting, if the holders of more
than 50% of the outstanding voting securities of your Fund are present or
represented by proxy, or (b) the affirmative vote of more than 50% of the
outstanding voting securities of
42
your Fund. Abstentions and broker non-votes are counted as present but are not
considered votes cast at the Special Meeting. As a result, they have the same
effect as a vote against Proposals 1 and 3 because approval of Proposals 1 and 3
requires the affirmative vote of a percentage of the voting securities present
or represented by proxy or a percentage of the outstanding voting securities.
Proposal 2. The affirmative vote of a plurality of votes cast at the
Special Meeting is necessary to elect directors, meaning that the director
nominee with the most affirmative votes for a particular slot is elected for
that slot. In an uncontested election for directors, the plurality requirement
is not a factor. Abstentions will not count as votes cast and will have no
effect on the outcome of this proposal. We expect that brokers will be entitled
to vote on this proposal, but any broker non-vote will have no effect on the
outcome of this proposal.
Proposal 4. Approval of Proposal 4 requires the affirmative vote of a
majority of the issued and outstanding shares of Company. Abstentions and broker
non-votes are counted as present but are not considered votes cast at the
Special Meeting. As a result, they have the same effect as a vote against the
Plan because approval of the Plan requires the affirmative vote of a percentage
of the outstanding voting securities.
PROXY SOLICITATION
Company has engaged the services of Georgeson Shareholder Communications
Inc. ("Solicitor") to assist in the solicitation of proxies for the Special
Meeting. Solicitor's costs are estimated to be approximately $66,900. Company
expects to solicit proxies principally by mail, but Company or Solicitor may
also solicit proxies by telephone, facsimile or personal interview. Company's
officers will not receive any additional or special compensation for any such
solicitation. AMVESCAP, on behalf of INVESCO, will bear the costs and expenses
incurred in connection with the Reorganization, including Solicitor's costs.
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
SHAREHOLDER PROPOSALS
As a general matter, your Fund does not hold regular meetings of
shareholders. If you wish to submit a proposal for consideration at a meeting of
shareholders of your Fund, you should send such proposal to Company at the
address set forth on the first page of this Proxy Statement/Prospectus. To be
considered for presentation at a meeting of shareholders, Company must receive
proposals a reasonable time before proxy materials are prepared for the meeting.
Your proposal also must comply with applicable law.
For a discussion of how to propose an individual for nomination as a
director, please refer to the section of this Proxy Statement/Prospectus
entitled "Proposal 2 -- Current Committees of the Board -- Nominating
Committee."
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Company owned 5% or more of any class of the
outstanding shares of your Fund can be found at Exhibit N.
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Buyer owned 5% or more of any class of the
outstanding shares of Buying Fund can be found at Exhibit O.
43
INDEPENDENT PUBLIC ACCOUNTANTS
The audit committee of the Board has appointed PricewaterhouseCoopers LLP
(the "Auditor") as Company's independent public accountants for the fiscal year
ending July 31, 2004. A representative of the Auditor is expected to be
available at the Special Meeting and to have the opportunity to make a statement
and respond to appropriate questions from the shareholders. The audit committee
of the Board has considered whether the provision of the services below is
compatible with maintaining the Auditor's independence.
FEES PAID TO THE AUDITOR RELATED TO COMPANY
The Auditor billed Company (consisting of eight separate series portfolios)
aggregate fees for professional services rendered for the 2003 fiscal year as
follows:
<Table>
Audit Fees.................................................. $165,650
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees*............................................. $ 32,713
--------
Total Fees.................................................. $198,363
</Table>
- ---------------
* All Other Fees includes fees billed for all other non-audit services,
including fees for tax-related services rendered to Company.
FEES PAID TO THE AUDITOR NOT RELATED TO COMPANY
The Auditor billed INVESCO aggregate fees for professional services
rendered for the 2003 fiscal year to INVESCO, or any affiliate that provided
services to Company, as follows:
<Table>
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees**............................................ $402,571
--------
Total Fees.................................................. $402,571
</Table>
- ---------------
** As required by SEC rules, All Other Fees includes amounts paid to the Auditor
by your Fund's advisor and other related entities that provide support for
the operations of Company. All Other Fees include services relating to tax
services, controls review on the transfer agency, research on accounting
consultations, a CRM project and other agreed upon procedures. The services
performed for your Fund's advisor and related entities benefit many legal
entities of INVESCO, including many sister funds within the investment
company complex.
44
EXHIBIT A
<Table>
<Caption>
CLASSES OF SHARES OF YOUR FUND CORRESPONDING CLASSES OF SHARES OF BUYING FUND
- ------------------------------ ----------------------------------------------
Class A shares Class A shares
Class B shares Class B shares
Class C shares Class C shares
Class K shares Class A shares
Investor Class shares Investor Class shares
</Table>
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF YOUR FUND AND BUYING FUND
INVESCO GROWTH FUND (YOUR FUND)
Performance information in the bar chart below is that of the Fund's
Investor Class shares which has the longest operating history of the Fund's
classes.
The bar chart below shows the Fund's Investor Class actual yearly
performance (commonly known as its "total return") for the years ended December
31 over the past decade or since inception. The table below shows the pre-tax
and after-tax average annual total returns of Investor Class for various periods
ended December 31, 2001 compared to the S&P 500 Index and Russell 1000 Growth
Index.
After-tax returns are provided on a pre-redemption and post-redemption
basis. Pre-redemption return assumes you continue to hold your shares and pay
taxes on Fund distributions (i.e., dividends and capital gains) but do not
reflect taxes that may be incurred upon selling or exchanging shares.
Post-redemption return assumes payment of taxes on fund distributions and also
that you close your account and pay remaining federal taxes. After-tax returns
are calculated using the highest individual federal income tax rate in effect at
the time the distribution is paid. State and local taxes are not considered.
Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. For investors holding their shares in tax-deferred
arrangements such as 401(k) plans or individual retirement accounts, the
after-tax return shown is not relevant.
The information in the chart and table illustrates the variability of the
Fund's total return and how its performance compared to a broad measure of
market performance. Remember, past performance (before and after taxes) does not
indicate how the Fund will perform in the future.
GROWTH FUND -- INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1)(2)
<Table>
'92......................................................... 2.88%
'93......................................................... 18.01%
'94......................................................... (8.80)%
'95......................................................... 29.54%
'96......................................................... 20.96%
'97......................................................... 27.22%
'98......................................................... 41.72%
'99......................................................... 38.49%
'00......................................................... (23.92)%
'01......................................................... (49.07)%
</Table>
Best Calendar Qtr. 12/01 34.51%
Worst Calendar Qtr. 9/01 (43.15%)
B-1
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN
AS OF 12/31/01
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Growth Fund(1)(2)
Return Before Taxes....................................... (49.07)% (0.66)% 5.32%
Return After Taxes on Distributions....................... (49.16)% (4.57)% 1.30%
Return After Taxes on Distributions and Sale of Fund
Shares................................................. (29.79)% (0.88)% 3.32%
S&P 500 Index(3)
(reflects no deduction for fees, expenses, or taxes)...... (11.88)% 10.70% 12.93%
Russell 1000 Growth Index(3)
(reflects no deduction for fees, expenses, or taxes)...... (20.42)% 8.27% 10.79%
</Table>
- ---------------
(1) Total return figures include reinvested dividends and capital gain
distributions and the effect of each class' expenses.
(2) Returns before taxes for Investor Class shares of Growth Fund year-to-date
as of the calendar quarter ended September 30, 2002 was (43.85)%.
(3) The S&P 500 Index is an unmanaged index considered representative of the
performance of the broad U.S. stock market. The Russell 1000 Growth Index is
an unmanaged index that measures the performance of those Russell 1000
companies with higher price-to-book ratios and lower forecasted growth
values. Please keep in mind that the indexes do not pay brokerage,
management, administrative or distribution expenses, all of which are paid
by the classes and are reflected in their annual returns. Index returns also
do not include sales charges or CDSCs that may be paid by the shareholder.
B-2
AIM LARGE CAP GROWTH FUND (BUYING FUND)
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
ANNUAL TOTAL RETURNS(1)
The following bar chart shows changes in the performance of the fund's
Class A shares from year to year. The bar chart does not reflect sales loads. If
it did, the annual total returns shown would be lower.
(PERFORMANCE GRAPH)
<Table>
<Caption>
ANNUAL
YEARS ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
2000................................................................... 8.52%
2001................................................................... -36.13%
2002................................................................... -26.46%
</Table>
The Class A shares' year-to-date total return as of June 30, 2003 was
12.89%.
During the periods shown in the bar chart, the highest quarterly return was
26.64% (quarter ended March 31, 2000) and the lowest quarterly return was
- -34.26% (quarter ended March 31, 2001).
B-3
PERFORMANCE TABLE(1)
The following performance table compares the fund's performance to that of
a broad-based securities market index, a style specific index and peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices do not reflect payment of fees, expenses or taxes.
Average Annual Total Returns (for the periods ended December 31, 2002)
<Table>
<Caption>
SINCE INCEPTION
1 YEAR INCEPTION DATE
-------- --------- ---------
Class A 03/01/99
Return Before Taxes..................................... (30.51)% (9.85)%
Return After Taxes on Distributions..................... (30.51)% (9.85)%
Return After Taxes on Distributions and Sale of Fund
Shares............................................... (18.73)% (7.64)%
S&P 500(2)................................................ (22.09)% (7.29)%(6) 02/28/99(6)
Russell 1000--Registered Trademark-- Index(3)............. (21.65)% (6.83)%(6) 02/28/99(6)
Russell 1000--Registered Trademark-- Growth Index(4)...... (27.88)% (12.99)%(6) 02/28/99(6)
Lipper Large-Cap Growth Fund Index(5)..................... (28.11)% (13.23)%(6) 02/28/99(6)
</Table>
- ---------------
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts.
(1) A significant portion of the fund's returns during certain periods prior to
2001 was attributable to its investments in IPOs. These investments had a
magnified impact when the fund's asset base was relatively small. As the
fund's assets grow, the impact of IPO investments will decline, which may
reduce the effect of IPO investments on the fund's total return. For
additional information regarding the impact of IPO investments on the fund's
performance, please see the "Financial Highlights" section of this
prospectus.
(2) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance. The
fund has elected to use the Standard & Poor's 500 Index as its broad-based
index rather than the Russell 1000--Registered Trademark-- Index because the
Standard & Poor's 500 Index is a more widely recognized gauge of U.S. stock
market performance. The fund has also included the Russell 1000--Registered
Trademark-- Growth Index, which the fund believes more closely reflects the
performance of the securities in which the fund invests. In addition, the
Lipper Large-Cap Growth Fund Index (which may or may not include the fund)
is included for comparison to a peer group.
(3) The Russell 1000--Registered Trademark-- Index is a widely recognized,
unmanaged index of common stocks that measures the performance of the 1,000
largest companies in the Russell 3000--Registered Trademark-- Index, which
measures the performance of the 3,000 largest U.S. companies based on total
market capitalization.
(4) The Russell 1000--Registered Trademark-- Growth Index measures the
performance of those securities in the Russell 1000--Registered Trademark--
Index with a greater than average growth orientation. The Russell 1000
--Registered Trademark-- Index measures the performance of the 1,000 largest
companies in the Russell 3000--Registered Trademark-- Index, which measures
the performance of the 3,000 largest U.S. companies based on total market
capitalization.
(5) The Lipper Large-Cap Growth Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Large-Cap Growth category. These funds
typically invest in stocks with market capitalizations greater than $5
billion at the time of purchase and have an above-average price-to-earnings
ratio, price-to-book ratio, and a three year sales-per-share growth value,
compared to the S&P 500 Index.
(6) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
B-4
EXHIBIT C
COMPARISON FEE TABLE AND EXPENSE EXAMPLE
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C, Investor Class, and Class K shares of INVESCO Growth Fund ("Selling
Fund"), and of Class A, Class B, Class C, and Class R shares of AIM Large Cap
Growth Fund ("Buying Fund"). Pro Forma Combined Expense Ratios of Buying Fund
giving effect to the reorganization of Selling Fund into Buying Fund are also
provided.
<Table>
<Caption>
SELLING FUND (AS OF 7/31/02) BUYING FUND (AS OF 10/31/02)
---------------------------------------------------- ---------------------------------------
INVESTOR
CLASS A CLASS B CLASS C CLASS K CLASS CLASS A CLASS B CLASS C CLASS R
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------- ------- ------- ------- -------
SHAREHOLDER FEES
(fees paid directly from
your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of offering
price).................. 5.50% None None None None 5.50% None None None
Maximum Deferred Sales
Charge (Load)(1)........ None(2)(3) 5.00% 1.00% None(4) None None(2)(5) 5.00% 1.00% None(6)
ANNUAL FUND OPERATING
EXPENSES(7)
(expenses that are
deducted from fund assets)
Management Fees........... 0.56% 0.56% 0.56% 0.56% 0.56% 0.75% 0.75% 0.75% 0.75%
Distribution and/or
Service (12b-1)
Fees(8)................. 0.35% 1.00% 1.00% 0.45% 0.25% 0.35% 1.00% 1.00% 0.50%
Other Expenses............ 0.49%(9) 0.45%(9) 1.47% 1.31% 0.74% 0.60% 0.60% 0.60% 0.60%(9)
Total Annual Fund
Operating
Expenses(10)............ 1.40% 2.01% 3.03% 2.32% 1.55% 1.70% 2.35% 2.35% 1.85%
Fee Waiver................ None None 0.28% 0.12% None None None None None
Net Expenses.............. 1.40% 2.01% 2.75% 2.20% 1.55% 1.70% 2.35% 2.35% 1.85%
<Caption>
BUYING FUND PRO FORMA COMBINED (AS OF 10/31/02)
---------------------------------------------------
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS
SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- --------
SHAREHOLDER FEES
(fees paid directly from
your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of offering
price).................. 5.50% None None None None
Maximum Deferred Sales
Charge (Load)(1)........ None(2)(5) 5.00% 1.00% None(6) None
ANNUAL FUND OPERATING
EXPENSES(7)
(expenses that are
deducted from fund assets)
Management Fees........... 0.75% 0.75% 0.75% 0.75% 0.75%
Distribution and/or
Service (12b-1)
Fees(8)................. 0.35% 1.00% 1.00% 0.50% 0.25%
Other Expenses............ 0.59% 0.59% 0.59% 0.59%(9) 0.59%
Total Annual Fund
Operating
Expenses(10)............ 1.69% 2.34% 2.34% 1.84% 1.59%
Fee Waiver................ None None None None None
Net Expenses.............. 1.69% 2.34% 2.34% 1.84% 1.59%
</Table>
- ---------------
(1) For Selling Fund, calculated as a percentage of original purchase price.
For Buying Fund and Buying Fund Pro Forma Combined, calculated as a
percentage of original purchase price or redemption proceeds, whichever is
less.
(2) If you buy $1,000,000 or more of Class A shares and redeem those shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(3) For qualified plans investing in Class A shares, you may pay a CDSC of 1%
on your Class A shares if the plan is redeemed within 12 months from
initial deposit in the plan's INVESCO account.
C-1
(4) For qualified plans investing in Class K shares, you may pay a CDSC of
0.70% on your Class K shares if the plan is redeemed within 12 months from
the initial deposit in the plan's INVESCO account.
(5) Effective November 1, 2002, if you are a retirement plan participant and
you bought $1,000,000 or more of Class A shares, you may pay a 1% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(6) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total
redemption of the retirement plan assets occurs within 12 months from the
date of the retirement plan's initial purchase.
(7) There is no guarantee that actual expenses will be the same as those shown
in the table.
(8) Because each class pays a 12b-1 distribution and service fee which is based
upon such class' assets, if you own shares for a long period of time, you
may pay more than the economic equivalent of the maximum front-end sales
charge permitted for mutual funds by the National Association of Securities
Dealers, Inc.
(9) Other Expenses are based on estimated expenses for the current fiscal year.
(10) INVESCO has contractually agreed to waive fees and bear any expenses on
Selling Fund through April 30, 2004 to limit Total Annual Operating
Expenses (excluding interest, taxes, brokerage commissions, extraordinary
expenses and increases in expenses due to expense offset arrangements, if
any) to 2.10%, 2.75%, 2.75% and 2.20% on Class A, Class B, Class C and
Class K shares, respectively. INVESCO has also voluntarily agreed to limit
Total Annual Operating Expenses (excluding interest, taxes, brokerage
commissions, extraordinary expenses and increases in expenses due to
expense offset arrangements, if any) to 1.60%, 2.25%, 2.25%, and 1.70% on
Class A, Class B, Class C and Class K, respectively. The voluntary expense
limitations cannot be revoked by INVESCO prior to May 2004. Effective June
1, 2002, INVESCO is entitled to reimbursement from the classes for fees and
expenses absorbed pursuant to voluntary and contractual expense limitation
commitments between INVESCO and Selling Fund if such reimbursements do not
cause a class to exceed expense limitations and the reimbursement is made
within three years after INVESCO incurred the expense.
C-2
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of Selling Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the reorganization of Selling Fund into Buying
Fund are also provided. All costs are based upon the information set forth in
the Fee Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay both if you redeem all of your shares
at the end of those periods and if you do not redeem your shares. The Example
also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ------ ------ ------
SELLING FUND
Class A shares(1)
Assuming complete redemption at end of period............. $685 $ 969 $1,274 $2,137
Assuming no redemption.................................... $685 $ 969 $1,274 $2,137
Class B shares
Assuming complete redemption at end of period(2)(3)....... $704 $ 930 $1,283 $2,181
Assuming no redemption(3)................................. $204 $ 630 $1,083 $2,181
Class C shares
Assuming complete redemption at end of period(2).......... $378 $ 882 $1,541 $3,305
Assuming no redemption.................................... $278 $ 882 $1,541 $3,305
Class K shares
Assuming complete redemption at end of period............. $223 $ 701 $1,218 $2,637
Assuming no redemption.................................... $223 $ 701 $1,218 $2,637
Investor Class shares
Assuming complete redemption at end of period............. $158 $ 490 $ 845 $1,845
Assuming no redemption.................................... $158 $ 490 $ 845 $1,845
BUYING FUND
Class A shares(1)
Assuming complete redemption at end of period............. $713 $1,056 $1,422 $2,448
Assuming no redemption.................................... $713 $1,056 $1,422 $2,448
Class B shares
Assuming complete redemption at end of period(2)(3)....... $738 $1,033 $1,455 $2,524
Assuming no redemption(3)................................. $238 $ 733 $1,255 $2,524
Class C shares
Assuming complete redemption at end of period(2).......... $338 $ 733 $1,255 $2,686
Assuming no redemption.................................... $238 $ 733 $1,255 $2,686
Class R shares
Assuming complete redemption at end of period............. $188 $ 582 $1,001 $2,169
Assuming no redemption.................................... $188 $ 582 $1,001 $2,169
</Table>
C-3
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ------ ------ ------
BUYING FUND -- PRO FORMA COMBINED
Class A shares(1)
Assuming complete redemption at end of period............. $712 $1,053 $1,417 $2,438
Assuming no redemption.................................... $712 $1,053 $1,417 $2,438
Class B shares
Assuming complete redemption at end of period(2)(3)....... $737 $1,030 $1,450 $2,514
Assuming no redemption(3)................................. $237 $ 730 $1,250 $2,514
Class C shares
Assuming complete redemption at end of period(2).......... $337 $ 730 $1,250 $2,676
Assuming no redemption.................................... $237 $ 730 $1,250 $2,676
Class R shares
Assuming complete redemption at end of period............. $187 $ 579 $ 996 $2,159
Assuming no redemption.................................... $187 $ 579 $ 996 $2,159
Investor Class shares
Assuming complete redemption at end of period............. $162 $ 502 $ 866 $1,889
Assuming no redemption.................................... $162 $ 502 $ 866 $1,889
</Table>
- ---------------
(1) Assumes payment of maximum sales charge by the investor.
(2) Assumes payment of the applicable CDSC.
(3) Assumes conversion of Class B shares to Class A shares at the end of the
eighth year.
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. SELLING
FUND'S AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT SELLING FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL
PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-4
EXHIBIT D
DIRECTOR COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for
each continuing director of Company who was not affiliated with INVESCO during
the year ended December 31, 2002.
<Table>
<Caption>
TOTAL
COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM ALL
COMPENSATION ACCRUED BY BENEFITS UPON INVESCO
NAME OF DIRECTOR FROM COMPANY(1) COMPANY(2) RETIREMENT(3) FUNDS(4)
- ---------------- --------------- ------------------- ---------------- ------------
Bob R. Baker.................... $29,095 $5,233 $34,000 $138,000
James T. Bunch.................. $25,150 0 0 $124,625
Gerald J. Lewis................. $25,612 0 0 $116,500
Larry Soll, Ph.D. .............. $26,476 0 0 $126,000
</Table>
- ---------------
(1) The vice chairman of the Board, the chairs of certain of your Fund's
committees who are independent directors, and the members of your Fund's
committees who are independent directors each receive compensation for
serving in such capacities in addition to the compensation paid to all
independent directors. Amounts shown are based on the fiscal year ended July
31, 2002.
(2) Represents estimated benefits accrued with respect to the current Retirement
Plan and Deferred Retirement Plan Account Agreement, and not compensation
deferred at the election of the directors. Amounts shown are based on the
fiscal year ended July 31, 2002.
(3) These amounts represent the estimated annual benefits payable by the ten
INVESCO Funds upon the directors' retirement under the current Retirement
Plan and Deferred Retirement Plan Account Agreement, calculated using the
current method of allocating director compensation among the INVESCO Funds.
These estimated benefits assume retirement at age 72. With the exception of
Messrs. Bunch and Lewis, each of these directors has served as a director of
one or more of the INVESCO Funds for the minimum five-year period required
to be eligible to participate in the current Retirement Plan.
(4) All continuing directors currently serve as directors of ten registered
investment companies advised by INVESCO.
D-1
EXHIBIT E
OFFICERS OF COMPANY
The following table provides information with respect to the current
officers of Company. Each officer is elected by the Board and serves until his
or her successor is chosen and qualified or until his or her resignation or
removal by the Board. The business address of all officers of Company is 4350
South Monaco Street, Denver, Colorado 80237.
<Table>
<Caption>
NAME, YEAR OF
BIRTH AND POSITION(S) OFFICER
HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
--------------------- ------- -------------------------------------------
Mark H. Williamson -- 1951............... 1998 Director, President and Chief Executive
Chairman of the Board Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Distributors,
Inc. (registered broker dealer); and Chief
Executive Officer of the AIM Division of
AMVESCAP PLC (2003-present); formerly,
Chief Executive Officer, Managed Products
Division, AMVESCAP PLC (2001-2002);
Chairman of the Board (1998-2002),
President (1998-2002) and Chief Executive
Officer (1998-2002) of INVESCO Funds Group,
Inc. (registered investment advisor) and
INVESCO Distributors, Inc. (registered
broker dealer); Chief Operating Officer and
Chairman of the Board of INVESCO Global
Health Sciences Fund; Chairman and Chief
Executive Officer of NationsBanc Advisors,
Inc.; and Chairman of NationsBanc
Investments, Inc.
Raymond R. Cunningham -- 1951............ 2001 President (2001-present) and Chief
President and Chief Executive Officer Executive Officer (2003-present) of INVESCO
Funds Group, Inc.; Chairman of the Board
(2003-present) and President (2003-present)
of INVESCO Distributors, Inc.; formerly,
Chief Operating Officer (2001-2003) and
Senior Vice President (1999-2002) of
INVESCO Funds Group, Inc. and INVESCO
Distributors, Inc.; and Senior Vice
President of GT Global -- North America
(1992-1998).
Glen A. Payne -- 1947.................... 1989 Senior Vice President, General Counsel and
Secretary Secretary of INVESCO Funds Group, Inc.;
Senior Vice President, Secretary and
General Counsel of INVESCO Distributors,
Inc.; formerly, Secretary of INVESCO Global
Health Sciences Fund; General Counsel of
INVESCO Trust Company (1989-1998); and
employee of the Securities and Exchange
Commission, Washington, DC (1973-1989).
</Table>
E-1
<Table>
<Caption>
NAME, YEAR OF
BIRTH AND POSITION(S) OFFICER
HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
--------------------- ------- -------------------------------------------
Ronald L. Grooms -- 1946................. 1988 Senior Vice President and Treasurer of
Chief Accounting Officer, Chief Financial INVESCO Funds Group, Inc.; and Senior Vice
Officer and Treasurer President and Treasurer of INVESCO
Distributors, Inc.; formerly, Treasurer and
Principal Financial and Accounting Officer
of INVESCO Global Health Sciences Fund; and
Senior Vice President and Treasurer of
INVESCO Trust Company (1988-1998).
William J. Galvin, Jr. -- 1956........... 1992 Senior Vice President and Assistant
Assistant Secretary Secretary INVESCO Funds Group, Inc.; and
Senior Vice President and Assistant
Secretary of INVESCO Distributors, Inc.;
formerly, Trust Officer of INVESCO Trust
Company (1995-1998).
Pamela J. Piro -- 1960................... 1999 Vice President and Assistant Treasurer of
Assistant Treasurer INVESCO Funds Group, Inc.; and Assistant
Treasurer of INVESCO Distributors, Inc.;
formerly, Assistant Vice President
(1996-1997).
Tane T. Tyler -- 1965.................... 2002 Vice President and Assistant General
Assistant Secretary Counsel of INVESCO Funds Group, Inc.
</Table>
E-2
EXHIBIT F
SECURITY OWNERSHIP OF MANAGEMENT
To the best knowledge of Company, the following table sets forth certain
information regarding the ownership as of July 25, 2003 of the shares of common
stock of each class of each series portfolio of Company by the directors,
nominees, and current executive officers of Company:
<Table>
<Caption>
NUMBER OF SHARES
OWNED BENEFICIALLY AND
SERIES AND CLASS PERCENTAGE OF CLASS*
---------------- ------------------------
Bob R. Baker..............................................
Sueann Ambron.............................................
Victor L. Andrews.........................................
Lawrence H. Budner........................................
James T. Bunch............................................
Raymond R. Cunningham.....................................
Richard W. Healey.........................................
Gerald J. Lewis...........................................
John W. McIntyre..........................................
Larry Soll, Ph.D. ........................................
Mark H. Williamson........................................
Frank S. Bayley...........................................
Bruce L. Crockett.........................................
Albert R. Dowden..........................................
Edward K. Dunn, Jr. ......................................
Jack M. Fields............................................
Carl Frischling...........................................
Robert H. Graham..........................................
Prema Mathai-Davis........................................
Lewis F. Pennock..........................................
Ruth H. Quigley...........................................
Louis S. Sklar............................................
Glen A. Payne.............................................
Ronald L. Grooms..........................................
William J. Galvin, Jr. ...................................
Pamela J. Piro............................................
Tane T. Tyler.............................................
</Table>
- ---------------
* To the best knowledge of Company, the ownership of shares of each series
portfolio of Company by current directors, nominees, and current executive
officers of Company as a group constituted less than 1% of each class of each
series portfolio of Company as of July 25, 2003.
F-1
EXHIBIT G
DIRECTOR OWNERSHIP OF FUND SHARES
Set forth below is the dollar range of equity securities beneficially owned
by each continuing director and nominee as of December 31, 2002 (i) in your Fund
and (ii) on an aggregate basis, in all registered investment companies overseen
by the director within the INVESCO Funds complex:
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF EQUITY
DOLLAR RANGE OF SECURITIES IN ALL REGISTERED INVESTMENT
EQUITY SECURITIES COMPANIES OVERSEEN BY DIRECTOR IN THE
NAME OF DIRECTOR IN YOUR FUND INVESCO FUNDS COMPLEX
- ---------------- ----------------- ---------------------------------------
INDEPENDENT DIRECTORS
Bob R. Baker..................................... $1-$10,000 $10,001-$50,000
James T. Bunch................................... $1-$10,000 $50,001-$100,000
Gerald J. Lewis.................................. $1-$10,000 $50,001-$100,000
Larry Soll, Ph.D................................. $1-$10,000 Over $100,000
INTERESTED DIRECTOR
Mark H. Williamson............................... None Over $100,000
INDEPENDENT NOMINEES
Frank S. Bayley.................................. None None
Bruce L. Crockett................................ None None
Albert R. Dowden................................. None None
Edward K. Dunn................................... None None
Jack M. Fields................................... None None
Carl Frischling.................................. None None
Prema Mathai-Davis............................... None None
Lewis F. Pennock................................. None None
Ruth H. Quigley.................................. None None
Louis S. Sklar................................... None None
NOMINEE WHO WILL BE INTERESTED
Robert H. Graham................................. None None
</Table>
G-1
EXHIBIT H
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF
A I M ADVISORS, INC.
The following table provides information with respect to the principal
executive officer and the directors of A I M Advisors, Inc. ("AIM"). The
business address of the principal executive officer and the directors of AIM is
11 Greenway Plaza, Suite 100, Houston, Texas 77046.
<Table>
<Caption>
NAME POSITION WITH AIM PRINCIPAL OCCUPATION
- ---- ----------------- --------------------
Mark H. Williamson.......... Director, Chairman and President Director, President and Chief
Executive Officer, A I M Management
Group Inc.; Director, Chairman and
President, A I M Advisors, Inc.
(registered investment advisor);
Director, A I M Distributors, Inc.
(registered broker dealer); and
Chief Executive Officer of the AIM
Division of AMVESCAP PLC
Kevin M. Carome............. Director, Senior Vice President, Director, Senior Vice President,
General Counsel and Secretary Secretary and General Counsel, A I
M Management Group Inc.; Vice
President, A I M Capital Management
Inc., A I M Distributors, Inc. and
A I M Fund Services, Inc., and
Director, Vice President and
General Counsel, Fund Management
Company
Gary T. Crum................ Director and Senior Vice President Chairman, Director and Director of
Investments, A I M Capital
Management, Inc.; Director and
Executive Vice President, A I M
Management Group Inc.; Director, A
I M Distributors, Inc. and AMVESCAP
PLC
Dawn M. Hawley.............. Director, Senior Vice President Director, Senior Vice President and
and Chief Financial Officer Chief Financial Officer, A I M
Management Group Inc.; Vice
President and Treasurer, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director, Vice
President and Chief Financial
Officer, A I M Fund Services, Inc.;
and Vice President and Chief
Financial Officer, Fund Management
Company
</Table>
H-1
EXHIBIT I
COMPENSATION TO INVESCO FUNDS GROUP, INC.
Company pays INVESCO Funds Group, Inc., out of the assets of your Fund, as
full compensation for all services rendered, an advisory fee for your Fund set
forth below. Such fee shall be calculated by applying the following annual rate
to the average daily net assets of your Fund for the calendar year, computed in
the manner used for the determination of the net asset value of shares of your
Fund.
<Table>
<Caption>
NET FEES PAID TO FEE WAIVERS OR
INVESCO FUNDS EXPENSE
TOTAL NET ASSETS FOR GROUP, INC. FOR THE REIMBURSEMENTS FOR
THE MOST RECENTLY MOST RECENTLY THE MOST RECENTLY
ANNUAL RATE COMPLETED FISCAL COMPLETED FISCAL COMPLETED FISCAL
(BASED ON AVERAGE DAILY NET ASSETS) PERIOD OR YEAR PERIOD OR YEAR PERIOD OR YEAR
- ----------------------------------- -------------------- ------------------- ------------------
0.60% of the first $350 million; 0.55% of $532,047,756 $4,804,294 $298
the next $350 million; 0.50% from $700
million; 0.45% from $2 billion; 0.40% from
$4 billion; 0.375% from $6 billion; 0.35%
from $8 billion
</Table>
I-1
EXHIBIT J
FEES PAID TO INVESCO FUNDS GROUP, INC. AND AFFILIATES IN MOST RECENT FISCAL YEAR
The following chart sets forth the non-advisory fees paid by your Fund
during its most recently completed fiscal year to INVESCO Funds Group, Inc. and
to affiliates of INVESCO Funds Group, Inc.
<Table>
<Caption>
INVESCO INVESCO
(ADMINISTRATIVE INVESCO (TRANSFER
NAME OF FUND SERVICES)* DISTRIBUTORS, INC.** AGENCY)
- ------------ --------------- -------------------- ----------
INVESCO Growth Fund........................ $395,944 $1,215,897 $4,594,606
</Table>
- ---------------
* Fees paid to INVESCO for administrative services for the prior fiscal year
were paid pursuant to an agreement other than the advisory agreement.
** Net amount received from Rule 12b-1 fees. Excluded are amounts reallowed to
broker-dealers, agents and other service providers.
J-1
EXHIBIT K
ADVISORY FEE SCHEDULES FOR OTHER AIM FUNDS
The following table provides information with respect to the annual
advisory fee rates paid to A I M Advisors, Inc. by certain funds that have a
similar investment objective as your Fund.
<Table>
<Caption>
FEE WAIVERS, EXPENSE
ANNUAL RATE TOTAL NET ASSETS FOR LIMITATIONS AND/OR EXPENSE
(BASED ON AVERAGE THE MOST RECENTLY REIMBURSEMENTS FOR THE MOST
NAME OF FUND DAILY NET ASSETS) COMPLETED FISCAL YEAR RECENTLY COMPLETED FISCAL YEAR
- ------------ ----------------- --------------------- ------------------------------
AIM Aggressive Growth 0.80% of the first $150 $2,098,074,956 Waive 0.025% on each $5
Fund million; 0.625% of the billion increment on net
excess over $150 million assets over $5 billion, up to
a maximum waiver of 0.175% on
net assets in excess of $35
billion
AIM Capital Development 0.75% of the first $350 $859,038,420 N/A
Fund million; 0.625% of the
excess over $350 million
AIM Charter Fund 1.00% of the first $30 $3,473,400,686 Waive 0.025% on each $5
million; 0.75% over $30 billion increment on net
million up to and including assets over $5 billion, up to
$150 million; 0.625% of the a maximum waiver of 0.175% on
excess over $150 million net assets in excess of $35
billion
AIM Constellation Fund 1.00% of the first $30 $7,712,712,838 Waive 0.025% on each $5
million; 0.75% over $30 billion increment on net
million up to and including assets over $5 billion, up to
$150 million; 0.625% of the a maximum waiver of 0.175% on
excess over $150 million net assets in excess of $35
billion
AIM Core Strategies Fund 0.75% of the first $1 $799,226 Waive advisory fee and/or
billion; 0.70% over $1 reimburse expenses on Class A,
billion up to and including Class B and Class C to extent
$2 billion; 0.625% of the necessary to limit Total
excess over $2 billion Operating Expenses (excluding
interest, taxes, dividends on
short sales, extraordinary
items and increases in
expenses due to expense offset
arrangements, if any) of Class
A shares to 1.75%
AIM Dent Demographic 0.85% of the first $2 $501,855,692 N/A
Trends Fund billion; 0.80% of the excess
over $2 billion
AIM Emerging Growth Fund 0.85% of the first $1 $105,075,644 N/A
billion; 0.80% of the excess
over $1 billion
AIM Large Cap Growth Fund 0.75% of the first $1 $245,944,356 Waive advisory fee and/or
billion; 0.70% over $1 reimburse expenses on Class A,
billion up to and including Class B and Class C to extent
$2 billion; 0.625% of the necessary to limit Total
excess over $2 billion Operating Expenses (excluding
interest, taxes, dividends on
short sales, extraordinary
items and increases in
expenses due to expense offset
arrangements, if any) of Class
A shares to 1.95%
AIM Mid Cap Growth Fund 0.80% of the first $1 $138,528,944 N/A
billion; 0.75% of the excess
over $1 billion
AIM U.S. Growth Fund 0.75% of the first $1 $976,335 Waive advisory fee and/or
billion; 0.70% over $1 reimburse expenses on Class A,
billion up to and including Class B and Class C to extent
$2 billion; 0.65% of the necessary to limit Total
excess over $2 billion Operating Expenses (excluding
interest, taxes, dividends on
short sales, extraordinary
items and increases in
expenses due to expense offset
arrangements, if any) of Class
A shares to 1.75%
</Table>
K-1
<Table>
<Caption>
FEE WAIVERS, EXPENSE
ANNUAL RATE TOTAL NET ASSETS FOR LIMITATIONS AND/OR EXPENSE
(BASED ON AVERAGE THE MOST RECENTLY REIMBURSEMENTS FOR THE MOST
NAME OF FUND DAILY NET ASSETS) COMPLETED FISCAL YEAR RECENTLY COMPLETED FISCAL YEAR
- ------------ ----------------- --------------------- ------------------------------
AIM Weingarten Fund 1.00% of the first $30 $2,726,296,882 Waive 0.025% on each $5
million; 0.75% over $30 billion increment on net
million up to and including assets over $5 billion, up to
$350 million; 0.625% of the a maximum waiver of 0.175% on
excess over $350 million net assets in excess of $35
billion
AIM Global Value Fund 0.85% of the first $1 $12,794,786 Waive advisory fee and/or
billion; 0.80% of the excess reimburse expenses on Class A,
over $1 billion Class B and Class C to extent
necessary to limit Total
Operating Expenses (excluding
interest, taxes, dividends on
short sales, extraordinary
items and increases in
expenses due to expense offset
arrangements, if any) of Class
A shares to 2.00%
AIM Mid Cap Basic Value 0.80% of the first $1 $68,393,079 Waive advisory fee and/or
Fund billion; 0.75% over $1 reimburse expenses on Class A,
billion up to and including Class B and Class C to extent
$5 billion; 0.70% of the necessary to limit Total
excess over $5 billion Operating Expenses (excluding
interest, taxes, dividends on
short sales, extraordinary
items and increases in
expenses due to expense offset
arrangements, if any) of Class
A shares to 1.80%
AIM Asia Pacific Growth 0.95% of the first $500 $88,741,097 Waive advisory fee and/or
Fund million; 0.90% of the excess reimburse expenses on Class A,
over $500 million Class B and Class C to extent
necessary to limit Total
Operating Expenses (excluding
interest, taxes, dividends on
short sales, extraordinary
items and increases in
expenses due to expense offset
arrangements, if any) of Class
A shares to 2.25%
AIM European Growth Fund 0.95% of the first $500 $408,587,558 N/A
million; 0.90% of the excess
over $500 million
AIM Global Aggressive 0.90% of the first $1 $812,560,745 N/A
Growth Fund billion; 0.85% of the excess
over $1 billion
AIM Global Growth Fund 0.85% of the first $1 $576,920,957 N/A
billion; 0.80% of the excess
over $1 billion
AIM International Growth 0.95% of the first $1 $1,608,825,043 Waive 0.05% of advisory fee on
Fund billion; 0.90% of the excess average net assets in excess
over $1 billion of $500 million
AIM European Small 0.95% $21,342,399 Waive advisory fee and/or
Company Fund reimburse expenses on Class A,
Class B and Class C to extent
necessary to limit Total
Operating Expenses (excluding
interest, taxes, dividends on
short sales, extraordinary
items and increases in
expenses due to expense offset
arrangements, if any) of Class
A shares to 2.00%
</Table>
K-2
<Table>
<Caption>
FEE WAIVERS, EXPENSE
ANNUAL RATE TOTAL NET ASSETS FOR LIMITATIONS AND/OR EXPENSE
(BASED ON AVERAGE THE MOST RECENTLY REIMBURSEMENTS FOR THE MOST
NAME OF FUND DAILY NET ASSETS) COMPLETED FISCAL YEAR RECENTLY COMPLETED FISCAL YEAR
- ------------ ----------------- --------------------- ------------------------------
AIM International 0.95% $16,470,175 Waive advisory fee and/or
Emerging Growth Fund reimburse expenses on Class A,
Class B and Class C to extent
necessary to limit Total
Operating Expenses (excluding
interest, taxes, dividends on
short sales, extraordinary
items and increases in
expenses due to expense offset
arrangements, if any) of Class
A shares to 2.00%
AIM New Technology Fund 1.00% $34,819,420 Waive advisory fee and/or
reimburse expenses on Class A,
Class B and Class C to extent
necessary to limit Total
Operating Expenses (excluding
interest, taxes, dividends on
short sales, extraordinary
items and increases in
expenses due to expense offset
arrangements, if any) of Class
A shares to 2.00%
AIM Select Equity Fund 0.80% of the first $150 $497,933,298 N/A
million; 0.625% of the
excess over $150 million
AIM Small Cap Equity Fund 0.85% $281,390,536 N/A
AIM Premier Equity II 0.75% $76,141,376 N/A
Fund
AIM V.I. Aggressive 0.80% of first $150 million; $104,046,601 N/A
Growth Fund 0.625% of the excess over
$150 million
AIM V.I. Basic Value Fund 0.725% of the first $500 $202,513,473 Waive advisory fees of Series
million; 0.70% of the next I and II shares to the extent
$500 million; 0.675% of the necessary to limit the
next $500 million; 0.65% in expenses (excluding 12b-1 plan
excess of $1.5 billion fees, if any, interest, taxes,
dividend expense on short
sales, extraordinary items and
increases in expenses due to
expense offset arrangements,
if any) of each Series to
1.30%
AIM V.I. Capital 0.65% of first $250 million; $786,930,877 N/A
Appreciation Fund 0.60% of the excess over
$250 million
AIM V.I. Capital 0.75% of first $350 million; $84,986,466 N/A
Development Fund 0.625% of the excess over
$350 million
AIM V.I. Core Equity Fund 0.65% of first $250 million; $1,386,999,432 N/A
0.60% of the excess over
$250 million
AIM V.I. Dent Demographic 0.85% of first $2 billion; $38,244,830 Waive advisory fees of Series
Trends Fund 0.80% of the excess over $2 I and II shares to the extent
billion necessary to limit the
expenses (excluding 12b-1 plan
fees, if any, interest, taxes,
dividend expense on short
sales, extraordinary items and
increases in expenses due to
expense offset arrangements,
if any) of each Series to
1.30%
AIM V.I. Growth Fund 0.65% of first $250 million; $363,991,901 N/A
0.60% of the excess over
$250 million
AIM V.I. International 0.75% of first $250 million; $252,330,849 N/A
Growth Fund 0.70% of excess over $250
million
</Table>
K-3
<Table>
<Caption>
FEE WAIVERS, EXPENSE
ANNUAL RATE TOTAL NET ASSETS FOR LIMITATIONS AND/OR EXPENSE
(BASED ON AVERAGE THE MOST RECENTLY REIMBURSEMENTS FOR THE MOST
NAME OF FUND DAILY NET ASSETS) COMPLETED FISCAL YEAR RECENTLY COMPLETED FISCAL YEAR
- ------------ ----------------- --------------------- ------------------------------
AIM V.I. Mid Cap Core 0.725% of the firsts $500 $69,484,798 Waive advisory fees of Series
Equity Fund million; 0.70% of the next I and II shares to the extent
$500 million; 0.675% of the necessary to limit the
next $500 million; 0.65% in expenses (excluding 12b-1 plan
excess of $1.5 billion fees, if any, interest, taxes,
dividend expense on short
sales, extraordinary items and
increases in expenses due to
expense offset arrangements,
if any) of each Series to
1.30%
AIM V.I. New Technology 1.00% $14,647,745 Waive advisory fees of Series
Fund I and II shares to the extent
necessary to limit the
expenses (excluding 12b-1 plan
fees, if any, interest, taxes,
dividend expense on short
sales, extraordinary items and
increases in expenses due to
expense offset arrangements,
if any) of each Series to
1.30%
AIM Summit Fund 1.00% of the first $10 $1,455,914,877 N/A
million; 0.75% of the next
$140 million; 0.625% in
excess of $150 million
AIM Opportunities I Fund Base fee of 1.00%; maximum $313,489,899 N/A
annual performance
adjustment of +/-0.75%
AIM Opportunities II Fund Base fee of 1.50%; maximum $195,743,587 N/A
annual performance
adjustment of +/-1.00%
AIM Opportunities III Base fee of 1.50% maximum $197,568,312 N/A
Fund annual performance
adjustment of +/- 1.00%
AIM Basic Value Fund 0.725% of first $500 $4,554,929,266 Waive advisory fees at the
million; 0.70% of next $500 annual rate of 0.025% for each
million; 0.675% of next $500 $5 billion increment, up to a
million; 0.65% of excess maximum waiver of 0.175% on
over $1.5 billion net assets in excess of $35
billion
AIM Basic Value II Fund 0.75% of first $1 billion; $913,123 Waive advisory fee and/or
0.70% of next $1 billion; reimburse expenses on Class A,
0.65% of excess over $2 Class B and Class C to extent
billion necessary to limit Total
Operating Expenses (excluding
interest, taxes, dividends on
short sales, extraordinary
items and increases in
expenses due to expense offset
arrangements, if any) of Class
A shares to 1.75%
AIM Mid Cap Core Equity 0.725% on first $500 $1,741,929,034 N/A
Fund million; 0.70% on next $500
million; 0.675% on next $500
million; 0.65% on excess
over $1.5 billion
AIM Small Cap Growth Fund 0.725% on first $500 $989,137,111 N/A
million; 0.70% on next $500
million; 0.675% on next $500
million; 0.65% of excess
over $1.5 billion
AIM Global Financial 0.975% on first $500 $226,268,642 N/A
Services Fund million; 0.95% on next $500
million; 0.925% on next $500
million; 0.90% of excess
over $1.5 billion
AIM Global Health Care 0.975% on first $500 $767,768,706 N/A
Fund million; 0.95% on next $500
million; 0.925% on next $500
million; 0.90% of excess
over $1.5 billion
</Table>
K-4
<Table>
<Caption>
FEE WAIVERS, EXPENSE
ANNUAL RATE TOTAL NET ASSETS FOR LIMITATIONS AND/OR EXPENSE
(BASED ON AVERAGE THE MOST RECENTLY REIMBURSEMENTS FOR THE MOST
NAME OF FUND DAILY NET ASSETS) COMPLETED FISCAL YEAR RECENTLY COMPLETED FISCAL YEAR
- ------------ ----------------- --------------------- ------------------------------
AIM Global Energy Fund 0.975% on first $500 $29,897,155 Expense limitation -- Limit
million; 0.95% on next $500 Total Annual Operating
million; 0.925% on next $500 Expenses (excluding interest,
million; 0.90% of excess taxes, dividend expense on
over $1.5 billion short sales, extraordinary
items and increases in
expenses due to expense offset
arrangements, if any):
Class A, 2.00%
Class B, 2.50%
Class C, 2.50%
AIM Global Science and 0.975% on first $500 $398,857,248 Expense limitation -- Limit
Technology Fund million; 0.95% on next $500 Total Annual Operating
million; 0.925% on next $500 Expenses (excluding interest,
million; 0.90% of excess taxes, dividend expense on
over $1.5 billion short sales, extraordinary
items and increases in
expenses due to expense offset
arrangements, if any):
Class A, 2.00%
Class B, 2.50%
Class C, 2.50%
AIM Libra Fund 0.85% of first $1 billion; $[5,304,209]* Expense limitation -- Limit
0.80% of excess over $1 Total Annual Operating
billion Expenses (excluding interest,
taxes, dividend expense on
short sales, extraordinary
items and increases in
expenses due to expense offset
arrangements, if any):
Class A, 1.80%
Class B, 2.45%
Class C, 2.45%
AIM Global Trends Fund 0.975% on first $500 $126,915,517 Expense limitation -- Limit
million; 0.95% on next $500 Total Annual Operating
million; 0.925% on next $500 Expenses (excluding interest,
million; 0.90% of excess taxes, dividend expense on
over $1.5 billion short sales, extraordinary
items and increases in
expenses due to expense offset
arrangements, if any):
Class A, 2.00%
Class B, 2.50%
Class C, 2.50%
</Table>
- ---------------
* As of semi-annual report, 4/30/03.
K-5
EXHIBIT L
PROPOSED COMPENSATION TO A I M ADVISORS, INC.
The following table provides information with respect to the annual
advisory fee rates proposed to be paid to A I M Advisors, Inc. by your Fund
under the proposed advisory agreement.
<Table>
<Caption>
ANNUAL RATE
NET ASSETS (BASED ON AVERAGE DAILY NET ASSETS)
- ---------- -----------------------------------
First $350 Million.......................................... 0.60%
Next $350 Million........................................... 0.55%
From $700 Million........................................... 0.50%
From $2 Billion............................................. 0.45%
From $4 Billion............................................. 0.40%
From $6 Billion............................................. 0.375%
From $8 Billion............................................. 0.35%
</Table>
L-1
EXHIBIT M
SHARES OUTSTANDING OF EACH CLASS OF YOUR FUND ON RECORD DATE
As of July 25, 2003, there were the following number of shares outstanding
of each class of your Fund:
CLASS A SHARES
760,003.19
CLASS B SHARES
57,524.27
CLASS C SHARES
1,783,508.82
CLASS K SHARES
1,334,749.07
INVESTOR CLASS SHARES
259,900,522.75
M-1
EXHIBIT N
OWNERSHIP OF SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Company owned 5% or more of any
class of the outstanding shares of your Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of your Fund is presumed
to "control" your Fund as defined in the 1940 Act. Such control may affect the
voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES SHARES OWNED RECORD*
- ---------------- --------------- -------------- ----------------
FILOC Agent.................................... Investor Class 16,969,121.73 6.53%
Employee Benefit Plans
100 Magellan Way KW1C
Covington, KY 41015-1987
RBC Dain Rauscher FBO.......................... Class A 619,997.15 81.58%
Marsha S. Glazer
Pledge Coll Acct For Northern Trust Bank
P.O. Box 997
Mercer Island, WA 98040-0997
Prudential Securities Inc. .................... Class A 74,211.16 9.76%
Attn: Mutual Funds
1 New York Plaza
New York, NY 10004-1901
Morgan Stanley DW Inc. Cust. for H. Ronald
Helfman...................................... Class B 17,341.04 30.15%
P.O. Box 250
New York, NY 10008-0250
Morgan Stanley DW Inc. Cust. for H. Ronald
Helfman...................................... Class B 15,028.90 26.13%
P.O. Box 250
New York, NY 10008-0250
Merrill Lynch.................................. Class B 8,376.90 14.56%
4800 Deer Lake Drive East
Jacksonville, FL 32246-6486
Prudential Securities FBO...................... Class B 3,444.66 5.99%
Mr. Frank DeFrancesco
Capital Plumbing Simple IRA
117 Roman Ave.
Staten Island, NY 10314-2727
Prudential Securities FBO...................... Class B 3,444.66 5.99%
Mr. Ben J. DiGiovanni
Capital Plumbing Simple IRA
69 Highland Rd.
Staten Island, NY 10308-2940
Pershing LLC................................... Class B 3,164.56 5.50%
P.O. Box 2052
Jersey City, NJ 07303-2052
</Table>
N-1
<Table>
<Caption>
NUMBER OF PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES SHARES OWNED RECORD*
- ---------------- --------------- -------------- ----------------
Pershing LLC................................... Class B 2,938.39 5.11%
P.O. Box 2052
Jersey City, NJ 07303-2052
Saxon & Co..................................... Class K 1,168,459.63 87.54%
P.O. Box 7780-1888
Philadelphia, PA 19182-0001
</Table>
- ---------------
* Company has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
N-2
EXHIBIT O
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Buyer owned 5% or more of any
class of the outstanding shares of Buying Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of Buying Fund is
presumed to "control" Buying Fund as defined in the 1940 Act. Such control may
affect the voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES SHARES OWNED RECORD*
- ---------------- --------------- ------------ ----------------
</Table>
- ---------------
* Buyer has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
O-1
APPENDIX I
AGREEMENT
AND
PLAN OF REORGANIZATION
FOR
INVESCO GROWTH FUND,
A SEPARATE PORTFOLIO OF
INVESCO STOCK FUNDS, INC.
AUGUST 13, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE 1 DEFINITIONS........................................................ I-1
SECTION 1.1. Definitions................................................. I-1
ARTICLE 2 TRANSFER OF ASSETS................................................. I-4
SECTION 2.1. Reorganization of Selling Fund.............................. I-4
SECTION 2.2. Computation of Net Asset Value.............................. I-4
SECTION 2.3. Valuation Date.............................................. I-4
SECTION 2.4. Delivery.................................................... I-5
SECTION 2.5. Termination of Series and Redemption of Selling Fund
Shares...................................................... I-5
SECTION 2.6. Issuance of Buying Fund Shares.............................. I-5
SECTION 2.7. Investment Securities....................................... I-5
SECTION 2.8. Liabilities................................................. I-6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER........................... I-6
SECTION 3.1. Organization; Authority..................................... I-6
SECTION 3.2. Registration and Regulation of Seller....................... I-6
SECTION 3.3. Financial Statements........................................ I-6
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities......... I-6
SECTION 3.5. Selling Fund Shares; Business Operations.................... I-6
SECTION 3.6. Accountants................................................. I-7
SECTION 3.7. Binding Obligation.......................................... I-7
SECTION 3.8. No Breaches or Defaults..................................... I-7
SECTION 3.9. Authorizations or Consents.................................. I-7
SECTION 3.10. Permits..................................................... I-8
SECTION 3.11. No Actions, Suits or Proceedings............................ I-8
SECTION 3.12. Contracts................................................... I-8
SECTION 3.13. Properties and Assets....................................... I-8
SECTION 3.14. Taxes....................................................... I-8
SECTION 3.15. Benefit and Employment Obligations.......................... I-9
SECTION 3.16. Brokers..................................................... I-9
SECTION 3.17. Voting Requirements......................................... I-9
SECTION 3.18. State Takeover Statutes..................................... I-9
SECTION 3.19. Books and Records........................................... I-9
SECTION 3.20. Prospectus and Statement of Additional Information.......... I-9
SECTION 3.21. No Distribution............................................. I-9
SECTION 3.22. Liabilities of Selling Fund................................. I-9
SECTION 3.23. Value of Shares............................................. I-10
SECTION 3.24. Shareholder Expenses........................................ I-10
SECTION 3.25. Intercompany Indebtedness; Consideration.................... I-10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER............................ I-10
SECTION 4.1. Organization; Authority..................................... I-10
SECTION 4.2. Registration and Regulation of Buyer........................ I-10
SECTION 4.3. Financial Statements........................................ I-10
</Table>
I-i
<Table>
<Caption>
PAGE
----
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities......... I-10
SECTION 4.5. Registration of Buying Fund Shares.......................... I-11
SECTION 4.6. Accountants................................................. I-11
SECTION 4.7. Binding Obligation.......................................... I-11
SECTION 4.8. No Breaches or Defaults..................................... I-11
SECTION 4.9. Authorizations or Consents.................................. I-12
SECTION 4.10. Permits..................................................... I-12
SECTION 4.11. No Actions, Suits or Proceedings............................ I-12
SECTION 4.12. Taxes....................................................... I-12
SECTION 4.13. Brokers..................................................... I-13
SECTION 4.14. Representations Concerning the Reorganization............... I-13
SECTION 4.15. Prospectus and Statement of Additional Information.......... I-13
SECTION 4.16. Value of Shares............................................. I-13
SECTION 4.17. Intercompany Indebtedness; Consideration.................... I-13
ARTICLE 5 COVENANTS.......................................................... I-14
SECTION 5.1. Conduct of Business......................................... I-14
SECTION 5.2. Announcements............................................... I-14
SECTION 5.3. Expenses.................................................... I-14
SECTION 5.4. Further Assurances.......................................... I-14
SECTION 5.5. Notice of Events............................................ I-14
SECTION 5.6. Access to Information....................................... I-15
SECTION 5.7. Consents, Approvals and Filings............................. I-15
SECTION 5.8. Submission of Agreement to Shareholders..................... I-15
SECTION 5.9. Delay of Consummation of Reorganization..................... I-15
ARTICLE 6 CONDITIONS PRECEDENT TO THE REORGANIZATION......................... I-15
SECTION 6.1. Conditions Precedent of Buyer............................... I-15
SECTION 6.2. Mutual Conditions........................................... I-16
SECTION 6.3. Conditions Precedent of Seller.............................. I-17
ARTICLE 7 TERMINATION OF AGREEMENT........................................... I-17
SECTION 7.1. Termination................................................. I-17
SECTION 7.2. Survival After Termination.................................. I-17
ARTICLE 8 MISCELLANEOUS...................................................... I-18
SECTION 8.1. Survival of Representations, Warranties and Covenants....... I-18
SECTION 8.2. Governing Law............................................... I-18
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment........... I-18
SECTION 8.4. Obligations of Buyer and Seller............................. I-18
SECTION 8.5. Amendments.................................................. I-18
SECTION 8.6. Enforcement................................................. I-18
SECTION 8.7. Interpretation.............................................. I-18
SECTION 8.8. Counterparts................................................ I-19
SECTION 8.9. Entire Agreement; Exhibits and Schedules.................... I-19
SECTION 8.10. Notices..................................................... I-19
</Table>
I-ii
<Table>
<Caption>
PAGE
----
SECTION 8.11. Representations by Seller Investment Adviser................ I-19
SECTION 8.12. Representations by Buyer Investment Adviser................. I-19
SECTION 8.13. Successors and Assigns; Assignment.......................... I-20
Exhibit A Excluded Liabilities of Selling Fund
Schedule 2.1 Classes of Shares of Selling Fund and Corresponding Classes
of Shares of Buying Fund
Schedule 3.4 Certain Contingent Liabilities of Selling Fund
Schedule 3.5(d) Permitted Restructurings and Redomestications of Funds
Schedule 3.11(b) Certain Actions, Suits or Proceedings
Schedule 4.4 Certain Contingent Liabilities of Buying Fund
Schedule 4.5(a) Portfolios of Buyer
Schedule 4.5(b) Classes of Shares of Buying Fund and Number of Shares of
Each Class Buyer is Authorized to Issue
Schedule 5.1 Permitted Combinations of Funds
Schedule 6.2(f) Tax Opinions
</Table>
I-iii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of August 13, 2003 (this
"Agreement"), by and among INVESCO Stock Funds, Inc., a Maryland corporation
("Seller"), acting on behalf of INVESCO Growth Fund ("Selling Fund"), a separate
series of Seller, AIM Equity Funds, a Delaware statutory trust ("Buyer"), acting
on behalf of AIM Large Cap Growth Fund ("Buying Fund"), a separate series of
Buyer, A I M Advisors, Inc., a Delaware corporation, and INVESCO Funds Group,
Inc., a Delaware corporation.
WITNESSETH
WHEREAS, Seller is a management investment company registered with the SEC
(as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund, for sale to the public; and
WHEREAS, Buyer is a management investment company registered with the SEC
under the Investment Company Act that offers separate series of its shares
representing interests in investment portfolios, including Buying Fund, for sale
to the public; and
WHEREAS, Buyer Investment Adviser (as defined below) provides investment
advisory services to Buyer; and
WHEREAS, Seller Investment Adviser (as defined below) provides investment
advisory services to Seller; and
WHEREAS, Selling Fund desires to provide for its reorganization through the
transfer of all of its assets to Buying Fund in exchange for the assumption by
Buying Fund of all of the Liabilities (as defined below) of Selling Fund and the
issuance by Buyer of shares of Buying Fund in the manner set forth in this
Agreement; and
WHEREAS, this Agreement is intended to be and is adopted by the parties
hereto as a Plan of Reorganization within the meaning of the regulations under
Section 368(a) of the Code (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and undertakings contained in this Agreement, Seller, Buyer, Buyer
Investment Adviser and Seller Investment Adviser agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization, together with
all exhibits and schedules attached hereto and all amendments hereto and
thereof.
"Applicable Law" means the applicable laws of the state in which each of
Buyer and Seller has been organized and shall include, as applicable, the
Maryland General Corporation Law and the Delaware Statutory Trust Act.
I-1
"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Seller on behalf of Selling
Fund, or otherwise providing benefits to any current or former employee, officer
or director/trustee of Seller.
"Buyer" means AIM Equity Funds, a Delaware statutory trust.
"Buyer Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
"Buyer Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Buying Fund.
"Buyer Investment Adviser" means A I M Advisors, Inc.
"Buyer Registration Statement" means the registration statement on Form
N-1A of Buyer, as amended, 1940 Act Registration No. 811-1424.
"Buying Fund" means AIM Large Cap Growth Fund, a separate series of Buyer.
"Buying Fund Auditors" means Ernst & Young LLP.
"Buying Fund Financial Statements" means the audited financial statements
of Buying Fund for the fiscal year ended October 31, 2002 and the unaudited
financial statements of Buying Fund for the period ended April 30, 2003.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Agreement.
"Closing" means the transfer of the assets of Selling Fund to Buying Fund,
the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Agreement.
"Closing Date" means November 3, 2003, or such other date as the parties
may mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations adopted pursuant thereto.
"corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations adopted pursuant thereto.
"Exchangeability Date" means the first date on which Buyer Investment
Adviser determines that shares of retail mutual funds advised by Buyer
Investment Adviser and shares of retail mutual funds advised by Seller
Investment adviser generally may be exchanged for shares of the same or a
similar class of each other.
"Governing Documents" means the organic documents which govern the business
and operations of each of Buyer and Seller and shall include, as applicable, the
Charter, Amended and Restated Agreement and Declaration of Trust, Amended and
Restated Bylaws and Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading
I-2
Commission, the National Futures Association, the Investment Management
Regulatory Organization Limited and the Office of Fair Trading).
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in the
condition (financial or otherwise), properties, assets or prospects of an entity
having an adverse monetary effect in an amount equal to or greater than $50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.10 of this
Agreement.
"Person" means an individual or a corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Buyer of Buying Fund Shares
directly to Selling Fund Shareholders as described in this Agreement, and the
termination of Selling Fund's status as a designated series of shares of Seller.
"Required Shareholder Vote" means the lesser of (a) the affirmative vote of
67% or more of the voting securities of Selling Fund present or represented by
proxy at the Shareholders Meeting, if the holders of more than 50% of the
outstanding voting securities of Selling Fund are present or represented by
proxy, or (b) the affirmative vote of more than 50% of the outstanding voting
securities of Selling Fund.
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Seller" means INVESCO Stock Funds, Inc., a Maryland corporation.
"Seller Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Selling Fund.
"Seller Investment Adviser" means INVESCO Funds Group, Inc..
"Seller Registration Statement" means the registration statement on Form
N-1A of Seller, as amended, 1940 Act Registration No. 811-1474.
"Selling Fund" means INVESCO Growth Fund, a separate series of Seller.
"Selling Fund Auditors" means PricewaterhouseCoopers LLP.
"Selling Fund Financial Statements" means the audited financial statements
of Selling Fund for the fiscal year ended July 31, 2002 and the unaudited
financial statements of Selling Fund for the period ended January 31, 2003.
"Selling Fund Shareholders" means the holders of record of the outstanding
shares of each class of Selling Fund as of the close of regular trading on the
NYSE on the Valuation Date.
I-3
"Selling Fund Shares" means the outstanding shares of each class of Selling
Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling Fund
convened in accordance with Applicable Law and the Governing Documents of Seller
to consider and vote upon the approval of this Agreement.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means December 31, 2003, or such later date as the
parties may mutually agree upon.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Valuation Date" shall have the meaning set forth in Section 2.2 of this
Agreement.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all
of the assets of Selling Fund shall be delivered to Buyer Custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of all of
the Liabilities of Selling Fund and delivery by Buyer directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund Shares, and
the value of the assets and the amount of the Liabilities of Selling Fund,
shall, in each case, be determined as of the close of regular trading on the
NYSE on the business day next preceding the Closing Date (the "Valuation Date").
(b) The net asset value per share of each class of Buying Fund Shares shall
be computed in accordance with the policies and procedures of Buying Fund as
described in the Buyer Registration Statement.
(c) The value of the assets and the amount of the Liabilities of Selling
Fund to be transferred to Buying Fund pursuant to this Agreement shall be
computed in accordance with the policies and procedures of Selling Fund as
described in the Seller Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of value
regarding the assets and Liabilities of Selling Fund and the net asset value per
share of each class of Buying Fund Shares to be issued pursuant to this
Agreement shall be made by agreement of Seller and Buyer. The parties agree to
use commercially reasonable efforts to resolve any material pricing differences
between the prices of portfolio securities determined in accordance with their
respective pricing policies and procedures.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund
will be permanently closed as of the close of business on the Valuation Date and
only requests for the redemption of shares of Selling Fund received in proper
form prior to the close of regular trading on the NYSE on the Valuation Date
shall be accepted by Selling Fund. Redemption requests thereafter received by
Selling Fund shall be
I-4
deemed to be redemption requests for Buying Fund Shares of the corresponding
class (assuming that the transactions contemplated by this Agreement have been
consummated), to be distributed to Selling Fund Shareholders under this
Agreement.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing Date,
Seller shall instruct Seller Custodian to transfer all assets held by Selling
Fund to the account of Buying Fund maintained at Buyer Custodian. Such assets
shall be delivered by Seller to Buyer Custodian on the Closing Date. The assets
so delivered shall be duly endorsed in proper form for transfer in such
condition as to constitute a good delivery thereof, in accordance with the
custom of brokers, and shall be accompanied by all necessary state stock
transfer stamps, if any, or a check for the appropriate purchase price thereof.
Cash held by Selling Fund shall be delivered on the Closing Date and shall be in
the form of currency or wire transfer in Federal funds, payable to the order of
the account of Buying Fund at Buyer Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make delivery in the
manner contemplated by Section 2.4(a) of securities held by Selling Fund for the
reason that any of such securities purchased prior to the Closing Date have not
yet been delivered to Selling Fund or its broker, then Buyer shall waive the
delivery requirements of Section 2.4(a) with respect to said undelivered
securities if Selling Fund has delivered to Buyer Custodian by or on the Closing
Date, and with respect to said undelivered securities, executed copies of an
agreement of assignment and escrow and due bills executed on behalf of said
broker or brokers, together with such other documents as may be required by
Buyer or Buyer Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series and Redemption of Selling Fund
Shares. Following receipt of the Required Shareholder Vote and as soon as
reasonably practicable after the Closing Date, the status of Selling Fund as a
designated series of Seller shall be terminated and Seller shall redeem the
outstanding shares of Selling Fund from Selling Fund Shareholders in accordance
with its Charter and the Maryland General Corporation Law; provided, however,
that the termination of Selling Fund as a designated series of Seller and the
redemption of the outstanding shares of Selling Fund shall not be required if
the Reorganization shall not have been consummated.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date. All issued and outstanding shares of Selling Fund shall thereupon be
canceled on the books of Seller. Seller shall provide instructions to the
transfer agent of Buyer with respect to the shares of each class of Buying Fund
to be issued to Selling Fund Shareholders. Buyer shall have no obligation to
inquire as to the validity, propriety or correctness of any such instruction,
but shall, in each case, assume that such instruction is valid, proper and
correct. Buyer shall record on its books the ownership of the shares of each
class of Buying Fund by Selling Fund Shareholders and shall forward a
confirmation of such ownership to Selling Fund Shareholders. No redemption or
repurchase of such shares credited to former Selling Fund Shareholders in
respect of Selling Fund Shares represented by unsurrendered share certificates
shall be permitted until such certificates have been surrendered to Buyer for
cancellation, or if such certificates are lost or misplaced, until lost
certificate affidavits have been executed and delivered to Buyer.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Seller shall deliver a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases thereof and holding
periods therefor. Seller shall provide to Buyer on or before the Valuation Date
detailed tax basis accounting records for each security to be transferred to it
pursuant to this Agreement. Such records shall be prepared in accordance with
the requirements for specific identification tax lot accounting and clearly
reflect the bases used for determination of gain and loss realized on the sale
of any security transferred to Buying Fund hereunder. Such records shall be made
available by Seller prior to the Valuation Date for inspection by the Treasurer
(or his or her designee) or the auditors of Buyer upon reasonable request.
I-5
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best efforts
to discharge all of its known liabilities, so far as may be possible, prior to
the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, on behalf of Selling Fund, represents and warrants to Buyer as
follows:
SECTION 3.1. Organization; Authority. Seller is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 3.2. Registration and Regulation of Seller. Seller is duly
registered with the SEC as an investment company under the Investment Company
Act and all Selling Fund Shares which have been or are being offered for sale
have been duly registered under the Securities Act and have been duly
registered, qualified or are exempt from registration or qualification under the
securities laws of each state or other jurisdiction in which such shares have
been or are being offered for sale, and no action has been taken by Seller to
revoke or rescind any such registration or qualification. Selling Fund is in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Selling Fund is in compliance in all material respects with the investment
policies and restrictions applicable to it set forth in the Seller Registration
Statement. The value of the net assets of Selling Fund is determined using
portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Selling Fund and
all purchases and redemptions of Selling Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 3.3. Financial Statements. The books of account and related
records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Selling Fund Financial
Statements previously delivered to Buyer present fairly in all material respects
the financial position of Selling Fund as of the date(s) indicated and the
results of operations and changes in net assets for the period(s) then ended in
accordance with generally accepted accounting principles applied on a consistent
basis for the period(s) then ended.
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Selling Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Selling
Fund or the status of Selling Fund as a regulated investment company under the
Code, other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Selling Fund or occurring in the ordinary course of business of Selling Fund or
Seller. Except as set forth on Schedule 3.4, there are no contingent liabilities
of Selling Fund not disclosed in the Selling Fund Financial Statements and no
contingent liabilities of Selling Fund have arisen since the date of the most
recent financial statements included in the Selling Fund Financial Statements.
SECTION 3.5. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly issued and
are fully paid and non-assessable.
(b) During the five-year period ending on the date of the Reorganization,
neither Selling Fund nor any person related to Selling Fund (as defined in
Section 1.368-1(e)(3) of the Treasury Regulations without regard to Section
1.368-1(e)(3)(i)(A)) will have directly or through any transaction, agreement,
or arrangement with any other person, (i) acquired shares of Selling Fund for
consideration other than shares of Selling Fund, except for shares redeemed in
the ordinary course of Selling Fund's business as an open-end investment company
as required by the Investment Company Act, or (ii) made distributions with
respect to Selling Fund's shares, except for (a) distributions necessary to
satisfy the requirements of
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Sections 852 and 4982 of the Code for qualification as a regulated investment
company and avoidance of excise tax liability and (b) additional distributions,
to the extent such additional distributions do not exceed 50 percent of the
value (without giving effect to such distributions) of the proprietary interest
in Selling Fund on the Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Selling Fund Shares, except for
the right of investors to acquire Selling Fund Shares at net asset value in the
normal course of its business as a series of an open-end management investment
company operating under the Investment Company Act.
(d) From the date it commenced operations and ending on the Closing Date,
Selling Fund will have conducted its historic business within the meaning of
Section 1.368-1(d)(2) of the Treasury Regulations in a substantially unchanged
manner. In anticipation of its Reorganization, Selling Fund will not dispose of
assets that, in the aggregate, will result in less than fifty percent (50%) of
its historic business assets (within the meaning of Section 1.368-1(d)(3) of the
Treasury Regulations) being transferred to Buying Fund; provided, however, that
this Section 3.5(d) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(e) Seller does not have, and has not had during the six (6) months prior
to the date of this Agreement, any employees, and shall not hire any employees
from and after the date of this Agreement through the Closing Date.
SECTION 3.6. Accountants. Selling Fund Auditors, which have reported upon
the Selling Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Selling Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 3.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Seller on behalf of Selling Fund and, assuming this
Agreement has been duly executed and delivered by Buyer and approved by the
shareholders of Selling Fund, constitutes the legal, valid and binding
obligation of Seller enforceable against Seller in accordance with its terms
from and with respect to the revenues and assets of Selling Fund, except as the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization
or similar laws relating to or affecting creditors rights generally, or by
general equity principles (whether applied in a court of law or a court of
equity and including limitations on the availability of specific performance or
other equitable remedies).
SECTION 3.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Seller on behalf of Selling Fund and performance by Seller of its
obligations hereunder has been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Seller, other than approval by the
shareholders of Selling Fund, and (i) do not, and on the Closing Date will not,
result in any violation of the Governing Documents of Seller and (ii) do not,
and on the Closing Date will not, result in a breach of any of the terms or
provisions of, or constitute (with or without the giving of notice or the lapse
of time or both) a default under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation or imposition of any Lien upon any
property or assets of Selling Fund (except for such breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect) under (A) any indenture, mortgage or loan
agreement or any other material agreement or instrument to which Seller is a
party or by which it may be bound and which relates to the assets of Selling
Fund or to which any property of Selling Fund may be subject; (B) any Permit (as
defined below); or (C) any existing applicable law, rule, regulation, judgment,
order or decree of any Governmental Authority having jurisdiction over Seller or
any property of Selling Fund. Seller is not under the jurisdiction of a court in
a proceeding under Title 11 of the United States Code or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
SECTION 3.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date and those that must
be made after the Closing Date to comply with
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Section 2.5 of this Agreement, no authorization or approval or other action by,
and no notice to or filing with, any Governmental Authority will be required to
be obtained or made by Seller in connection with the due execution and delivery
by Seller of this Agreement and the consummation by Seller of the transactions
contemplated hereby.
SECTION 3.10. Permits. Seller has in full force and effect all approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights of Governmental Authorities (collectively, "Permits")
necessary for it to conduct its business as presently conducted as it relates to
Selling Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Seller there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Seller, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Seller before any Governmental Authority which
questions the validity or legality of this Agreement or of the actions
contemplated hereby or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) Except as set forth on Schedule 3.11(b), there are no judicial,
administrative or arbitration actions, suits, or proceedings instituted or
pending or, to the knowledge of Seller, threatened in writing or, if probable of
assertion, orally, against Seller affecting any property, asset, interest or
right of Selling Fund, that could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect with respect to Selling Fund.
There are not in existence on the date hereof any plea agreements, judgments,
injunctions, consents, decrees, exceptions or orders that were entered by, filed
with or issued by any Governmental Authority relating to Seller's conduct of the
business of Selling Fund affecting in any significant respect the conduct of
such business. Seller is not, and has not been, to the knowledge of Seller, the
target of any investigation by the SEC or any state securities administrator
with respect to its conduct of the business of Selling Fund.
SECTION 3.12. Contracts. Seller is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party and which involves or affects the assets of Selling Fund,
by which the assets, business, or operations of Selling Fund may be bound or
affected, or under which it or the assets, business or operations of Selling
Fund receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of Seller there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
SECTION 3.13. Properties and Assets. Selling Fund has good and marketable
title to all properties and assets reflected in the Selling Fund Financial
Statements as owned by it, free and clear of all Liens, except as described in
the Selling Fund Financial Statements.
SECTION 3.14. Taxes.
(a) Selling Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Selling Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will have satisfied the requirements of Part
I of Subchapter M of the Code to maintain such qualification for the period
beginning on the first day of its current taxable year and ending on the Closing
Date. Selling Fund has no earnings and profits accumulated in any taxable year
in which the provisions of Subchapter M of the Code did not apply to it. In
order to (i) ensure continued qualification of Selling Fund for treatment as a
"regulated investment company" for tax purposes and (ii) eliminate any tax
liability of Selling Fund arising by reason of undistributed investment company
taxable income or net capital gain, Seller will declare on or prior to the
Valuation Date to the shareholders
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of Selling Fund a dividend or dividends that, together with all previous such
dividends, shall have the effect of distributing (A) all of Selling Fund's
investment company taxable income (determined without regard to any deductions
for dividends paid) for the taxable year ended July 31, 2003 and for the short
taxable year beginning on August 1, 2003 and ending on the Closing Date and (B)
all of Selling Fund's net capital gain recognized in its taxable year ended July
31, 2003 and in such short taxable year (after reduction for any capital loss
carryover).
(b) Selling Fund has timely filed all Returns required to be filed by it
and all Taxes with respect thereto have been paid, except where the failure so
to file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Selling Fund Financial Statements for all Taxes in respect of all periods
ended on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Selling Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Selling Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 3.15. Benefit and Employment Obligations. As of the Closing Date,
Selling Fund will have no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to under any
Benefit Plan, and will have no obligation to provide unfunded deferred
compensation or other unfunded or self-funded benefits to any Person.
SECTION 3.16. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Seller in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Seller or any action taken by it.
SECTION 3.17. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Agreement.
SECTION 3.18. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Agreement or
any of the transactions contemplated by this Agreement.
SECTION 3.19. Books and Records. The books and records of Seller relating
to Selling Fund, reflecting, among other things, the purchase and sale of
Selling Fund Shares, the number of issued and outstanding shares owned by each
Selling Fund Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
SECTION 3.20. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.21. No Distribution. Buying Fund Shares are not being acquired
for the purpose of any distribution thereof, other than in accordance with the
terms of this Agreement.
SECTION 3.22. Liabilities of Selling Fund. The Liabilities of Selling
Fund that are to be assumed by Buying Fund in connection with the
Reorganization, or to which the assets of Selling Fund to be transferred in the
Reorganization are subject, were incurred by Selling Fund in the ordinary course
of its business. The fair market value of the assets of Selling Fund to be
transferred to Buying Fund in the Reorganization will equal or exceed the sum of
the Liabilities to be assumed by Buying Fund, plus the amount of liabilities, if
any, to which such transferred assets will be subject. The total adjusted basis
of the
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assets of Selling Fund to be transferred to Buying Fund in the Reorganization
will equal or exceed the sum of the Liabilities to be assumed by Buying Fund,
plus the amount of liabilities, if any, to which such transferred assets will be
subject.
SECTION 3.23. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 3.24. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
SECTION 3.25. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, on behalf of Buying Fund, represents and warrants to Seller as
follows:
SECTION 4.1. Organization; Authority. Buyer is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 4.2. Registration and Regulation of Buyer. Buyer is duly
registered with the SEC as an investment company under the Investment Company
Act. Buying Fund is in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, the Investment
Company Act, the Securities Act, the Exchange Act and all applicable state
securities laws. Buying Fund is in compliance in all material respects with the
applicable investment policies and restrictions set forth in the Buyer
Registration Statement. The value of the net assets of Buying Fund is determined
using portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Buying Fund and
all purchases and redemptions of Buying Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 4.3. Financial Statements. The books of account and related
records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Buying Fund Financial
Statements previously delivered to Seller present fairly in all material
respects the financial position of Buying Fund as of the date(s) indicated and
the results of operations and changes in net assets for the period(s) then ended
in accordance with generally accepted accounting principles applied on a
consistent basis for the period(s) then ended.
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Buying Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Buying Fund
or the status of Buying Fund as a regulated investment company under the Code,
other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Buying Fund or occurring in the ordinary course of business of Buying Fund or
Buyer. There are no contingent liabilities of Buying Fund not disclosed in the
Buying Fund Financial Statements which are required to be disclosed in
accordance with generally accepted accounting principles. Except as set forth on
Schedule 4.4, no contingent liabilities of Buying Fund have arisen since the
date of the most recent financial statements included in the Buying Fund
Financial Statements which are required to be disclosed in accordance with
generally accepted accounting principles.
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SECTION 4.5. Registration of Buying Fund Shares.
(a) The shares of Buyer are divided into those portfolios, including Buying
Fund, that are set forth on Schedule 4.5(a).
(b) Buying Fund currently has those classes of shares that are set forth on
Schedule 4.5(b). Under its Governing Documents, Buyer is authorized to issue the
number of shares of each such class that is set forth on Schedule 4.5(b).
(c) Buying Fund Shares to be issued pursuant to Section 2.6 shall on the
Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of Buyer then in effect.
(d) Buying Fund Shares to be issued pursuant to Section 2.6 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(e) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of Buyer's Registration Statement on
Form N-14, shall be furnished to the shareholders of Selling Fund entitled to
vote at the Shareholders Meeting. The Combined Proxy Statement/Prospectus and
related Statement of Additional Information of Buying Fund, when they become
effective, shall conform to the applicable requirements of the Securities Act
and the Investment Company Act and shall not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading, provided, however, that no
representation or warranty is made with respect to written information provided
by Seller for inclusion in the Combined Proxy Statement/Prospectus.
(f) The shares of Buying Fund which have been or are being offered for sale
(other than the Buying Fund Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the Buyer
Registration Statement and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Buyer to revoke or rescind any such registration
or qualification.
SECTION 4.6. Accountants. Buying Fund Auditors, which have reported upon
the Buying Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Buying Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 4.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Buyer on behalf of Buying Fund and, assuming this
Agreement has been duly executed and delivered by Seller, constitutes the legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms from and with respect to the revenues and assets of Buying Fund,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors' rights
generally, or by general equity principles (whether applied in a court or law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 4.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Buyer on behalf of Buying Fund and performance by Buyer of its
obligations hereunder have been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Buyer and (i) do not, and on the
Closing Date will not, result in any violation of the Governing Documents of
Buyer and (ii) do not, and on the Closing Date will not, result in a breach of
any of the terms or provisions of, or constitute (with or
I-11
without the giving of notice or the lapse of time or both) a default under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
or imposition of any Lien upon any property or assets of Buying Fund (except for
such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Buyer is a party or by which it may be bound and which
relates to the assets of Buying Fund or to which any properties of Buying Fund
may be subject; (B) any Permit; or (C) any existing applicable law, rule,
regulation, judgment, order or decree of any Governmental Authority having
jurisdiction over Buyer or any property of Buying Fund. Buyer is not under the
jurisdiction of a court in a proceeding under Title 11 of the United States Code
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
SECTION 4.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date, no authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority will be required to be obtained or made by Buyer in connection with
the due execution and delivery by Buyer of this Agreement and the consummation
by Buyer of the transactions contemplated hereby.
SECTION 4.10. Permits. Buyer has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Buying Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Buyer there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 4.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Buyer, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Buyer before any Governmental Authority which
questions the validity or legality of this Agreement or of the transactions
contemplated hereby, or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Buyer, threatened in
writing or, if probable of assertion, orally, against Buyer, affecting any
property, asset, interest or right of Buying Fund, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Buying Fund. There are not in existence on the date hereof any
plea agreements, judgments, injunctions, consents, decrees, exceptions or orders
that were entered by, filed with or issued by any Governmental Authority
relating to Buyer's conduct of the business of Buying Fund affecting in any
significant respect the conduct of such business. Buyer is not, and has not
been, to the knowledge of Buyer, the target of any investigation by the SEC or
any state securities administrator with respect to its conduct of the business
of Buying Fund.
SECTION 4.12. Taxes.
(a) Buying Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Buying Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will satisfy the requirements of Part I of
Subchapter M of the Code to maintain such qualification for its current taxable
year. Buying Fund has no earnings or profits accumulated in any taxable year in
which the provisions of Subchapter M of the Code did not apply to it.
(b) Buying Fund has timely filed all Returns required to be filed by it and
all Taxes with respect thereto have been paid, except where the failure so to
file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Buying Fund Financial Statements for all Taxes in respect of all periods
ending on or before the date
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of such financial statements, except where the failure to make such provisions
would not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect. No deficiencies for any Taxes have been proposed,
assessed or asserted in writing by any taxing authority against Buying Fund, and
no deficiency has been proposed, assessed or asserted, in writing, where such
deficiency would reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect. No waivers of the time to assess any such Taxes
are outstanding nor are any written requests for such waivers pending and no
Return of Buying Fund is currently being or has been audited with respect to
income taxes or other Taxes by any Federal, state, local or foreign Tax
authority.
SECTION 4.13. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Buyer in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Buyer or any action taken by it.
SECTION 4.14. Representations Concerning the Reorganization.
(a) Buyer has no plan or intention to reacquire any Buying Fund Shares
issued in the Reorganization, except to the extent that Buying Fund is required
by the Investment Company Act to redeem any of its shares presented for
redemption at net asset value in the ordinary course of its business as an
open-end, management investment company.
(b) Buying Fund has no plan or intention to sell or otherwise dispose of
any of the assets of Selling Fund acquired in the Reorganization, other than in
the ordinary course of its business and to the extent necessary to maintain its
status as a "regulated investment company" under the Code; provided, however,
that this Section 4.14(b) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(c) Following the Reorganization, Buying Fund will continue an "historic
business" of Selling Fund or use a significant portion of Selling Fund's
"historic business assets" in a business. For purposes of this representation,
the terms "historic business" and "historic business assets" shall have the
meanings ascribed to them in Section 1.368-1(d) of the Treasury Regulations;
provided, however, that this Section 4.14(c) shall not preclude any of the
restructurings or redomestications of funds set forth on Schedule 3.5(d).
(d) Prior to or in the Reorganization, neither Buying Fund nor any person
related to Buying Fund (for purposes of this paragraph as defined in Section
1.368-1(e)(3) of the Treasury Regulations) will have acquired directly or
through any transaction, agreement or arrangement with any other person, shares
of Selling Fund with consideration other than shares of Buying Fund. There is no
plan or intention by Buying Fund or any person related to Buying Fund to acquire
or redeem any of the Buying Fund Shares issued in the Reorganization either
directly or through any transaction, agreement, or arrangement with any other
person, other than redemptions in the ordinary course of Buying Fund's business
as an open-end investment company as required by the Investment Company Act.
SECTION 4.15. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 4.16. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 4.17. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration
I-13
other than Buying Fund Shares (and Buying Fund's assumption of Selling Fund's
Liabilities, including for this purpose any liabilities to which the assets of
Selling Fund are subject) will be given in exchange for the assets of Selling
Fund acquired by Buying Fund in connection with the Reorganization. The fair
market value of the assets of Selling Fund transferred to Buying Fund in the
Reorganization will equal or exceed the sum of the Liabilities assumed by Buying
Fund, plus the amount of liabilities, if any, to which such transferred assets
are subject.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Seller shall conduct the business of Selling Fund only in the
ordinary course and substantially in accordance with past practices, and shall
use its reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Selling Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(a) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
(b) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Buyer shall conduct the business of Buying Fund only in the ordinary
course and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Buying Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(b) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
SECTION 5.2. Announcements. Seller and Buyer shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement and the transactions contemplated by this
Agreement, and neither Seller nor Buyer shall issue any such press release or
make any public statement without the prior written approval of the other party
to this Agreement, such approval not to be unreasonably withheld, except as may
be required by law.
SECTION 5.3. Expenses. AMVESCAP PLC, on behalf of either Buyer Investment
Adviser or Seller Investment Adviser, shall bear the costs and expenses incurred
in connection with this Agreement and the Reorganization and other transactions
contemplated hereby; provided that any such expenses incurred by or on behalf of
Buying Fund or Selling Fund shall not be reimbursed or paid for by another
Person unless those expenses are solely and directly related to the
Reorganization.
SECTION 5.4. Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
SECTION 5.5. Notice of Events. Buyer shall give prompt notice to Seller,
and Seller shall give prompt notice to Buyer, of (a) the occurrence or
non-occurrence of any event which to the knowledge of Buyer or to the knowledge
of Seller, the occurrence or non-occurrence of which would be likely to result
in any of the conditions specified in (i) in the case of Seller, Sections 6.1
and 6.2 or (ii) in the case of Buyer, Sections 6.2 and 6.3, not being satisfied
so as to permit the consummation of the Reorganization and (b) any material
failure on its part, or on the part of the other party hereto of which it has
knowledge,
I-14
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.5 shall not limit or otherwise affect the
remedies available hereunder to any party.
SECTION 5.6. Access to Information.
(a) Seller will, during regular business hours and on reasonable prior
notice, allow Buyer and its authorized representatives reasonable access to the
books and records of Seller pertaining to the assets of Selling Fund and to
officers of Seller knowledgeable thereof; provided, however, that any such
access shall not significantly interfere with the business or operations of
Seller.
(b) Buyer will, during regular business hours and on reasonable prior
notice, allow Seller and its authorized representatives reasonable access to the
books and records of Buyer pertaining to the assets of Buying Fund and to
officers of Buyer knowledgeable thereof; provided, however, that any such access
shall not significantly interfere with the business or operations of Buyer.
SECTION 5.7. Consents, Approvals and Filings. Each of Seller and Buyer
shall make all necessary filings, as soon as reasonably practicable, including,
without limitation, those required under the Maryland General Corporation Law,
the Securities Act, the Exchange Act, the Investment Company Act and the
Advisers Act, in order to facilitate prompt consummation of the Reorganization
and the other transactions contemplated by this Agreement. In addition, each of
Seller and Buyer shall use its reasonable best efforts, and shall cooperate
fully with each other (i) to comply as promptly as reasonably practicable with
all requirements of Governmental Authorities applicable to the Reorganization
and the other transactions contemplated herein and (ii) to obtain as promptly as
reasonably practicable all necessary permits, orders or other consents of
Governmental Authorities and consents of all third parties necessary for the
consummation of the Reorganization and the other transactions contemplated
herein. Each of Seller and Buyer shall use reasonable efforts to provide such
information and communications to Governmental Authorities as such Governmental
Authorities may request.
SECTION 5.8. Submission of Agreement to Shareholders. Seller shall take
all action necessary in accordance with applicable law and its Governing
Documents to convene the Shareholders Meeting. Seller shall, through its Board
of Directors/Trustees, recommend to the shareholders of Selling Fund approval of
this Agreement. Seller shall use its reasonable best efforts to hold a
Shareholders Meeting as soon as practicable after the date hereof.
SECTION 5.9. Delay of Consummation of Reorganization. The parties
acknowledge and agree that if the Exchangeability Date has not occurred prior to
the Closing Date, consummation of the Reorganization shall not occur on the
Closing Date but instead shall be postponed until a mutually acceptable date
occurring subsequent to the Exchangeability Date; provided, however, that in no
event shall the consummation of the Reorganization occur on a date subsequent to
the Termination Date. In the case of such postponement of the consummation of
the Reorganization, the parties agree that the term "Closing Date" in this
Agreement shall mean in each instance such mutually acceptable date subsequent
to the Exchangeability Date as the parties may choose to consummate the
Reorganization.
ARTICLE 6
CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Conditions Precedent of Buyer. The obligation of Buyer to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Buyer.
(a) The representations and warranties of Seller on behalf of Selling Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
I-15
(b) Seller shall have complied with and satisfied in all material respects
all agreements and conditions relating to Selling Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Buyer shall have received at the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Seller, in such individual's capacity
as an officer of Seller and not as an individual, to the effect that the
conditions specified in Sections 6.1(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Seller certifying as to the accuracy and completeness of the
attached Governing Documents of Seller, and resolutions, consents and
authorizations of or regarding Seller with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
(d) The dividend or dividends described in the last sentence of Section
3.14(a) shall have been declared.
(e) Buyer shall have received from Seller confirmations or other adequate
evidence as to the tax costs and holding periods of the assets and property of
Selling Fund transferred to Buying Fund in accordance with the terms of this
Agreement.
(f) To the extent applicable, Seller Investment Adviser shall have
terminated or waived, in either case in writing, any rights to reimbursement
from Selling Fund to which it is entitled for fees and expenses absorbed by
Seller Investment Adviser pursuant to voluntary and contractual fee waiver or
expense limitation commitments between Seller Investment Adviser and Selling
Fund.
SECTION 6.2. Mutual Conditions. The obligations of Seller and Buyer to
consummate the Reorganization are subject to the satisfaction, at or prior to
the Closing Date, of all of the following further conditions, any one or more of
which may be waived in writing by Seller and Buyer, but only if and to the
extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing Date with, and all
consents, approvals, permits and authorizations required to be obtained on or
prior to the Closing Date from Governmental Authorities in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein by Seller and Buyer shall have been made or
obtained, as the case may be; provided, however, that such consents, approvals,
permits and authorizations may be subject to conditions that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
(b) This Agreement, the Reorganization of Selling Fund and related matters
shall have been approved and adopted at the Shareholders Meeting by the
shareholders of Selling Fund on the record date by the Required Shareholder
Vote.
(c) The assets of Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.2(c),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Agreement and the Reorganization and to effect all shareholder redemptions
and distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Agreement shall be included as assets of Selling
Fund held immediately prior to the Reorganization.
(d) No temporary restraining order, preliminary or permanent injunction or
other order issued by any Governmental Authority preventing the consummation of
the Reorganization on the Closing Date shall be in effect; provided, however,
that the party or parties invoking this condition shall use reasonable efforts
to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by Buyer with respect to
Buying Fund Shares to be issued to Selling Fund Shareholders in connection with
the Reorganization shall have become effective
I-16
under the Securities Act and no stop order suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the Securities Act.
(f) Seller and Buyer shall have received on or before the Closing Date an
opinion of Buyer Counsel in form and substance reasonably acceptable to Seller
and Buyer, as to the matters set forth on Schedule 6.2(f). In rendering such
opinion, Buyer Counsel may request and rely upon representations contained in
certificates of officers of Seller, Buyer and others, and the officers of Seller
and Buyer shall use their best efforts to make available such truthful
certificates.
SECTION 6.3. Conditions Precedent of Seller. The obligation of Seller to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Seller.
(a) The representations and warranties of Buyer on behalf of Buying Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
(b) Buyer shall have complied with and satisfied in all material respects
all agreements and conditions relating to Buying Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Seller shall have received on the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Buyer, in such individual's capacity
as an officer of Buyer and not as an individual, to the effect that the
conditions specified in Sections 6.3(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Buyer certifying as to the accuracy and completeness of the
attached Governing Documents of Buyer and resolutions, consents and
authorizations of or regarding Buyer with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
ARTICLE 7
TERMINATION OF AGREEMENT
SECTION 7.1. Termination. This Agreement may be terminated on or prior to
the Closing Date as follows:
(a) by mutual written consent of Seller and Buyer; or
(b) at the election of Seller or Buyer, to be effectuated by the delivery
by the terminating party to the other party of a written notice of such
termination:
(i) if the Closing Date shall not be on or before the Termination
Date, unless the failure to consummate the Reorganization is the result of
a willful and material breach of this Agreement by the party seeking to
terminate this Agreement;
(ii) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been
obtained as contemplated by Section 5.8; or
(iii) if any Governmental Authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Reorganization and such order, decree, ruling or
other action shall have become final and nonappealable.
SECTION 7.2. Survival After Termination. If this Agreement is terminated
in accordance with Section 7.1 hereof and the Reorganization of Selling Fund is
not consummated, this Agreement shall become void and of no further force and
effect with respect to the Reorganization and Selling Fund, except for the
provisions of Section 5.3.
I-17
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Agreement, and the covenants in this
Agreement that are required to be performed at or prior to the Closing Date,
shall terminate upon the consummation of the transactions contemplated
hereunder. The covenants in this Agreement that are required to be performed in
whole or in part subsequent to the Closing Date shall survive the consummation
of the transactions contemplated hereunder for a period of one (1) year
following the Closing Date.
SECTION 8.2. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such Persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or Person other than the parties hereto and their respective successors
and permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof. Without the prior written consent of the parties
hereto, this Agreement may not be assigned by any of the parties hereto.
SECTION 8.4. Obligations of Buyer and Seller.
(a) Seller and Buyer hereby acknowledge and agree that Buying Fund is a
separate investment portfolio of Buyer, that Buyer is executing this Agreement
on behalf of Buying Fund, and that any amounts payable by Buyer under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Buying Fund. Seller further acknowledges and agrees that this
Agreement has been executed by a duly authorized officer of Buyer in his or her
capacity as an officer of Buyer intending to bind Buyer as provided herein, and
that no officer, trustee or shareholder of Buyer shall be personally liable for
the liabilities or obligations of Buyer incurred hereunder. Finally, Seller
acknowledges and agrees that the liabilities and obligations of Buying Fund
pursuant to this Agreement shall be enforceable against the assets of Buying
Fund only and not against the assets of Buyer generally or assets belonging to
any other series of Buyer.
(b) Seller and Buyer hereby acknowledge and agree that Selling Fund is a
separate investment portfolio of Seller, that Seller is executing this Agreement
on behalf of Selling Fund and that any amounts payable by Seller under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Selling Fund.
SECTION 8.5. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by Seller and Buyer.
SECTION 8.6. Enforcement. The parties agree irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state having jurisdiction, in addition to any other remedy to which they are
entitled at law or in equity.
SECTION 8.7. Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or a Schedule to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." Each representation and warranty contained in Article 3 or 4 that
relates to a general category of a subject matter shall be deemed superseded by
a specific representation and warranty relating to a subcategory thereof to the
extent of such specific representation or warranty.
I-18
SECTION 8.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
SECTION 8.9. Entire Agreement; Exhibits and Schedules. This Agreement,
including the Exhibits, Schedules, certificates and lists referred to herein,
and any documents executed by the parties simultaneously herewith or pursuant
thereto, constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, written or oral, between the parties with respect
to such subject matter.
SECTION 8.10. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or by overnight courier, two days after being
sent by registered mail, return receipt requested, or when sent by telecopier
(with receipt confirmed), provided, in the case of a telecopied notice, a copy
is also sent by registered mail, return receipt requested, or by courier,
addressed as follows (or to such other address as a party may designate by
notice to the other):
(a) If to Seller:
INVESCO Stock Funds, Inc.
4350 South Monaco Street
Denver, CO 80237
Attn: Glen A. Payne
with a copy to:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., N.W.
Second Floor
Washington, DC 20036-1800
Attn: Clifford J. Alexander
(b) If to Buyer:
AIM Equity Funds
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Attn: Kevin M. Carome
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attn: Martha J. Hays
SECTION 8.11. Representations by Seller Investment Adviser. In its
capacity as investment adviser to Seller, Seller Investment Adviser represents
to Buyer that to the best of its knowledge the representations and warranties of
Seller and Selling Fund contained in this Agreement are true and correct as of
the date of this Agreement. For purposes of this Section 8.11, the best
knowledge standard shall be deemed to mean that the officers of Seller
Investment Adviser who have substantive responsibility for the provision of
investment advisory services to Seller do not have actual knowledge to the
contrary after due inquiry.
SECTION 8.12. Representations by Buyer Investment Adviser. In its
capacity as investment adviser to Buyer, Buyer Investment Adviser represents to
Seller that to the best of its knowledge the representations and warranties of
Buyer and Buying Fund contained in this Agreement are true and correct as of the
date of this Agreement. For purposes of this Section 8.12, the best knowledge
standard shall be deemed to mean that the officers of Buyer Investment Adviser
who have substantive responsibility for the
I-19
provision of investment advisory services to Buyer do not have actual knowledge
to the contrary after due inquiry.
SECTION 8.13. Successors and Assigns; Assignment. This Agreement shall be
binding upon and inure to the benefit of Seller, on behalf of Selling Fund, and
Buyer, on behalf of Buying Fund, and their respective successors and assigns.
The parties hereto expressly acknowledge and agree that this Agreement shall be
binding upon and inure to the benefit of those Delaware statutory trusts that
are the resulting entities in the permitted restructurings and redomestications
of funds set forth on Schedule 3.5(d).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
INVESCO STOCK FUNDS, INC., acting on
behalf of
INVESCO GROWTH FUND
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
AIM EQUITY FUNDS, acting on behalf of
AIM LARGE CAP GROWTH FUND
By: /s/ ROBERT H. GRAHAM
------------------------------------
A I M ADVISORS, INC.
By: /s/ MARK H. WILLIAMSON
------------------------------------
INVESCO FUNDS GROUP, INC.
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
I-20
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
SCHEDULE 2.1
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF SHARES OF SELLING FUND SHARES OF BUYING FUND
- --------------------------------- ------------------------
Class A shares.............................................. Class A shares
Class B shares.............................................. Class B shares
Class C shares.............................................. Class C shares
Class K shares.............................................. Class A shares
Investor Class shares....................................... Investor Class shares
</Table>
SCHEDULE 3.4
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
SCHEDULE 3.5(D)
PERMITTED RESTRUCTURINGS AND REDOMESTICATIONS OF FUNDS
<Table>
<Caption>
CURRENT FUNDS CORRESPONDING NEW FUNDS
- ------------- -----------------------
AIM ADVISOR FUNDS................................ AIM INVESTMENT SECURITIES FUNDS
(DELAWARE STATUTORY TRUST) (DELAWARE STATUTORY TRUST)
AIM International Core Equity Fund............... AIM International Core Equity Fund
AIM Real Estate Fund............................. AIM Real Estate Fund
AIM INTERNATIONAL FUNDS, INC. ................... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
AIM European Growth Fund......................... AIM European Growth Fund
INVESCO BOND FUNDS, INC. ........................ AIM BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO High Yield Fund.......................... INVESCO High Yield Fund
INVESCO Select Income Fund....................... INVESCO Select Income Fund
INVESCO Tax-Free Bond Fund....................... INVESCO Tax-Free Bond Fund
INVESCO U.S. Government Securities Fund.......... INVESCO U.S. Government Securities Fund
INVESCO COMBINATION STOCK & BOND FUNDS, INC. .... AIM COMBINATION STOCK & BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Balanced Fund............................ INVESCO Balanced Fund
INVESCO Total Return Fund........................ INVESCO Total Return Fund
INVESCO COUNSELOR SERIES FUNDS, INC. ............ AIM COUNSELOR SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Advantage Fund........................... INVESCO Advantage Fund
INVESCO INTERNATIONAL FUNDS, INC. ............... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO European Fund............................ INVESCO European Fund
INVESCO International Blue Chip Value Fund....... INVESCO International Blue Chip Value Fund
INVESCO MONEY MARKET FUNDS, INC. ................ AIM TREASURER'S SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Cash Reserves Fund....................... INVESCO Cash Reserves Fund
INVESCO Tax-Free Money Fund...................... INVESCO Tax-Free Money Fund
INVESCO SECTOR FUNDS, INC. ...................... AIM SECTOR FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Energy Fund.............................. INVESCO Energy Fund
INVESCO Financial Services Fund.................. INVESCO Financial Services Fund
INVESCO Real Estate Opportunity Fund............. INVESCO Real Estate Opportunity Fund
INVESCO Technology Fund.......................... INVESCO Technology Fund
INVESCO Telecommunications Fund.................. INVESCO Telecommunications Fund
INVESCO Utilities Fund........................... INVESCO Utilities Fund
INVESCO STOCK FUNDS, INC. ....................... AIM STOCK FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Growth Fund.............................. INVESCO Growth Fund
INVESCO Growth & Income Fund..................... INVESCO Growth & Income Fund
INVESCO Value Equity Fund........................ INVESCO Value Equity Fund
</Table>
SCHEDULE 3.11(B)
CERTAIN ACTIONS, SUITS OR PROCEEDINGS
[ADD 12B-1 FEE LITIGATION]
SCHEDULE 4.4
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
SCHEDULE 4.5(a)
PORTFOLIOS OF BUYER
AIM Aggressive Growth Fund
AIM Basic Value II Fund
AIM Blue Chip Fund
AIM Capital Development Fund
AIM Charter Fund
AIM Constellation Fund
AIM Core Strategies Fund
AIM Dent Demographic Trends Fund
AIM Diversified Dividend Fund
AIM Emerging Growth Fund
AIM Large Cap Basic Value Fund
AIM Large Cap Growth Fund
AIM Mid Cap Growth Fund
AIM U.S. Growth Fund
AIM Weingarten Fund
SCHEDULE 4.5(b)
<Table>
<Caption>
NUMBER OF SHARES OF EACH CLASS
CLASSES OF SHARES OF BUYING FUND BUYER IS AUTHORIZED TO ISSUE
-------------------------------- ------------------------------
Class A shares.............................................. Unlimited
Class B shares.............................................. Unlimited
Class C shares.............................................. Unlimited
Class R shares.............................................. Unlimited
Investor Class shares....................................... Unlimited
</Table>
SCHEDULE 5.1
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
SCHEDULE 6.2(f)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in exchange
solely for Buying Fund Shares distributed directly to Selling Fund Shareholders
and Buying Fund's assumption of the Liabilities, as provided in the Agreement,
will constitute a "reorganization" within the meaning of Section 368(a) of the
Code and Selling Fund and Buying Fund will be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the Code,
no gain or loss will be recognized by Selling Fund on the transfer of its assets
to Buying Fund solely in exchange for Buying Fund Shares and Buying Fund's
assumption of the Liabilities or on the distribution of Buying Fund Shares to
Selling Fund Shareholders; provided that, no opinion is expressed as to the
effect of the Reorganization on Selling Fund or any Selling Fund Shareholder
with respect to any asset as to which any unrealized gain or loss is required to
be recognized for Federal income tax purposes at the end of a taxable year (or
on the termination or transfer of a taxpayer's rights (or obligations) with
respect to such asset) under a mark-to-market system of accounting.
(iii) In accordance with Section 1032 of the Code, no gain or loss will be
recognized by Buying Fund upon the receipt of assets of Selling Fund in exchange
for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss will
be recognized by Selling Fund Shareholders on the receipt of Buying Fund Shares
in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying Fund
of the assets of Selling Fund will be the same as the basis of such assets in
the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Selling Fund transferred to Buying Fund in the
Reorganization will include the holding period for such assets in the hands of
Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
APPENDIX II
AIM LARGE CAP GROWTH FUND
July 21, 2003
Prospectus
AIM Large Cap Growth Fund seeks to provide long-term
growth of capital.
--------------------------------------------------------
This prospectus contains important information about the
Class A, B, C, R and Investor Class shares of the fund.
Please read it before investing and keep it for future
reference.
Investor Class shares offered by this prospectus are
offered only to grandfathered investors. Please see the
section of the prospectus entitled "Purchasing
Shares -- Grandfathered Investors."
As with all other mutual fund securities, the Securities
and Exchange Commission has not approved or disapproved
these securities or determined whether the information
in this prospectus is adequate or accurate. Anyone who
tells you otherwise is committing a crime.
An investment in the fund:
- is not FDIC insured;
- may lose value; and
- is not guaranteed by a bank.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- ------------------------------------------------------
The Advisor 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- ------------------------------------------------------
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
SHAREHOLDER INFORMATION A-1
- ------------------------------------------------------
Choosing a Share Class A-1
Purchasing Shares A-4
Redeeming Shares A-5
Exchanging Shares A-8
Pricing of Shares A-10
Taxes A-11
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investor, AIM Lifetime America, AIM LINK, AIM Institutional Funds,
aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and Design,
Invierta con DISCIPLINA and Invest with DISCIPLINE are registered service marks
and AIM Bank Connection, AIM Internet Connect, AIM Private Asset Management, AIM
Private Asset Management and Design, AIM Stylized and/or Design, AIM Alternative
Assets and Design, AIM Investments, AIM Investments and Design, myaim.com, The
AIM College Savings Plan, AIM Solo 401(k) and Your goals. Our solutions. are
service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital. The investment
objective of the fund may be changed by the Board of Trustees without
shareholder approval.
The fund seeks to meet its objective by investing, normally, at least 80% of
its assets in securities of large-capitalization companies. In complying with
this 80% investment requirement, the fund will invest primarily in marketable
equity securities, including convertible securities, but its investments may
include other securities, such as synthetic instruments. Synthetic instruments
are investments that have economic characteristics similar to the fund's direct
investments, and may include warrants, futures, options, exchange-traded funds
and American Depositary Receipts. The fund considers a company to be a
large-capitalization company if it has a market capitalization, at the time of
purchase, no smaller than the smallest capitalized company included in the
Russell 1000--Registered Trademark-- Index during the most recent 11-month
period (based on month-end data) plus the most recent data during the current
month. The Russell 1000 Index is a widely recognized, unmanaged index of common
stocks that measures the performance of the 1,000 largest companies in the
Russell 3000--Registered Trademark-- Index, which measures the performance of
the 3,000 largest U.S. companies based on total market capitalization. The fund
may invest up to 25% of its total assets in foreign securities. For cash
management purposes, the fund may also hold a portion of its assets in cash or
cash equivalents, including shares of affiliated money market funds. Any
percentage limitations with respect to assets of the fund are applied at the
time of purchase.
The fund's portfolio managers may focus on securities of companies with
market capitalizations that are within the top 50% of stocks in the Russell 1000
Index at the time of purchase. The portfolio managers purchase securities of a
limited number of large-cap companies that they believe have the potential for
above-average growth in revenues and earnings. The portfolio managers consider
whether to sell a particular security when they believe the security no longer
has that potential.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents or high-quality debt instruments. As a result, the fund may not
achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities
to achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term gains and losses, which
may affect the taxes you have to pay.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity.
The values of the convertible securities in which the fund may invest also
will be affected by market interest rates, the risk that the issuer may default
on interest or principal payments and the value of the underlying common stock
into which these securities may be converted. Specifically, since these types of
convertible securities pay fixed interest and dividends, their values may fall
if market interest rates rise and rise if market interest rates fall.
Additionally, an issuer may have the right to buy back certain of the
convertible securities at a time and at a price that is unfavorable to the fund.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
The fund may participate in the initial public offering (IPO) market in some
market cycles. Because of the fund's small asset base, any investment the fund
may make in IPOs may significantly affect the fund's total returns. As the
fund's assets grow, the impact of IPO investments will decline, which may reduce
the effect of IPO investments on the fund's total return.
An investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
ANNUAL TOTAL RETURNS(1)
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
<Table>
<Caption>
ANNUAL
YEARS ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
2000................................................................... 8.52%
2001................................................................... -36.13%
2002................................................................... -26.46%
</Table>
The Class A shares' year-to-date total return as of June 30, 2003 was
12.89%.
During the periods shown in the bar chart, the highest quarterly return was
26.64% (quarter ended March 31, 2000) and the lowest quarterly return was
- -34.26% (quarter ended March 31, 2001).
2
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
PERFORMANCE INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PERFORMANCE TABLE(1)
The following performance table compares the fund's performance to that of a
broad-based securities market index, a style specific index and peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices do not reflect payment of fees, expenses or taxes.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
(for the periods ended December 31, SINCE INCEPTION
2002) 1 YEAR INCEPTION DATE
- --------------------------------------------------------------------------------
Class A 03/01/99
Return Before Taxes (30.51)% (9.85)%
Return After Taxes on Distributions (30.51) (9.85)
Return After Taxes on Distributions
and Sale of Fund Shares (18.73) (7.64)
Class B 04/05/99
Return Before Taxes (30.51) (12.52)
Class C 04/05/99
Return Before Taxes (27.56) (11.77)
Class R(2) 03/01/99(2)
Return Before Taxes (26.40) (8.59)
Investor Class(3)
Return Before Taxes (26.46) (8.51) 03/01/99(3)
- --------------------------------------------------------------------------------
S&P 500(4) (22.09) (7.29)(8) 02/28/99(8)
Russell 1000--Registered Trademark--
Index(5) (21.65) (6.83)(8) 02/28/99(8)
Russell 1000--Registered Trademark--
Growth Index(6) (27.88) (12.99)(8) 02/28/99(8)
Lipper Large-Cap Growth Fund Index(7) (28.11) (13.23)(8) 02/28/99(8)
- --------------------------------------------------------------------------------
</Table>
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A only and after-tax returns for Class B, C, R and Investor Class will
vary.
(1) A significant portion of the fund's returns during certain periods prior to
2001 was attributable to its investments in IPOs. These investments had a
magnified impact when the fund's asset base was relatively small. As the
fund's assets grow, the impact of IPO investments will decline, which may
reduce the effect of IPO investments on the fund's total return. For
additional information regarding the impact of IPO investments on the fund's
performance, please see the "Financial Highlights" section of this
prospectus.
(2) The returns shown for these periods are the blended returns of the
historical performance of the fund's Class R shares since their inception
and the restated historical performance of the fund's Class A shares (for
periods prior to inception of the Class R shares) at net asset value,
adjusted to reflect the higher Rule 12b-1 fees applicable to the Class R
shares. The inception date shown in the table is that of the fund's Class A
shares. The inception date of the fund's Class R shares is June 3, 2002.
(3) The returns shown for these periods are the restated historical performance
of the fund's Class A shares at the net asset value and reflect the higher
Rule 12b-1 fees applicable to Class A shares. Investor Class shares would
have different returns because, although the shares are invested in the same
portfolio of securities, the Investor Class has a different expense
structure. The inception date shown in the table is that of the fund's Class
A shares. As of July 21, 2003, Investor Class shares have not commenced
operations.
(4) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance. The
fund has elected to use the Standard & Poor's 500 Index as its broad-based
index rather than the Russell 1000--Registered Trademark-- Index because the
Standard & Poor's 500 Index is a more widely recognized gauge of U.S. stock
market performance. The fund has also included the Russell 1000--Registered
Trademark-- Growth Index, which the fund believes more closely reflects the
performance of the securities in which the fund invests. In addition, the
Lipper Large-Cap Growth Fund Index (which may or may not include the fund)
is included for comparison to a peer group.
(5) The Russell 1000--Registered Trademark-- Index is a widely recognized,
unmanaged index of common stocks that measures the performance of the 1,000
largest companies in the Russell 3000--Registered Trademark-- Index, which
measures the performance of the 3,000 largest U.S. companies based on total
market capitalization.
(6) The Russell 1000--Registered Trademark-- Growth Index measures the
performance of those securities in the Russell 1000--Registered Trademark--
Index with a greater than average growth orientation. The Russell 1000
--Registered Trademark-- Index measures the performance of the 1,000 largest
companies in the Russell 3000--Registered Trademark-- Index, which measures
the performance of the 3,000 largest U.S. companies based on total market
capitalization.
(7) The Lipper Large-Cap Growth Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Large-Cap Growth category. These funds
typically invest in stocks with market capitalizations greater than $5
billion at the time of purchase and have an above-average price-to-earnings
ratio, price-to-book ratio, and a three year sales-per-share growth value,
compared to the S&P 500 Index.
(8) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
3
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<Table>
<Caption>
SHAREHOLDER FEES
- ---------------------------------------------------------------------------------------
(fees paid directly from your INVESTOR
investment) CLASS A CLASS B CLASS C CLASS R CLASS
- ---------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 5.50% None None None None
Maximum Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is less) None(1,2) 5.00% 1.00% None(3) None
- ---------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(4)
- ---------------------------------------------------------------------------------
(expenses that are deducted from INVESTOR
fund assets) CLASS A CLASS B CLASS C CLASS R CLASS
- ---------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75% 0.75% 0.75%
Distribution and/or Service
(12b-1) Fees 0.35 1.00 1.00 0.50 0.25
Other Expenses(5) 0.60 0.60 0.60 0.60 0.60
Total Annual Fund Operating
Expenses 1.70 2.35 2.35 1.85 1.60
- ---------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) Effective November 1, 2002, if you are a retirement plan participant and you
bought $1,000,000 or more of Class A shares, you may pay a 1.00% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total redemption
of the retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
(5) Other expenses for Class R shares and Investor Class shares are based on
estimated average net assets for the current fiscal year.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. To the extent fees are waived and/or
expenses are reimbursed, your expenses will be lower. Although your actual
returns and costs may be higher or lower, based on these assumptions your costs
would be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $713 $1,056 $1,422 $2,448
Class B 738 1,033 1,455 2,524
Class C 338 733 1,255 2,686
Class R 188 582 1,001 2,169
Investor Class 163 505 871 1,900
- --------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $713 $1,056 $1,422 $2,448
Class B 238 733 1,255 2,524
Class C 238 733 1,255 2,686
Class R 188 582 1,001 2,169
Investor Class 163 505 871 1,900
- --------------------------------------------------------------------------------
</Table>
4
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in
1976. Today, the advisor, together with its subsidiaries, advises or manages
over 190 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 2002, the advisor received compensation
of 0.75% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team (co-managers) who are primarily responsible for the
management of the fund's portfolio are
- - Geoffrey V. Keeling, Senior Portfolio Manager, who has been responsible for
the fund since 1999 and has been associated with the advisor and/or its
affiliates since 1995.
- - Robert L. Shoss, Senior Portfolio Manager, who has been responsible for the
fund since 1999 and has been associated with the advisor and/or its affiliates
since 1995.
They are assisted by the Large Cap Growth Team. More information on the
fund's management team may be found on our website
(http://www.aiminvestments.com).
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Large Cap Growth Fund are subject to the
maximum 5.50% initial sales charge as listed under the heading "CATEGORY I
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Certain purchases of Class A shares at net asset
value may be subject to the contingent deferred sales charge listed in that
section. Purchases of Class B and Class C shares are subject to the contingent
deferred sales charges listed in that section. Certain purchases of Class R
shares may be subject to the contingent deferred sales charge listed in that
section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
capital gains.
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
5
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The information for the fiscal period ended 2002 and for the fiscal years
2002 and 2001 has been audited by Ernst & Young LLP, whose report, along with
the fund's financial statements, is included in the fund's annual report, which
is available upon request. Information prior to fiscal year 2001 was audited by
other public accountants.
A significant portion of the fund's returns was attributable to its
investments in IPOs during certain fiscal years prior to 2001, including the
fiscal year ended October 31, 2000, which had a magnified impact on the fund due
to its relatively small asset base during those periods. As the fund's assets
grow, the impact of IPO investments will decline, which may reduce the effect of
IPO investments on the fund's total return.
<Table>
<Caption>
CLASS A
------------------------------------------------------------------------------
MARCH 1, 1999
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, -------------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999
---------- -------- -------- -------- ----------------
Net asset value, beginning of period $ 7.37 $ 8.82 $ 17.74 $ 11.29 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.09)(a) (0.08)(a) (0.15)(a) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.16 (1.36) (8.84) 6.60 1.33
=================================================================================================================================
Total from investment operations 0.12 (1.45) (8.92) 6.45 1.29
=================================================================================================================================
Net asset value, end of period $ 7.49 $ 7.37 $ 8.82 $ 17.74 $11.29
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.63% (16.44)% (50.28)% 57.13% 13.70%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $113,361 $105,320 $138,269 $225,255 $7,785
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.92%(c) 1.70% 1.57% 1.58% 1.53%(d)(e)
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (1.05)%(c) (1.01)% (0.72)% (0.82)% (0.59)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 57% 111% 124% 113% 21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $103,213,331.
(d) Annualized.
(e) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 3.63% (annualized).
(f) Not annualized for periods less than one year.
6
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------
APRIL 5, 1999
SIX MONTHS (DATE SALES
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, -------------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999
---------- -------- -------- -------- -------------
Net asset value, beginning of period $ 7.20 $ 8.67 $ 17.54 $ 11.25 $11.02
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.14)(a) (0.16)(a) (0.27)(a) (0.08)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.15 (1.33) (8.71) 6.56 0.31
=================================================================================================================================
Total from investment operations 0.09 (1.47) (8.87) 6.29 0.23
=================================================================================================================================
Net asset value, end of period $ 7.29 $ 7.20 $ 8.67 $ 17.54 $11.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.25% (16.96)% (50.57)% 55.91% 2.09%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $105,786 $104,040 $144,747 $210,224 $5,183
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.57%(c) 2.35% 2.23% 2.24% 2.23%(d)(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.70)%(c) (1.66)% (1.39)% (1.48)% (1.29)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 57% 111% 124% 113% 21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $100,357,546.
(d) Annualized.
(e) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 4.33% (annualized).
(f) Not annualized for periods less than one year.
7
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS C
------------------------------------------------------------------------
APRIL 5, 1999
SIX MONTHS (DATE SALES
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ----------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999
---------- ------- ------- ------- -------------
Net asset value, beginning of period $ 7.21 $ 8.67 $ 17.55 $ 11.25 $11.02
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.14)(a) (0.16)(a) (0.27)(a) (0.08)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.14 (1.32) (8.72) 6.57 0.31
=================================================================================================================================
Total from investment operations 0.08 (1.46) (8.88) 6.30 0.23
=================================================================================================================================
Net asset value, end of period $ 7.29 $ 7.21 $ 8.67 $ 17.55 $11.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.11% (16.84)% (50.60)% 56.00% 2.09%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $36,086 $36,575 $57,865 $79,392 $ 901
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.57%(c) 2.35% 2.23% 2.24% 2.23%(d)(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.70)%(c) (1.66)% (1.39)% (1.48)% (1.29)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 57% 111% 124% 113% 21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $34,790,201.
(d) Annualized.
(e) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 4.33% (annualized).
(f) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
---------- -------------
Net asset value, beginning of period $ 7.37 $ 8.40
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.04)(a)
- --------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.16 (0.99)
============================================================================================
Total from investment operations 0.12 (1.03)
============================================================================================
Net asset value, end of period $ 7.49 $ 7.37
____________________________________________________________________________________________
============================================================================================
Total return(b) 1.63% (12.26)%
____________________________________________________________________________________________
============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 793 $ 9
____________________________________________________________________________________________
============================================================================================
Ratio of expenses to average net assets 2.07%(c) 1.85%(d)
============================================================================================
Ratio of net investment income (loss) to average net assets (1.20)%(c) (1.16)%(d)
____________________________________________________________________________________________
============================================================================================
Portfolio turnover rate(e) 57% 111%
____________________________________________________________________________________________
============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for periods
less than one year.
(c) Ratios are annualized and based on average daily net assets of $406,363.
(d) Annualized.
(e) Not annualized for periods less than one year.
8
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consult your financial advisor as to which class is most suitable for
you. In addition, you should consider the factors below.
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B CLASS C CLASS R INVESTOR CLASS(6)
- ----------------------------------------------------------------------------------------------------------------------------
- - Initial sales - No initial sales - No initial sales - No initial sales - No initial sales - No initial sales
charge charge charge charge charge charge
- - Reduced or waived - No contingent - Contingent - Contingent - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent deferred sales
charge for charge charge on charge on deferred sales charge
certain redemptions redemptions charge(2)
purchases(2,3) within six years within one
year(5)
- - Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.50% 0.25%(7)
service (12b-1)
fee than Class B,
Class C or Class
R shares (See
"Fee Table and
Expense Example")
- Does not convert - Converts to Class - Does not convert - Does not convert - Does not convert
to Class A shares A shares at the to Class A shares to Class A shares to Class A shares
end of the month
which is eight
years after the
date on which
shares were
purchased along
with a pro rata
portion of its
reinvested
dividends and
distributions(4)
- - Generally more - Generally more - Purchase orders - Generally more - Generally, only - Closed to new
appropriate for appropriate for limited to appropriate for available to the investors, except
long-term short- term amounts less than short- term following types as described in
investors investors $250,000 investors of retirement the "Purchasing
plans: (i) all Shares -- Grandfathered
section 401 and Investors"
457 plans, (ii) section of your
section 403 plans prospectus
sponsored by
section 501(c)(3)
organizations,
and (iii) IRA
rollovers from
such plans if an
AIM Fund was
offered
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
Certain AIM Funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional Information
for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
(4) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve Shares.
AIM Global Trends Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of that
fund at the end of the month which is seven years after the date on which
shares were purchased. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not convert to
Class A shares until the end of the month which is eight years after the
date on which you purchased your original shares.
(5) A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Short Term Bond Fund unless you exchange Class C
shares of another AIM Fund that are subject to a CDSC into AIM Short Term
Bond Fund.
(6) As of July 21, 2003 Investor Class shares of AIM Blue Chip Fund, AIM
European Growth Fund, AIM High Yield Fund, AIM Income Fund, AIM Intermediate
Government Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund,
AIM Money Market Fund, AIM Municipal Bond Fund, AIM Real Estate Fund and AIM
Tax-Exempt Cash Fund have not commenced operations.
(7) Investor Class shares of AIM Money Market Fund and AIM Tax-Exempt Cash Fund
do not have a 12b-1 fee.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares) has adopted 12b-1 plans that allow the AIM Fund to pay distribution fees
to A I M Distributors, Inc. (the distributor) for the sale and distribution of
its shares and fees for services provided to shareholders, all or a substantial
portion of which are paid to the dealer of record. Because the AIM Fund pays
these fees out of its assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
MCF--07/03
A-1
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Sales charges on the AIM Funds and classes of those Funds are detailed below. As
used below, the term "offering price" with respect to all categories of Class A
shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<Table>
<Caption>
CATEGORY I INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION(1) OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
(1) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
<Table>
<Caption>
CATEGORY II INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CATEGORY III INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ------------------------------------------------------------------------------
</Table>
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales
charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class
shares of any AIM Fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II Funds at net asset value. However, if you redeem these shares
prior to 18 months after the date of purchase, they will be subject to a CDSC of
1%.
If you made a Large Purchase of Class A shares of Category III Funds at
net asset value during the period November 15, 2001 through October 30, 2002,
such shares will be subject to a 0.25% CDSC if you redeem them prior to 12
months after the date of purchase.
If you currently own Class A shares of a Category I, II or III Fund and
make additional purchases (through October 30, 2002 for Category III Funds only)
at net asset value that result in account balances of $1,000,000 or more, the
additional shares purchased will be subject to a CDSC (an 18-month, 1% CDSC for
Category I and II Fund shares, and a 12-month, 0.25% CDSC for Category III Fund
shares). The CDSC for Category III Fund shares will not apply to additional
purchases made prior to November 15, 2001 or after October 30, 2002.
Some retirement plans can purchase Class A shares at their net asset
value per share. Effective November 1, 2002, if the distributor paid a
concession to the dealer of record in connection with a Large Purchase of Class
A shares by a retirement plan, the Class A shares may be subject to a 1% CDSC at
the time of redemption if all retirement plan assets are redeemed within one
year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM
Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired
those shares through an exchange, and the shares originally purchased were
subject to a CDSC.
The distributor may pay a dealer concession and/or a service fee for
Large Purchases and purchases by certain retirement plans.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<Table>
<Caption>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- --------------------------------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- --------------------------------------------------------------------------------
</Table>
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset
value and not subject to a CDSC. However, you may be charged a CDSC when you
redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares
through an exchange, and the shares originally purchased were subject to a CDSC.
MCF--07/03
A-2
-------------
THE AIM FUNDS
-------------
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If the
distributor pays a concession to the dealer of record, however, the Class R
shares are subject to a 0.75% CDSC at the time of redemption if all retirement
plan assets are redeemed within 12 months from the date of the retirement plan's
initial purchase.
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares
of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM
Cash Reserve Shares of AIM Money Market Fund and Class B and Class C shares of
AIM Floating Rate Fund and Investor Class shares of any AIM fund will not be
taken into account in determining whether a purchase qualifies for a reduction
in initial sales charges pursuant to Rights of Accumulation or Letters of
Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares with shares currently owned
(Class A, B, C or R) for the purpose of qualifying for the lower initial sales
charge rates that apply to larger purchases. The applicable initial sales charge
for the new purchase is based on the total of your current purchase and the
current value of all other shares you own.
LETTERS OF INTENT
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privileges; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem Class C shares of an AIM Fund other than AIM Short Term Bond
Fund and you received such Class C shares by exchanging Class C shares of AIM
Short Term Bond Fund;
- - if you redeem Class C shares of AIM Short Term Bond Fund unless you received
such Class C shares by exchanging Class C shares of another AIM Fund and the
original purchase was subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--07/03
A-3
-------------
THE AIM FUNDS
-------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
There are no minimum investments with respect to Class R shares for AIM Fund
accounts. The minimum investments with respect to Class A, A3, B and C shares
and Investor Class shares for AIM Fund accounts (except for investments in AIM
Opportunities I Fund, AIM Opportunities II Fund and AIM Opportunities III Fund)
are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Savings Plans (money-purchase/profit sharing plans, 401(k) $ 0 ($25 per AIM Fund investment for $25
plans, Simplified Employee Pension (SEP) accounts, Salary salary deferrals from Savings
Reduction (SARSEP) accounts, Savings Incentive Match Plans Plans)
for Employee IRA (Simple IRA) accounts, 403(b) or 457 plans)
Systematic Purchase Plan 50 25(1)
IRA, Education IRA or Roth IRA 250 50
All other accounts 500(2) 50
- -------------------------------------------------------------------------------------------------------------------------
</Table>
(1) $50 for Investor Class shares.
(2) $1,000 for Investor Class shares.
The minimum initial investment for AIM Opportunities I Fund, AIM Opportunities
II Fund and AIM Opportunities III Fund (the Special Opportunities Funds)
accounts is $10,000. The minimum subsequent investment is $1,000. The maximum
amount for a single purchase order of AIM Opportunities I Fund is $250,000.
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not
be processed unless the account application and purchase payment are received in
good order. In accordance with the USA PATRIOT Act, if you fail to provide all
the required information requested in the current account application, your
purchase order will not be processed.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, A I M Fund from your confirmation statement to the
Services, Inc., P.O. Box 4739, Houston, transfer agent.
TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
reference number. Then, use the
following wire instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: A I M Fund
Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line. You may place your order after
you have provided the bank instructions
that will be requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in AIM prototype retirement
accounts on the internet.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--07/03
A-4
-------------
THE AIM FUNDS
-------------
GRANDFATHERED INVESTORS
As of July 21, 2003, Investor Class shares of certain funds that intend to offer
such shares have not commenced operations (for a listing of funds that intend to
offer Investor Class shares see the "Choosing a Share Class" section of your
prospectus). Once operations commence, Investor Class shares of such funds may
be purchased only by: (1) persons or entities who had established an account,
prior to April 1, 2002, in Investor Class shares of any of the funds currently
distributed by A I M Distributors, Inc. (the "Grandfathered Funds") and have
continuously maintained such account in Investor Class shares since April 1,
2002; (2) any person or entity listed in the account registration for any
Grandfathered Funds, which account was established prior to April 1, 2002 and
continuously maintained since April 1, 2002, such as joint owners, trustees,
custodians and designated beneficiaries; (3) customers of certain financial
institutions, wrap accounts or other fee-based advisory programs, or insurance
company separate accounts, which have had relationships with A I M Distributors,
Inc. and/or any of the Grandfathered Funds prior to April 1, 2002 and
continuously maintained such relationships since April 1, 2002; (4) defined
benefit, defined contribution and deferred compensation plans; and (5) INVESCO
Funds directors, employees of AMVESCAP PLC and its subsidiaries.
SPECIAL PLANS
SYSTEMATIC PURCHASE PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $25 ($1,000 for any of
the Special Opportunities Funds). You may stop the Systematic Purchase Plan at
any time by giving the transfer agent notice ten days prior to your next
scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to a
Special Opportunities Fund is $1,000. The minimum amount you can exchange to
another AIM Fund is $25.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest
your dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; and (b) in the AIM Fund receiving the dividend must be at
least $500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted to
establish a retirement plan. You may use AIM sponsored retirement plans, which
include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k) plans, SIMPLE IRA
plans, SEP/SARSEP plans and Money Purchase/Profit Sharing plans, or another
sponsor's retirement plan. The plan custodian of the AIM sponsored retirement
plan assesses an annual maintenance fee of $10. Contact your financial
consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. Your broker or
financial consultant may charge service fees for handling redemption
transactions. Your shares also may be subject to a contingent deferred sales
charge (CDSC).
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE PRIOR TO NOVEMBER 15, 2001.
If you purchased $1,000,000 or more of Class A shares of any AIM Fund at net
asset value prior to November 15, 2001, or entered into a Letter of Intent prior
to November 15, 2001 to purchase
MCF--07/03
A-5
-------------
THE AIM FUNDS
-------------
$1,000,000 or more of Class A shares of a Category I, II or III Fund at net
asset value, your shares may be subject to a CDSC upon redemption, as described
below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category III - No CDSC
Fund(1) Fund(1)
- Class A shares of AIM Tax-Exempt
Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE ON AND AFTER NOVEMBER 15, 2001
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on and
after November 15, 2001 (and through October 30, 2002 with respect to Class A
shares of Category III Funds), or if you make additional purchases of Class A
shares on and after November 15, 2001 (and through October 30, 2002 with respect
to Class A shares of Category III Funds) at net asset value, your shares may be
subject to a CDSC upon redemption, as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category I or - 1% if shares are redeemed
Fund II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category III - Class A shares of Category III - 0.25% if shares are redeemed
Fund Fund(1) within 12 months of initial
- Class A shares of AIM Tax-Exempt purchase of Category III Fund
Cash Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE AFTER OCTOBER 30, 2002
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on or after
October 31, 2002, or if you make additional purchases of Class A shares on and
after October 31, 2002 at net asset value, your shares may be subject to a CDSC
upon redemption as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
</Table>
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of Category III Fund.
REDEMPTION OF CLASS B SHARES ACQUIRED BY EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--07/03
A-6
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Consultant Contact your financial consultant.
By Mail Send a written request to the transfer
agent. Requests must include (1) original
signatures of all registered owners; (2) the
name of the AIM Fund and your account
number; (3) if the transfer agent does not
hold your shares, endorsed share
certificates or share certificates
accompanied by an executed stock power; and
(4) signature guarantees, if necessary (see
below). The transfer agent may require that
you provide additional information, such as
corporate resolutions or powers of attorney,
if applicable. If you are redeeming from an
IRA account, you must include a statement of
whether or not you are at least 59 1/2 years
old and whether you wish to have federal
income tax withheld from your proceeds. The
transfer agent may require certain other
information before you can redeem from an
employer-sponsored retirement plan. Contact
your employer for details.
By Telephone Call the transfer agent or our AIM 24-hour
Automated Investor Line. You will be allowed
to redeem by telephone if (1) the proceeds
are to be mailed to the address on record
(if there has been no change communicated to
us within the last 30 days) or transferred
electronically to a pre-authorized checking
account; (2) you do not hold physical share
certificates; (3) you can provide proper
identification information; (4) the proceeds
of the redemption do not exceed $250,000;
and (5) you have not previously declined the
telephone redemption privilege. Certain
accounts, including retirement accounts and
403(b) plans, may not be redeemed by
telephone. The transfer agent must receive
your call during the hours of the customary
trading session of the New York Stock
Exchange (NYSE) in order to effect the
redemption at that day's closing price. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts must be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.com. You will be allowed
to redeem by internet if (1) you do not hold
physical share certificates; (2) you can
provide proper identification information;
(3) the proceeds of the redemption do not
exceed $250,000; and (4) you have already
provided proper bank information. AIM
prototype retirement accounts may not be
redeemed on the internet. The transfer agent
must confirm your transaction during the
hours of the customary trading session of
the NYSE in order to effect the redemption
at that day's closing price.
</Table>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC REDEMPTIONS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Redemption Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM CASH RESERVE SHARES OF AIM MONEY MARKET FUND ONLY)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
MCF--07/03
A-7
-------------
THE AIM FUNDS
-------------
REDEMPTIONS BY CHECK
(CLASS A SHARES OF AIM TAX-EXEMPT CASH FUND AND AIM CASH RESERVE SHARES OF AIM
MONEY MARKET FUND ONLY)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $250,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGES
You may, within 120 days after you sell shares (except Class R shares, Class A
shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market
Fund, Class A shares and Class A3 shares of AIM Limited Maturity Treasury Fund
and AIM Tax-Free Intermediate Fund and Investor Class shares), reinvest all or
part of your redemption proceeds in Class A shares of any Category I or II AIM
Fund at net asset value in an identically registered account.
You may, within 120 days after you sell some but not all of your Class A
shares of a Category III Fund, reinvest all or part of your redemption proceeds
in Class A shares of that same Category III Fund at net asset value in an
identically registered account.
The reinvestment amount must meet the subsequent investment minimum as
indicated in the section "Purchasing Shares".
If you paid an initial sales charge on any reinstated amount, you will
receive credit on purchases of Class A shares of a Category I or II Fund.
If you paid a contingent deferred sales charge (CDSC) on any reinstated
amount, you will not be subject to a CDSC if you later redeem that amount.
You must notify the transfer agent in writing at the time you reinstate
that you are exercising your reinstatement privilege.
REDEMPTIONS BY THE AIM FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares
only) has been open at least one year, you have not made an additional purchase
in the account during the past six calendar months, and the value of your
account falls below $500 ($250 for Investor Class shares) for three consecutive
months due to redemptions or exchanges (excluding retirement accounts), the AIM
Funds have the right to redeem the account after giving you 60 days' prior
written notice. You may avoid having your account redeemed during the notice
period by bringing the account value up to $500 ($250 for Investor Class shares)
or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social
Security or other tax ID number on your account application, the AIM Fund may,
at its discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another AIM Fund.
You may also exchange:
(1) Class A shares of an AIM Fund for AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of an AIM Fund (excluding AIM Limited Maturity Treasury Fund,
AIM Tax-Exempt Cash Fund and AIM Tax-Free Intermediate Fund) for Class A3
shares of an AIM Fund;
(3) Class A3 shares of an AIM Fund for AIM Cash Reserve shares of AIM Money
Market Fund;
(4) Class A3 shares of an AIM Fund for Class A shares of any AIM Fund (excluding
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund);
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class A3 shares of an
AIM Fund;
(6) AIM Cash Reserve Shares of AIM Money Market Fund for Class A shares of any
AIM Fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, effective February 17, 2003, and AIM Tax-Exempt Cash
Fund);
(7) Investor Class shares of an AIM Fund for Class A shares of any AIM Fund
(excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund) or Class A3 shares of an AIM Fund; or
(8) Class A or A3 shares of an AIM Fund for Investor Class shares of any AIM
Fund as long as you own Investor Class shares of any AIM Fund at the time of
exchange.
You may be required to pay an initial sales charge when exchanging from a
Fund with a lower initial sales charge than the one into which you are
exchanging. If you exchange into shares that are subject to a CDSC, we will
begin the holding period for purposes of calculating the CDSC on the date you
made your initial purchase.
MCF--07/03
A-8
-------------
THE AIM FUNDS
-------------
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another AIM Fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares
of AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way
of an exchange from shares with higher initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) Class A shares of an AIM Fund subject to an initial sales charge
(excluding Class A shares of AIM Limited Maturity Treasury Fund and
AIM Tax-Free Intermediate Fund), but only if you acquired the
original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to
an initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject
to an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege.
You may not exchange:
(1) Class A shares of a Category I or II Fund for Class A shares of a Category
III Fund after February 16, 2003; or
(2) Class A shares of a Category III Fund for Class A shares of another Category
III Fund after February 16, 2003.
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III Funds purchased at net asset value for Class
A shares of a Category I or II Fund;
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund;
(4) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for Class A shares of Category I or II Funds that are
subject to a CDSC; or
(5) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market
Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of
Category III Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a CDSC for Class
A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
AIM Fund (i) subject to an initial sales charge or (ii) purchased at net
asset value and subject to a CDSC or for AIM Cash Reserve Shares of AIM
Money Market Fund; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund or for Class A shares of any AIM Fund that are
subject to a CDSC, however, if you originally purchased Class A shares of a
Category I or II Fund, and exchanged those shares for AIM Cash Reserve
Shares of AIM Money Market Fund, you may further exchange the AIM Cash
Reserve Shares for Class A shares of a Category I or II Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange;
MCF--07/03
A-9
-------------
THE AIM FUNDS
-------------
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- - You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or terminate this privilege at any time. The AIM Fund or
the distributor will provide you with notice of such modification or termination
whenever it is required to do so by applicable law, but may impose changes at
any time for emergency purposes.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if you do not hold physical share
certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B or Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R shares,
respectively, into which you exchanged for the purpose of calculating contingent
deferred sales charges (CDSC) if you later redeem the exchanged shares. If you
redeem Class B or Class C shares acquired by exchange via a tender offer by AIM
Floating Rate Fund, you will be credited with the time period you held the Class
B or Class C shares of AIM Floating Rate Fund for the purpose of computing the
early withdrawal charge applicable to those shares.
- --------------------------------------------------------------------------------
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ALL OR ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE SYSTEMATIC PURCHASE PLAN AND
SYSTEMATIC REDEMPTION PLAN OPTIONS ON THE SAME ACCOUNT; OR
- SUSPEND, CHANGE OR WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS
PROSPECTUS.
- --------------------------------------------------------------------------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund and AIM
Tax-Free Intermediate Fund value variable rate securities that have an
unconditional demand or put feature exercisable within seven days or less at
par, which reflects the market value of such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that may materially affect
the value of the security, the AIM Funds may value the security at its fair
value as determined in good faith by or under the supervision of the Board of
Directors or Trustees of the AIM Fund. The effect of using fair value pricing is
that an AIM Fund's net asset value will be subject to the judgment of the Board
of Directors or Trustees or its designee instead of being determined by the
market. Because some of the AIM Funds may invest in securities that are
primarily listed on foreign exchanges that trade on days when the AIM Funds do
not price their shares, the value of those funds' assets may change on days when
you will not be able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares on each day
the NYSE is open for business, as of the close of the customary trading session,
or any earlier NYSE closing time that day. AIM Money Market Fund also determines
its net asset value as of 12:00 noon Eastern Time on each day the NYSE is open
for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary
trading session of the NYSE. The AIM Funds price
MCF--07/03
A-10
-------------
THE AIM FUNDS
-------------
purchase, exchange and redemption orders at the net asset value calculated after
the transfer agent receives an order in good order. An AIM Fund may postpone the
right of redemption only under unusual circumstances, as allowed by the
Securities and Exchange Commission, such as when the NYSE restricts or suspends
trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time the
fund holds its assets and the type of income that the fund earns. Different tax
rates apply to ordinary income, qualified dividend income, and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of
AIM Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE
HEADING "OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN
THEIR PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund
shares may differ materially from the federal income tax consequences described
above. In addition, the preceding discussion concerning the taxability of fund
dividends and distributions and of redemptions and exchanges of AIM Fund shares
is inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401 of the Internal
Revenue Code, individual retirement accounts (IRAs) and Roth IRAs. You should
consult your tax advisor before investing.
MCF--07/03
A-11
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
<Table>
- --------------------------------------------------------
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
ON THE INTERNET: You can send us a request
by e-mail or download
prospectuses, annual or
semiannual reports via
our website:
http://www.aiminvestments.com
- --------------------------------------------------------
</Table>
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
publicinfo@sec.gov. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- ------------------------------------
AIM LARGE CAP GROWTH FUND
SEC 1940 Act file number: 811-1424
- ------------------------------------
AIMinvestments.com LCG-PRO-1
APPENDIX III
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
MEETING THE CHALLENGE: CHOOSING MARKET LEADERS IN DIFFICULT MARKET
WHAT WERE THE MAJOR TRENDS IN THE FINANCIAL MARKETS DURING THE FISCAL YEAR?
As we all know, the financial markets have suffered greatly during the year that
this report encompasses--the fund's fiscal year ended October 31, 2002. The
disappointments have affected almost all investors. The equity market has
experienced considerable losses. Small-, mid-, and large-cap stocks all have
been affected.
Along with anemic company earnings, investors' concerns about corporate
accounting practices, mixed economic signals, the threat of additional terrorist
attacks, and the possibility of war with Iraq accounted for much of the
financial markets' volatility. Finally, the U.S. consumer, long the strongest
element of our weakened economy, displayed a loss of confidence in September.
The calendar quarter that ended September 30 marked a low for the markets not
seen since 1987. In October, the financial markets had several positive weeks in
a row, but it is still not clear whether the prolonged bear market has ended.
HOW DID AIM LARGE CAP GROWTH FUND PERFORM?
For the fiscal year ended October 31, 2002, the fund's Class A, Class B, Class C
and Class R shares returned -16.44%, -16.96%, -16.84% and -16.51%, respectively.
These figures are at net asset value, which does not include sales charges.
WHAT ARE THE BENCHMARKS THE FUND IS MEASURED AGAINST, AND HOW DID THEY PERFORM?
As stated in the fund's prospectus, the Russell 1000 Index is the broad-based
index against which AIM Large Cap Growth Fund is measured. For the 12 months
ended October 31, 2002, the Russell 1000 Index returned -14.60%. An index that
closely matches the style of the fund, the Russell 1000 Growth Index, returned
- -19.62% for the same period. The fund's Lipper peer group, the Lipper Large-Cap
Growth Fund Index, returned -18.63%. We know you are disappointed, as we are
disappointed, that all of the returns cited are in negative territory.
Nevertheless, the AIM Large Cap Growth Fund's returns were in line with its
benchmark, and it posted better returns than the two growth indexes.
HOW HAVE YOU MANAGED THE FUND?
To better diversify the fund's risk, we added to the number of stocks in the
portfolio. Over the fiscal year, our number of holdings increased from 65 to 84.
Toward the end of the period, we increased our weighting in consumer
staples. Consumer staples and health care have done well of late. Both are
considered defensive sectors. These companies have been putting up strong
numbers. Some of these market leaders like Procter & Gamble and Clorox have
dramatically cut their operating costs, and their earnings per share have
increased.
We pared back our technology exposure, particularly in semiconductors. Being
underweight in technology helped the relative performance of the fund.
The two worst-performing sectors for the fund were technology and financial
services. The portfolio was negatively affected by our exposure to the financial
services sector. Certain large financial services companies came under pressure
in the wake of corporate scandals related to financial reporting.
PORTFOLIO COMPOSITION
as of 10/31/02, based on total net assets
<Table>
==================================================================================================================================
INVESTMENT TYPE BREAKDOWN TOP 10 HOLDINGS TOP 10 INDUSTRIES
==================================================================================================================================
[PIE CHART]
COMMON STOCK, DOMESTIC 90.93% 1. Microsoft Corp. 4.7% 1. Pharmaceuticals 11.3%
STOCK & OTHER EQUITY 2. Pfizer Inc. 4.4 2. Diversified Financial Services 6.4
INTERESTS, INTERNATIONAL 6.31%
3. Dell Computer Corp. 3.7 3. Systems Software 6.3
CASH & OTHER 2.76%
4. Johnson & Johnson 3.7 4. Banks 5.8
5. Freddie Mac 2.8 5. Health Care Equipment 5.4
6. UnitedHealth Group Inc. 2.2 6. Computer Hardware 4.8
7. Procter & Gamble Co. (The) 2.0 7. Household Products 4.1
8. Cisco Systems, Inc. 1.9 8. Managed Health Care 4.0
9. Teva Pharmaceutical Industries 9. Specialty Stores 3.9
Ltd.-ADR (Israel) 1.9
10. Diversified Commercial Services 3.3
10. SLM Corp. 1.9
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
==================================================================================================================================
</Table>
4
HAVE YOU DONE ANYTHING DIFFERENTLY IN LIGHT OF THE DIFFICULT MARKETS?
Though we have carefully changed holdings--and thereby modified sector
weightings in the portfolio over time--we have not changed the way that we
choose stocks. Our stock-selection process remains one of individual stock
selection based on earnings fundamentals. When our sector weightings change, it
is because the fundamentals of the individual companies within that sector have
changed. We are solidly committed to the growth discipline in the large-cap
stock arena. We continue to own companies recognized as leaders in their
respective industries, as these firms have historically fared better in volatile
market environments.
CAN YOU DISCUSS A FEW STOCKS IN PARTICULAR THAT IMPACTED THE FUND'S PORTFOLIO?
o In the health care sector, UnitedHealth Group was a great performer. The
company's third quarter results, announced October 17, 2002, included
increased revenues, cash flow, and operating margins. Earnings per share
were up 44% on a comparative basis for the quarter.
o Because of challenges in several of its business units and decreased
earnings expectations, industrial conglomerate General Electric
detracted from the portfolio's performance. We have substantially
reduced our exposure to this holding.
WHAT WERE CONDITIONS LIKE AT THE CLOSE OF THE REPORTING PERIOD?
Conditions continued to be volatile and uncertain. Investors were wary and prone
to take short-term profits when they could. In the third calendar quarter of
2002, earnings did not pick up as expected, telling us that an economic
turnaround was not as imminent as some had hoped. Even when companies met their
earnings estimates, they were often subsequently punished in the
marketplace--indicating that skepticism continued to exist among investors. On a
brighter note for AIM Large Cap Growth Fund, in July, August and October,
large-cap growth stocks outperformed their small- and mid-cap counterparts.
WHAT ADDITIONAL COMMENTS WOULD YOU LIKE TO PROVIDE SHAREHOLDERS?
First, be assured that we are diligently examining and re-examining every
decision we make in this volatile marketplace.
We know that large-cap stocks have been out of favor for quite some time. We
also believe that there is merit to the "contrarian" viewpoint, which holds
that, rather than "running with the herd," it can be advantageous to be invested
in out-of-favor segments of the market that may potentially achieve strong
returns.
We believe the economy will achieve a stable recovery, though the
outstanding question remains, "When?" Since earnings rely largely on the
economy, we expect earnings to return in full force when the economy improves.
We strongly believe we have a portfolio that is properly positioned for the long
term.
The last 2 1/2 years have been challenging for equity mutual fund investors. The
S&P 500, considered representative of U.S. stock market performance, has
declined significantly since hitting an all-time high in early 2000.
The colored bars on the chart represent bear markets, typically defined as a
20% decline in the stock market. As the chart shows, the 2000-2002 bear market
has been more severe and more prolonged than any other in the last 50 years. But
it shows that market declines have always ended--and that the stock market has
risen over time. While past performance cannot guarantee comparable future
results, and while no one can say precisely when the current decline will end,
history shows that bear markets never last.
That is why AIM urges all investors to maintain a long-term investment
discipline.
================================================================================
HISTORY SHOWS THAT BEAR MARKETS NEVER LAST ...
U. S. STOCK MARKET AS REPRESENTED BY S&P 500
<Table>
[LINE CHART]
9/30/52 24 3/31/61 65 9/30/69 93 3/31/78 89 9/30/86 231 3/31/95 500
12/31/52 26 6/30/61 64 12/31/69 92 6/30/78 95 12/31/86 242 6/30/95 544
3/31/53 25 9/29/61 66 3/31/70 89 9/29/78 102 3/31/87 291 9/29/95 584
6/30/53 24 12/29/61 71 6/30/70 72 12/29/78 96 6/30/87 304 12/29/95 615
9/30/53 23 3/30/62 69 9/30/70 84 3/30/79 101 9/30/87 321 3/29/96 645
12/31/53 24 6/29/62 54 12/31/70 92 6/29/79 102 12/31/87 247 6/28/96 670
3/31/54 26 9/28/62 56 3/31/71 100 9/28/79 109 3/31/88 258 9/30/96 687
6/30/54 29 12/31/62 63 6/30/71 99 12/31/79 107 6/30/88 273 12/31/96 740
9/30/54 32 3/29/63 66 9/30/71 98 3/31/80 102 9/30/88 271 3/31/97 757
12/31/54 35 6/28/63 69 12/31/71 102 6/30/80 114 12/30/88 277 6/30/97 885
3/31/55 36 9/30/63 71 3/31/72 107 9/30/80 125 3/31/89 294 9/30/97 947
6/30/55 41 12/31/63 75 6/30/72 107 12/31/80 135 6/30/89 317 12/31/97 970
9/30/55 43 3/31/64 78 9/29/72 110 3/31/81 136 9/29/89 349 3/31/98 1101
12/30/55 45 6/30/64 81 12/29/72 118 6/30/81 131 12/29/89 353 6/30/98 1133
3/30/56 48 9/30/64 84 3/30/73 111 9/30/81 116 3/30/90 339 9/30/98 1017
6/29/56 46 12/31/64 84 6/29/73 104 12/31/81 122 6/29/90 358 12/31/98 1229
9/28/56 45 3/31/65 86 9/28/73 108 3/31/82 111 9/28/90 306 3/31/99 1286
12/31/56 46 6/30/65 84 12/31/73 97 6/30/82 109 12/31/90 330 6/30/99 1372
3/29/57 44 9/30/65 89 3/29/74 93 9/30/82 120 3/29/91 375 9/30/99 1282
6/28/57 47 12/31/65 92 6/28/74 86 12/31/82 140 6/28/91 371 12/31/99 1469
9/30/57 42 3/31/66 89 9/30/74 63 3/31/83 152 9/30/91 387 3/31/00 1498
12/31/57 39 6/30/66 84 12/31/74 68 6/30/83 168 12/31/91 417 6/30/00 1454
3/31/58 42 9/30/66 76 3/31/75 83 9/30/83 166 3/31/92 403 9/29/00 1436
6/30/58 45 12/30/66 80 6/30/75 95 12/30/83 164 6/30/92 408 12/29/00 1320
9/30/58 50 3/31/67 90 9/30/75 83 3/30/84 159 9/30/92 417 3/30/01 1160
12/31/58 55 6/30/67 90 12/31/75 90 6/29/84 153 12/31/92 435 6/29/01 1224
3/31/59 55 9/29/67 96 3/31/76 102 9/28/84 166 3/31/93 451 9/28/01 1040
6/30/59 58 12/29/67 96 6/30/76 104 12/31/84 167 6/30/93 450 12/31/01 1148
9/30/59 56 3/29/68 90 9/30/76 105 3/29/85 180 9/30/93 458 3/29/02 1147
12/31/59 59 6/28/68 99 12/31/76 107 6/28/85 191 12/31/93 466 6/28/02 989
3/31/60 55 9/30/68 102 3/31/77 98 9/30/85 182 3/31/94 445 9/30/02 815
6/30/60 56 12/31/68 103 6/30/77 100 12/31/85 211 6/30/94 444
9/30/60 53 3/31/69 101 9/30/77 96 3/31/86 238 9/30/94 462
12/30/60 58 6/30/69 97 12/30/77 95 6/30/86 250 12/30/94 459
Source: Bloomberg LP
=========================================================================================================================
</Table>
================================================================================
PORTFOLIO MANAGEMENT TEAM
AS OF 10/31/02
GEOFFREY V. KEELING
ROBERT L. SHOSS
ASSISTED BY LARGE CAP GROWTH TEAM
See important fund and index
disclosures inside front cover.
[GRAPHIC]
For More Information Visit
AIMinvestments.com
================================================================================
5
FUND PERFORMANCE
================================================================================
RESULTS OF A $10,000 INVESTMENT
3/01/99-10/31/02
[MOUNTAIN CHART]
<Table>
<Caption>
DATE AIM LARGE CAP GROWTH FUND RUSSELL 1000 INDEX
CLASS A SHARES
03/01/99 9450 10000
3/99 10116 10383
4/99 9935 10817
5/99 9621 10584
6/99 10354 11123
7/99 10098 10783
8/99 10117 10682
9/99 10098 10389
10/99 10745 11087
11/99 11458 11372
12/99 13180 12057
1/00 13313 11564
2/00 16092 11533
3/00 16692 12584
4/00 15808 12164
5/00 14818 11849
6/00 16778 12152
7/00 16911 11950
8/00 19529 12834
9/00 18578 12238
10/00 16883 12091
11/00 13809 10985
12/00 14303 11118
1/01 13770 11484
2/01 10762 10413
3/01 9402 9721
4/01 10497 10502
5/01 10258 10573
6/01 9954 10334
7/01 9582 10193
8/01 8812 9572
9/01 7936 8760
10/01 8393 8943
11/01 9049 9630
12/01 9135 9732
1/02 9021 9608
2/02 8517 9415
3/02 8984 9801
4/02 8365 9239
5/02 8184 9157
6/02 7670 8480
7/02 7147 7851
8/02 7155 7891
9/02 6671 7052
10/02 7012 7638
Source: Lipper, Inc.
Past performance does not guarantee comparable future results.
================================================================================
</Table>
The chart compares AIM Large Cap Growth Fund Class A shares to a benchmark
index. It is intended to give you a general idea of how your fund performed
compared to this index over the period 3/01/99- 10/31/02. It is important to
understand the difference between your fund and an index. Market indexes, such
as the Russell 1000 Index, are not managed and incur no sales charges, expenses
or fees. If you could buy all securities that make up a market index, you would
incur expenses that would affect your investment return.
Your fund's total return includes sales charges, expenses and management
fees.
Performance of the fund's Class A, B, C and R will differ due to different
sales charge structures and class expenses. For fund performance calculations
and indexes used in this report, please see the inside front cover.
Performance shown in the chart does not reflect deduction of taxes a
shareholder would pay on fund distributions or sale of fund shares. Performance
for the index does not reflect the effects of taxes.
FUND RETURNS
as of 10/31/02
AVERAGE ANNUAL TOTAL RETURNS
including sales charges
================================================================================
CLASS A SHARES
Inception (3/1/99) -9.22%
1 Year -21.01
CLASS B SHARES
Inception (4/5/99) -11.99%
1 Year -21.11
CLASS C SHARES
Inception (4/5/99) -11.20%
1 Year -17.67
CLASS R SHARES*
Inception -7.93%
1 Year -16.51
In addition to returns as of the close of the reporting period, industry
regulations require us to provide average annual total returns (including sales
charges) as of September 30, 2002, the most recent calendar quarter-end, which
were: Class A shares, inception, -10.69%; one year, -20.61%. Class B shares,
inception, -13.50%; one year, -20.74%. Class C shares, inception, -12.71%; one
year, -17.28%. Class R shares, inception, -9.38%; one year, -16.03%.
*Class R shares were first offered on June 3, 2002. Returns prior to that date
are hypothetical results based on Class A share returns (inception date 3/1/99)
at net asset value, adjusted to reflect additional Class R 12b-1 fees. Class R
share returns do not include a 0.75% contingent deferred sales charge (CDSC)
that may be imposed on a total redemption of retirement plan assets within the
first year.
DUE TO RECENT SIGNIFICANT MARKET VOLATILITY, RESULTS OF AN INVESTMENT MADE TODAY
MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN. CALL YOUR
FINANCIAL ADVISOR FOR MORE CURRENT PERFORMANCE.
================================================================================
6
APPENDIX IV
[REGISTRANT]
MASTER INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made this day of , 200 , by and between
[Registrant], a Delaware statutory trust (the "Trust") with respect to its
series of shares shown on the Appendix A attached hereto, as the same may be
amended from time to time, and A I M Advisors, Inc., a Delaware corporation (the
"Advisor").
RECITALS
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, diversified management investment
company;
WHEREAS, the Advisor is registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), as an investment advisor and engages in
the business of acting as an investment advisor;
WHEREAS, the Trust's Agreement and Declaration of Trust (the "Declaration
of Trust") authorizes the Board of Trustees of the Trust (the "Board of
Trustees") to create separate series of shares of beneficial interest of the
Trust, and as of the date of this Agreement, the Board of Trustees has created
separate series portfolios (such portfolios and any other portfolios
hereafter added to the Trust being referred to collectively herein as the
"Funds"); and
WHEREAS, the Trust and the Advisor desire to enter into an agreement to
provide for investment advisory services to the Funds upon the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Advisory Services. The Advisor shall act as investment advisor for the
Funds and shall, in such capacity, supervise all aspects of the Funds'
operations, including the investment and reinvestment of cash, securities or
other properties comprising the Funds' assets, subject at all times to the
policies and control of the Board of Trustees. The Advisor shall give the Trust
and the Funds the benefit of its best judgment, efforts and facilities in
rendering its services as investment advisor.
2. Investment Analysis and Implementation. In carrying out its
obligations under Section 1 hereof, the Advisor shall:
(a) supervise all aspects of the operations of the Funds;
(b) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Funds,
and whether concerning the individual issuers whose securities are included
in the assets of the Funds or the activities in which such issuers engage,
or with respect to securities which the Advisor considers desirable for
inclusion in the Funds' assets;
(c) determine which issuers and securities shall be represented in the
Funds' investment portfolios and regularly report thereon to the Board of
Trustees;
(d) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon to the
Board of Trustees; and
(e) take, on behalf of the Trust and the Funds, all actions which
appear to the Trust and the Funds necessary to carry into effect such
purchase and sale programs and supervisory functions as aforesaid,
including but not limited to the placing of orders for the purchase and
sale of securities for the Funds.
IV-1
3. Securities Lending Duties and Fees. The Advisor agrees to provide the
following services in connection with the securities lending activities of each
Fund: (a) oversee participation in the securities lending program to ensure
compliance with all applicable regulatory and investment guidelines; (b) assist
the securities lending agent or principal (the "Agent") in determining which
specific securities are available for loan; (c) monitor the Agent to ensure that
securities loans are effected in accordance with the Advisor's instructions and
with procedures adopted by the Board of Trustees; (d) prepare appropriate
periodic reports for, and seek appropriate approvals from, the Board of Trustees
with respect to securities lending activities; (e) respond to Agent inquiries;
and (f) perform such other duties as necessary.
As compensation for such services provided by the Advisor in connection
with securities lending activities of each Fund, a lending Fund shall pay the
Advisor a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities.
4. Delegation of Responsibilities. The Advisor is authorized to delegate
any or all of its rights, duties and obligations under this Agreement to one or
more sub-advisors, and may enter into agreements with sub-advisors, and may
replace any such sub-advisors from time to time in its discretion, in accordance
with the 1940 Act, the Advisers Act, and rules and regulations thereunder, as
such statutes, rules and regulations are amended from time to time or are
interpreted from time to time by the staff of the Securities and Exchange
Commission ("SEC"), and if applicable, exemptive orders or similar relief
granted by the SEC and upon receipt of approval of such sub-advisors by the
Board of Trustees and by shareholders (unless any such approval is not required
by such statutes, rules, regulations, interpretations, orders or similar
relief).
5. Independent Contractors. The Advisor and any sub-advisors shall for
all purposes herein be deemed to be independent contractors and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Trust in any way or otherwise be deemed to be an agent of the
Trust.
6. Control by Board of Trustees. Any investment program undertaken by the
Advisor pursuant to this Agreement, as well as any other activities undertaken
by the Advisor on behalf of the Funds, shall at all times be subject to any
directives of the Board of Trustees.
7. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and the Advisers Act and
any rules and regulations adopted thereunder;
(b) the provisions of the registration statement of the Trust, as the
same may be amended from time to time under the Securities Act of 1933 and
the 1940 Act;
(c) the provisions of the Declaration of Trust, as the same may be
amended from time to time;
(d) the provisions of the by-laws of the Trust, as the same may be
amended from time to time; and
(e) any other applicable provisions of state, federal or foreign law.
8. Broker-Dealer Relationships. The Advisor is responsible for decisions
to buy and sell securities for the Funds, broker-dealer selection, and
negotiation of brokerage commission rates.
(a) The Advisor's primary consideration in effecting a security
transaction will be to obtain the best execution.
(b) In selecting a broker-dealer to execute each particular
transaction, the Advisor will take the following into consideration: the
best net price available; the reliability, integrity and financial
condition of the broker-dealer; the size of and the difficulty in executing
the order; and the value of the expected contribution of the broker-dealer
to the investment performance of the Funds on a continuing basis.
Accordingly, the price to the Funds in any transaction may be less
favorable than
IV-2
that available from another broker-dealer if the difference is reasonably
justified by other aspects of the fund execution services offered.
(c) Subject to such policies as the Board of Trustees may from time to
time determine, the Advisor shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Funds to pay a broker or dealer that
provides brokerage and research services to the Advisor an amount of
commission for effecting a fund investment transaction in excess of the
amount of commission another broker or dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the Advisor's overall
responsibilities with respect to a particular Fund, other Funds of the
Trust, and to other clients of the Advisor as to which the Advisor
exercises investment discretion. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Funds to such brokers and
dealers who also provide research or statistical material, or other
services to the Funds, to the Advisor, or to any sub-advisor. Such
allocation shall be in such amounts and proportions as the Advisor shall
determine and the Advisor will report on said allocations regularly to the
Board of Trustees indicating the brokers to whom such allocations have been
made and the basis therefor.
(d) With respect to one or more Funds, to the extent the Advisor does
not delegate trading responsibility to one or more sub-advisors, in making
decisions regarding broker-dealer relationships, the Advisor may take into
consideration the recommendations of any sub-advisor appointed to provide
investment research or advisory services in connection with the Funds, and
may take into consideration any research services provided to such
sub-advisor by broker-dealers.
(e) Subject to the other provisions of this Section 8, the 1940 Act,
the Securities Exchange Act of 1934, and rules and regulations thereunder,
as such statutes, rules and regulations are amended from time to time or
are interpreted from time to time by the staff of the SEC, any exemptive
orders issued by the SEC, and any other applicable provisions of law, the
Advisor may select brokers or dealers with which it or the Funds are
affiliated.
9. Compensation. The compensation that each Fund shall pay the Advisor is
set forth in Appendix B attached hereto.
10. Expenses of the Funds. All of the ordinary business expenses incurred
in the operations of the Funds and the offering of their shares shall be borne
by the Funds unless specifically provided otherwise in this Agreement. These
expenses borne by the Funds include but are not limited to brokerage
commissions, taxes, legal, accounting, auditing, or governmental fees, the cost
of preparing share certificates, custodian, transfer and shareholder service
agent costs, expenses of issue, sale, redemption and repurchase of shares,
expenses of registering and qualifying shares for sale, expenses relating to
trustees and shareholder meetings, the cost of preparing and distributing
reports and notices to shareholders, the fees and other expenses incurred by the
Trust on behalf of the Funds in connection with membership in investment company
organizations and the cost of printing copies of prospectuses and statements of
additional information distributed to the Funds' shareholders.
11. Services to Other Companies or Accounts. The Trust understands that
the Advisor now acts, will continue to act and may act in the future as
investment manager or advisor to fiduciary and other managed accounts, and as
investment manager or advisor to other investment companies, including any
offshore entities, or accounts, and the Trust has no objection to the Advisor so
acting, provided that whenever the Trust and one or more other investment
companies or accounts managed or advised by the Advisor have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each company and account.
The Trust recognizes that in some cases this procedure may adversely affect the
size of the positions obtainable and the prices realized for the Funds.
IV-3
12. Non-Exclusivity. The Trust understands that the persons employed by
the Advisor to assist in the performance of the Advisor's duties under this
Agreement will not devote their full time to such service and nothing contained
in this Agreement shall be deemed to limit or restrict the right of the Advisor
or any affiliate of the Advisor to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature. The Trust
further understands and agrees that officers or directors of the Advisor may
serve as officers or trustees of the Trust, and that officers or trustees of the
Trust may serve as officers or directors of the Advisor to the extent permitted
by law; and that the officers and directors of the Advisor are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm or trust, including other investment advisory companies.
13. Effective Date, Term and Approval. This Agreement shall become
effective with respect to a Fund, if approved by the shareholders of such Fund,
on the Effective Date for such Fund, as set forth in Appendix A attached hereto.
If so approved, this Agreement shall thereafter continue in force and effect
until , 200 , and may be continued from year to year thereafter,
provided that the continuation of the Agreement is specifically approved at
least annually:
(a) (i) by the Board of Trustees or (ii) by the vote of "a majority of
the outstanding voting securities" of such Fund (as defined in Section
2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or "interested persons" (as defined in the 1940
Act) of a party to this Agreement (other than as trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated as to the Trust or as
to any one or more of the Funds at any time, without the payment of any penalty,
by vote of the Board of Trustees or by vote of a majority of the outstanding
voting securities of the applicable Fund, or by the Advisor, on sixty (60) days'
written notice to the other party. The notice provided for herein may be waived
by the party entitled to receipt thereof. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for purposes of
this paragraph having the meaning defined in Section 2(a)(4) of the 1940 Act.
15. Amendment. No amendment of this Agreement shall be effective unless
it is in writing and signed by the party against which enforcement of the
amendment is sought.
16. Liability of Advisor and Fund. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Advisor or any of its officers, directors or
employees, the Advisor shall not be subject to liability to the Trust or to the
Funds or to any shareholder of the Funds for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security. Any liability of
the Advisor to one Fund shall not automatically impart liability on the part of
the Advisor to any other Fund. No Fund shall be liable for the obligations of
any other Fund.
17. Liability of Shareholders. Notice is hereby given that, as provided
by applicable law, the obligations of or arising out of this Agreement are not
binding upon any of the shareholders of the Trust individually but are binding
only upon the assets and property of the Trust and that the shareholders shall
be entitled, to the fullest extent permitted by applicable law, to the same
limitation on personal liability as shareholders of private corporations for
profit.
18. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered, telecopied or mailed postage paid, to the other party
entitled to receipt thereof at such address as such party may designate for the
receipt of such notice. Until further notice to the other party, it is agreed
that the address of the Trust and that of the Advisor shall be 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173.
19. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act or the
IV-4
Advisers Act shall be resolved by reference to such term or provision of the
1940 Act or the Advisers Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to said Acts.
In addition, where the effect of a requirement of the 1940 Act or the Advisers
Act reflected in any provision of the Agreement is revised by rule, regulation
or order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Subject to the foregoing, this Agreement shall
be governed by and construed in accordance with the laws (without reference to
conflicts of law provisions) of the State of Texas.
20. License Agreement. The Trust shall have the non-exclusive right to
use the name "AIM" to designate any current or future series of shares only so
long as A I M Advisors, Inc. serves as investment manager or advisor to the
Trust with respect to such series of shares.
IV-5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
written above.
[REGISTRANT]
(a Delaware statutory trust)
Attest:
<Table>
- ----------------------------------------- By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
Attest:
A I M ADVISORS, INC.
- -----------------------------------------
By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
</Table>
IV-6
APPENDIX A
FUNDS AND EFFECTIVE DATES
<Table>
<Caption>
NAME OF FUND EFFECTIVE DATE OF ADVISORY AGREEMENT
- ------------ ------------------------------------
[To Be Added] [To Be Added]
</Table>
A-1
APPENDIX B
COMPENSATION TO THE ADVISOR
The Trust shall pay the Advisor, out of the assets of a Fund, as full
compensation for all services rendered, an advisory fee for such Fund set forth
below. Such fee shall be calculated by applying the following annual rates to
the average daily net assets of such Fund for the calendar year computed in the
manner used for the determination of the net asset value of shares of such Fund.
[To Be Added -- Please see Exhibit L for the annual rates applicable to
your Fund]
B-1
APPENDIX V
[NAME OF INVESCO FUND]
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of August
13, 2003, by and between [name of current INVESCO Fund], a Maryland corporation
(the "Company"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A to this Agreement, and
[name of new Delaware statutory trust], a Delaware statutory trust (the
"Trust"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A.
BACKGROUND
The Company is organized as a series management investment company and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended. The Company currently publicly offers shares of
common stock representing interests in one or more separate series portfolios.
Each of these series portfolios is listed on Schedule A and is referred to in
this Agreement as a "Current Fund."
The Board of Directors of the Company has designated one or more classes of
common stock that represent interests in each Current Fund. Each of these
classes is listed on Schedule B to this Agreement and is referred to in this
Agreement as a "Current Fund Class."
The Company desires to change its form and place of organization by
reorganizing as the Trust. In anticipation of such reorganization, the Board of
Trustees of the Trust has established a series portfolio corresponding to each
of the Current Funds (each a "New Fund"), and has designated one or more classes
of shares of beneficial interest in each New Fund corresponding to the Current
Fund Classes (each a "New Fund Class"). Schedule A lists the New Funds and
Schedule B lists the New Fund Classes.
Each Current Fund desires to provide for its Reorganization (each, a
"Reorganization" and collectively, the "Reorganizations") through the transfer
of all of its assets to the corresponding New Fund in exchange for the
assumption by such New Fund of the liabilities of the corresponding Current Fund
and the issuance by the Trust to such Current Fund of shares of beneficial
interest in the New Fund ("New Fund Shares"). New Fund Shares received by a
Current Fund will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the Current Fund immediately prior to the
Reorganization (the "Current Fund Shares"). Each Current Fund will then
distribute the New Fund Shares it has received to its shareholders.
Each Reorganization of each Current Fund is dependent upon the consummation
of the Reorganization of all of the other Current Funds, so that the
Reorganizations of all of the Current Funds must be consummated if any of them
are to be consummated. For convenience, the balance of this Agreement refers
only to a single Reorganization, but the terms and conditions hereof shall apply
separately to each Reorganization and to the Current Fund and the corresponding
New Fund participating therein, as applicable.
The Reorganization is subject to, and shall be effected in accordance with,
the terms of this Agreement. This Agreement is intended to be and is adopted by
the Company, on its own behalf and on behalf of the Current Funds, and by the
Trust, on its own behalf and on behalf of the New Funds, as a Plan of
Reorganization within the meaning of the regulations under Section 368(a) of the
Internal Revenue Code of 1986, as amended.
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NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS
Any capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the preamble or background to this Agreement. In addition,
the following terms shall have the following meanings:
1.1 "Assets" shall mean all assets including, without limitation, all
cash, cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to register shares
under applicable securities laws, books and records, deferred and prepaid
expenses shown as assets on a Current Fund's books, and other property owned by
a Current Fund at the Effective Time.
1.2 "Closing" shall mean the consummation of the transfer of Assets,
assumption of Liabilities and issuance of shares described in Sections 2.1 and
2.2 of this Agreement, together with the related acts necessary to consummate
the Reorganization, to occur on the date set forth in Section 3.1.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.4 "Current Fund" shall mean each of the series portfolios of the Company
as shown on Schedule A.
1.5 "Current Fund Class" shall mean each class of common stock of the
Company representing an interest in a Current Fund as shown on Schedule B.
1.6 "Current Fund Shares" shall mean the shares of a Current Fund
outstanding immediately prior to the Reorganization.
1.7 "Effective Time" shall have the meaning set forth in Section 3.1.
1.8 "Liabilities" shall mean all liabilities of a Current Fund including,
without limitation, all debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
determinable at the Effective Time, and whether or not specifically referred to
herein.
1.9 "New Fund" shall mean each of the series portfolios of the Trust, one
of which shall correspond to one of the Current Funds as shown on Schedule A.
1.10 "New Fund Class" shall mean each class of shares of beneficial
interest in a New Fund, one of which shall correspond to one of the Current Fund
Classes as shown on Schedule B.
1.11 "New Fund Shares" shall mean those shares of beneficial interest in a
New Fund issued to a Current Fund hereunder.
1.12 "Registration Statement" shall have the meaning set forth in Section
5.4.
1.13 "RIC" shall mean a "regulated investment company" (as defined under
Subchapter M of the Code).
1.14 "SEC" shall mean the Securities and Exchange Commission.
1.15 "Shareholder(s)" shall mean a Current Fund's shareholder(s) of
record, determined as of the Effective Time.
1.16 "Shareholders Meeting" shall have the meaning set forth in Section
5.1.
1.17 "Transfer Agent" shall have the meaning set forth in Section 2.2.
1.18 "1940 Act" shall mean the Investment Company Act of 1940, as amended.
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2. PLAN OF REORGANIZATION
2.1 The Company agrees, on behalf of each Current Fund, to assign, sell,
convey, transfer and deliver all of the Assets of each Current Fund to its
corresponding New Fund. The Trust, on behalf of each New Fund, agrees in
exchange therefor:
(a) to issue and deliver to the corresponding Current Fund the number
of full and fractional (rounded to the third decimal place) New Fund Shares
of each New Fund Class designated on Schedule B equal to the number of full
and fractional Current Fund Shares of each corresponding Current Fund Class
designated on Schedule B; and
(b) to assume all of the Current Fund's Liabilities.
Such transactions shall take place at the Closing.
2.2 At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Shares issued pursuant to Section 5.2 shall be
redeemed by each New Fund for $10.00 and (b) each Current Fund shall distribute
the New Fund Shares received by it pursuant to Section 2.1 to the Current Fund's
Shareholders in exchange for such Shareholders' Current Fund Shares. Such
distribution shall be accomplished through opening accounts, by the transfer
agent for the Trust (the "Transfer Agent"), on each New Fund's share transfer
books in the Shareholders' names and transferring New Fund Shares to such
accounts. Each Shareholder's account shall be credited with the respective pro
rata number of full and fractional (rounded to the third decimal place) New Fund
Shares of each New Fund Class due that Shareholder. All outstanding Current Fund
Shares, including those represented by certificates, shall simultaneously be
canceled on each Current Fund's share transfer books. The Trust shall not issue
certificates representing the New Fund Shares in connection with the
Reorganization. However, certificates representing Current Fund Shares shall
represent New Fund Shares after the Reorganization.
2.3 Following receipt of the required shareholder vote and as soon as
reasonably practicable after the Closing, the status of each Current Fund as a
designated series of the Company shall be terminated; provided, however, that
the termination of each Current Fund as a designated series of the Company shall
not be required if the Reorganization shall not have been consummated.
2.4 Following receipt of the required shareholder vote and as soon as
reasonably practicable after distribution of the New Fund Shares pursuant to
Section 2.2, the Company and the Trust shall cause Articles of Transfer to be
filed with the State Department of Assessments and Taxation of Maryland and,
following the filing of Articles of Transfer, the Company shall file Articles of
Dissolution with the State Department of Assessments and Taxation of Maryland to
dissolve the Company as a Maryland corporation; provided, however, that the
filing of Articles of Transfer and Articles of Dissolution as aforesaid shall
not be required if the Reorganization shall not have been consummated.
2.5 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder of the Current Fund Shares exchanged
therefor shall be paid by the person to whom such New Fund Shares are to be
issued, as a condition of such transfer.
2.6 Any reporting responsibility of the Company or each Current Fund to a
public authority is and shall remain its responsibility up to and including the
date on which it is terminated.
3. CLOSING
3.1 The Closing shall occur at the principal office of the Company on
[date], 2003, or on such other date and at such other place upon which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the Company's and the Trust's close of business on
the date of the Closing or at such other time as the parties may agree (the
"Effective Time").
3.2 The Company or its fund accounting agent shall deliver to the Trust at
the Closing, a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, transferred by the Current Funds to
the New
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Funds, as reflected on the New Funds' books immediately following the Closing,
does or will conform to such information on the Current Funds' books immediately
before the Closing. The Company shall cause the custodian for each Current Fund
to deliver at the Closing a certificate of an authorized officer of the
custodian stating that (a) the Assets held by the custodian will be transferred
to each corresponding New Fund at the Effective Time and (b) all necessary taxes
in conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3 The Company shall deliver to the Trust at the Closing a list of the
names and addresses of each Shareholder of each Current Fund and the number of
outstanding Current Fund Shares of the Current Fund Class owned by each
Shareholder, all as of the Effective Time, certified by the Company's Secretary
or Assistant Secretary. The Trust shall cause the Transfer Agent to deliver at
the Closing a certificate as to the opening on each New Fund's share transfer
books of accounts in the Shareholders' names. The Trust shall issue and deliver
a confirmation to the Company evidencing the New Fund Shares to be credited to
each corresponding Current Fund at the Effective Time or provide evidence
satisfactory to the Company that such shares have been credited to each Current
Fund's account on such books. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, stock certificates, receipts, or
other documents as the other party or its counsel may reasonably request.
3.4 The Company and the Trust shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Company represents and warrants on its own behalf and on behalf of
each Current Fund as follows:
(a) The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland, and its Charter
is on file with the Maryland Department of Assessments and Taxation;
(b) The Company is duly registered as an open-end series management
investment company under the 1940 Act, and such registration is in full
force and effect;
(c) Each Current Fund is a duly established and designated series of
the Company;
(d) At the Closing, each Current Fund will have good and marketable
title to its Assets and full right, power, and authority to sell, assign,
transfer, and deliver its Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, the corresponding New Fund
will acquire good and marketable title to the Assets;
(e) The New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms
hereof;
(f) Each Current Fund is a "fund" as defined in Section 851(g)(2) of
the Code; each Current Fund qualified for treatment as a RIC for each
taxable year since it commenced operations that has ended (or will end)
before the Closing and will continue to meet all the requirements for such
qualification for its current taxable year (and the Assets will be invested
at all times through the Effective Time in a manner that ensures compliance
with the foregoing); each Current Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it; and each Current Fund has made all distributions for each
calendar year that has ended (or will end) before the Closing that are
necessary to avoid the imposition of federal excise tax or has paid or
provided for the payment of any excise tax imposed for any such calendar
year;
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(g) During the five-year period ending on the date of the
Reorganization, neither Company nor any person related to Company (as
defined in Section 1.368-1(e)(3) of the Federal income tax regulations
adopted pursuant to the Code without regard to Section 1.368-1(e)(3)(i)(A))
will have directly or through any transaction, agreement, or arrangement
with any other person, (i) acquired shares of a Current Fund for
consideration other than shares of such Current Fund, except for shares
redeemed in the ordinary course of such Current Fund's business as an
open-end investment company as required by the 1940 Act, or (ii) made
distributions with respect to a Current Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and
4982 of the Code for qualification as a regulated investment company and
avoidance of excise tax liability and (b) additional distributions, to the
extent such additional distributions do not exceed 50 percent of the value
(without giving effect to such distributions) of the proprietary interest
in such Current Fund at the Effective Time. There is no plan or intention
of the Shareholders who individually own 5% or more of any Current Fund
Shares and, to the best of the Company's knowledge, there is no plan or
intention of the remaining Shareholders to redeem or otherwise dispose of
any New Fund Shares to be received by them in the Reorganization. The
Company does not anticipate dispositions of those shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
redemptions of shares of the Current Fund as a series of an open-end
investment company. Consequently, the Company is not aware of any plan that
would cause the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganization to be one
percent (1%) or more of the shares of the Current Fund outstanding as of
the Effective Time;
(h) The Liabilities were incurred by the Current Funds in the ordinary
course of their business and are associated with the Assets;
(i) The Company is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
(j) As of the Effective Time, no Current Fund will have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Current Fund Shares except for
the right of investors to acquire its shares at net asset value in the
normal course of its business as a series of an open-end diversified
management investment company operating under the 1940 Act;
(k) At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by the Company's
shareholders;
(l) Throughout the five-year period ending on the date of the Closing,
each Current Fund will have conducted its historic business within the
meaning of Section 1.368-1(d) of the Income Tax Regulations under the Code
in a substantially unchanged manner;
(m) The fair market value of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred Assets are subject; and
(n) The total adjusted basis of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred assets are subject.
4.2 The Trust represents and warrants on its own behalf and on behalf of
each New Fund as follows:
(a) The Trust is a statutory trust duly organized, validly existing,
and in good standing under the laws of the State of Delaware, and its
Certificate of Trust has been duly filed in the office of the Secretary of
State of Delaware;
(b) The Trust is duly registered as an open-end management investment
company under the 1940 Act. At the Effective Time, the New Fund Shares to
be issued pursuant to Section 2.1 of this Agreement shall be duly
registered under the Securities Act of 1933 by a Registration Statement
filed with the SEC;
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(c) At the Effective Time, each New Fund will be a duly established
and designated series of the Trust;
(d) No New Fund has commenced operations nor will it commence
operations until after the Closing;
(e) Prior to the Effective Time, there will be no issued and
outstanding shares in any New Fund or any other securities issued by the
Trust on behalf of any New Fund, except as provided in Section 5.2;
(f) No consideration other than New Fund Shares (and each New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets in
the Reorganization;
(g) The New Fund Shares to be issued and delivered to each
corresponding Current Fund hereunder will, at the Effective Time, have been
duly authorized and, when issued and delivered as provided herein, will be
duly and validly issued and outstanding shares of the New Fund, fully paid
and nonassessable;
(h) Each New Fund will be a "fund" as defined in Section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
(i) The Trust, on behalf of the New Funds, has no plan or intention to
issue additional New Fund Shares following the Reorganization except for
shares issued in the ordinary course of its business as an open-end
investment company; nor does the Trust, on behalf of the New Funds, have
any plan or intention to redeem or otherwise reacquire any New Fund Shares
issued pursuant to the Reorganization, other than in the ordinary course of
such business or to the extent necessary to comply with its legal
obligation under Section 22(e) of the 1940 Act;
(j) Each New Fund will actively continue the corresponding Current
Fund's business in substantially the same manner that the Current Fund
conducted that business immediately before the Reorganization; and no New
Fund has any plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of its business
or dispositions necessary to maintain its qualification as a RIC, although
in the ordinary course of its business the New Fund will continuously
review its investment portfolio (as each Current Fund did before the
Reorganization) to determine whether to retain or dispose of particular
stocks or securities, including those included in the Assets, provided,
however that this Section 4.2(j) shall not preclude any of the combinations
of funds set forth on Schedule C to this Agreement; and
(k) There is no plan or intention for any of the New Funds to be
dissolved or merged into another corporation or statutory trust or "fund"
thereof (within the meaning of Section 851(g)(2) of the Code) following the
Reorganization, provided, however that this Section 4.2(k) shall not
preclude any of the combinations of Funds set forth on Schedule C.
4.3 Each of the Company and the Trust, on its own behalf and on behalf of
each Current Fund or each New Fund, as appropriate, represents and warrants as
follows:
(a) The fair market value of the New Fund Shares of each New Fund
received by each Shareholder will be equal to the fair market value of the
Current Fund Shares of the corresponding Current Fund surrendered in
exchange therefor;
(b) Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares of each New Fund and will own
such shares solely by reason of their ownership of the Current Fund Shares
of the corresponding Current Fund immediately before the Reorganization;
(c) The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
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(d) There is no intercompany indebtedness between a Current Fund and a
New Fund that was issued or acquired, or will be settled, at a discount;
and
(e) Immediately following consummation of the Reorganization, each New
Fund will hold the same assets, except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization, and be subject to
the same liabilities that the corresponding Current Fund held or was
subject to immediately prior to the Reorganization. Assets used to pay (i)
expenses, (ii) all redemptions (other than redemptions at the usual rate
and frequency of the Current Fund as a series of an open-end investment
company), and (iii) distributions (other than regular, normal
distributions), made by a Current Fund after the date of this Agreement
will, in the aggregate, constitute less than one percent (1%) of its net
assets.
5. COVENANTS
5.1 As soon as practicable after the date of this Agreement, the Company
shall call a meeting of its shareholders (the "Shareholders Meeting") to
consider and act on this Agreement and, in connection therewith, the sale of all
of the Company's assets and the dissolution of the Company as a Maryland
corporation. The Board of Directors of the Company shall recommend that
shareholders approve this Agreement and, in connection therewith, sale of all of
the Company's assets and the dissolution of the Company as a Maryland
corporation. Approval by shareholders of this Agreement will authorize the
Company, and the Company hereby agrees, to vote on the matters referred to in
Sections 5.2 and 5.3.
5.2 Prior to the Closing, the Company shall acquire one New Fund Share in
each New Fund Class of each New Fund for the purpose of enabling the Company to
elect the Company's directors as the Trust's trustees (to serve without limit in
time, except as they may resign or be removed by action of the Trust's trustees
or shareholders), to ratify the selection of the Trust's independent
accountants, and to vote on the matters referred to in Section 5.3.
5.3 Immediately prior to the Closing, the Trust (on its own behalf and
with respect to each New Fund or each New Fund Class, as appropriate) shall
enter into a Master Investment Advisory Agreement, a Master Sub-Advisory
Agreement, if applicable, a Master Administrative Services Agreement, Master
Distribution Agreements, a Custodian Agreement, and a Transfer Agency and
Servicing Agreement; shall adopt plans of distribution pursuant to Rule 12b-l of
the 1940 Act, a multiple class plan pursuant to Rule 18f-3 of the 1940 Act; and
shall enter into or adopt, as appropriate, such other agreements and plans as
are necessary for each New Fund's operation as a series of an open-end
investment company. Each such agreement and plan shall have been approved by the
Trust's trustees and, to the extent required by law, by such of those trustees
who are not "interested persons" of the Trust (as defined in the 1940 Act) and
by the Company as the sole shareholder of each New Fund.
5.4 The Company or the Trust, as appropriate, shall file with the SEC one
or more post-effective amendments to the Company's Registration Statement on
Form N-lA under the Securities Act of 1933, as amended, and the 1940 Act, as
amended (the "Registration Statement"), (i) which will contain such amendments
to such Registration Statement as are determined by the Company to be necessary
and appropriate to effect the Reorganization, (ii) which will register the New
Fund Shares to be issued pursuant to Section 2.1 of this Agreement, and (iii) if
applicable, under which the Trust will succeed to the Registration Statement,
and shall use its best efforts to have such post-effective amendment or
amendments to the Registration Statement become effective as of the Closing.
6. CONDITIONS PRECEDENT
The obligations of the Company, on its own behalf and on behalf of each
Current Fund, and the Trust, on its own behalf and on behalf of each New Fund,
will be subject to (a) performance by the other party of all its obligations to
be performed hereunder at or before the Effective Time, (b) all representations
and warranties of the other party contained herein being true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated
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hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
6.1 The shareholders of the Company shall have approved this
Agreement and the transactions contemplated by this Agreement in accordance
with applicable law.
6.2 All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry
out the transactions contemplated hereby. All consents, orders, and permits
of federal, state, and local regulatory authorities (including the SEC and
state securities authorities) deemed necessary by either the Company or the
Trust to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain such consults, orders, and permits would not involve a risk of a
material adverse effect on the assets or properties of either a Current
Fund or a New Fund, provided that either the Company or the Trust may for
itself waive any of such conditions.
6.3 Each of the Company and the Trust shall have received an opinion
from Ballard Spahr Andrews & Ingersoll, LLP as to the federal income tax
consequences mentioned below. In rendering such opinion, such counsel may
rely as to factual matters, exclusively and without independent
verification, on the representations made in this Agreement (or in separate
letters of representation that the Company and the Trust shall use their
best efforts to deliver to such counsel) and the certificates delivered
pursuant to Section 3.4. Such opinion shall be substantially to the effect
that, based on the facts and assumptions stated therein and conditioned on
consummation of the Reorganization in accordance with this Agreement, for
federal income tax purposes:
(a) The Reorganization will constitute a reorganization within the
meaning of section 368(a) of the Code, and each Current Fund and each
New Fund will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(b) No gain or loss will be recognized to a Current Fund on the
transfer of its Assets to the corresponding New Fund in exchange solely
for the New Fund's New Fund Shares and the New Fund's assumption of the
Current Fund's Liabilities or on the subsequent distribution of those
New Fund Shares to its Shareholders, in constructive exchange for their
Current Fund Shares, in liquidation of the Current Fund;
(c) No gain or loss will be recognized to a New Fund on its receipt
of the corresponding Current Fund's Assets in exchange for New Fund
Shares and its assumption of the Current Fund's Liabilities;
(d) Each New Fund's basis for the corresponding Current Fund's
Assets will be the same as the basis thereof in the Current Fund's hands
immediately before the Reorganization, and the New Fund's holding period
for those Assets will include the Current Fund's holding period
therefor;
(e) A Shareholder will recognize no gain or loss on the
constructive exchange of Current Fund Shares solely for New Fund Shares
pursuant to the Reorganization; and
(f) A Shareholder's basis for the New Fund Shares of each New Fund
to be received in the Reorganization will be the same as the basis for
the Current Fund Shares of the corresponding Current Fund to be
constructively surrendered in exchange for such New Fund Shares, and a
Shareholder's holding period for such New Fund Shares will include its
holding period for such Current Fund Shares, provided that such Current
Fund Shares are held as capital assets by the Shareholder at the
Effective Time.
6.4 No stop-order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceeding for that purpose shall
have been initiated or threatened by the SEC (and not withdrawn or
terminated).
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At any time prior to the Closing, any of the foregoing conditions (except
those set forth in Sections 6.1 and 6.3) may be waived by the directors/trustees
of either the Company or the Trust if, in their judgment, such waiver will not
have a material adverse effect on the interests of the Current Fund's
Shareholders.
7. EXPENSES
Except as otherwise provided in Section 4.3(c), all expenses incurred in
connection with the transactions contemplated by this Agreement (regardless of
whether they are consummated) will be borne by the parties as they mutually
agree.
8. ENTIRE AGREEMENT
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties.
9. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding its approval by the Company's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
shareholders' interests.
10. TERMINATION
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by the Company's shareholders:
10.1 By either the Company or the Trust (a) in the event of the other
party's material breach of any representation, warranty, or covenant
contained herein to be performed at or prior to the Effective Time, (b) if
a condition to its obligations has not been met and it reasonably appears
that such condition will not or cannot be met, or (c) if the Closing has
not occurred on or before December 31, 2003; or
10.2 By the parties' mutual agreement.
Except as otherwise provided in Section 7, in the event of termination
under Sections 10.1(c) or 10.2, there shall be no liability for damages on the
part of either the Company or the Trust or any Current Fund or corresponding New
Fund, to the other.
11. MISCELLANEOUS
11.1 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2 Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3 The execution and delivery of this Agreement have been authorized by
the Trust's trustees, and this Agreement has been executed and delivered by a
duly authorized officer of the Trust in his or her capacity as an officer of the
Trust intending to bind the Trust as provided herein, and no officer, trustee or
shareholder of the Trust shall be personally liable for the liabilities or
obligations of the Trust incurred hereunder. The liabilities and obligations of
the Trust pursuant to this Agreement shall be enforceable against the assets of
the New Funds only and not against the assets of the Trust generally.
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IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.
<Table>
Attest: [NAME OF MARYLAND CORPORATION],
on behalf of each of its series listed in Schedule A
By:
- -------------------------------------------- --------------------------------------------------------
Title:
--------------------------------------------------------
Attest: [NAME OF DELAWARE STATUTORY TRUST],
on behalf of each of its series listed in Schedule A
By:
- -------------------------------------------- --------------------------------------------------------
Title:
--------------------------------------------------------
</Table>
V-10
SCHEDULE A
<Table>
<Caption>
SERIES OF CORRESPONDING SERIES OF
[MARYLAND CORPORATION] [DELAWARE STATUTORY TRUST]
(EACH A "CURRENT FUND") (EACH A "NEW FUND")
- ----------------------- --------------------------
[To Be Added]............................................... [To Be Added]
</Table>
V-11
SCHEDULE B
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF EACH CURRENT FUND EACH NEW FUND
- ---------------------------- ------------------------
[To Be Added]............................................... [To Be Added]
</Table>
V-12
SCHEDULE C
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
V-13
GROUP S-IG
(INVESCO LOGO)
INVESCO GROWTH & INCOME FUND,
A PORTFOLIO OF INVESCO STOCK FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
August 25, 2003
Dear Shareholder:
As you may be aware, AMVESCAP PLC, the parent company of your Fund's
investment advisor, has undertaken an integration initiative for its North
American mutual fund operations.
In the first phase of the integration initiative, A I M Distributors, Inc.
became the sole distributor for all AMVESCAP PLC mutual funds in the United
States. A I M Distributors, Inc. is now the distributor for all INVESCO Funds
(including your Fund) and the AIM Funds.
AMVESCAP PLC also reviewed all INVESCO Funds and AIM Funds and concluded
that it would be appropriate to reduce the number of smaller and less efficient
funds that compete for limited shareholder assets and to consolidate certain
funds having similar investment objectives and strategies. Your Fund is one of
the funds that AMVESCAP PLC recommended, and your Board of Directors approved,
be consolidated with another fund. The attached proxy statement/prospectus seeks
your approval of this consolidation.
As part of the integration initiative, AMVESCAP PLC has recommended
restructuring the advisory and administrative servicing arrangements so that
A I M Advisors, Inc. is the advisor and administrator for all INVESCO Funds and
AIM Funds. Your Board has approved a new advisory agreement under which A I M
Advisors, Inc. will serve as the investment advisor for your Fund. The portfolio
management team for your Fund will not change as a result of this restructuring.
The attached proxy statement/prospectus seeks your approval of this new
investment advisory agreement. If approved, this new agreement will become
effective only if shareholders do not approve the proposal to consolidate your
Fund.
The integration initiative also calls for changing the organizational
structure of the INVESCO Funds and the AIM Funds. To accomplish this goal,
AMVESCAP PLC has recommended that all INVESCO Funds and AIM Funds organized as
Maryland corporations change their form and state of organization to Delaware
statutory trusts. Your Board has approved redomesticating your Fund as a series
of a Delaware statutory trust. The attached proxy statement/prospectus seeks
your approval of this redomestication. If approved, the redomestication will
become effective only if shareholders do not approve the proposal to consolidate
your Fund.
Finally, the independent directors of your Board believe that your
interests would best be served if the INVESCO Funds and the AIM Funds had a
unified board of directors/trustees. The attached proxy statement/prospectus
seeks your vote in favor of the persons nominated to serve as directors.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote your shares in person. If you
expect to attend the meeting in person, or have questions, please notify us by
calling (800) 952-3502. You may also vote your shares by telephone or through a
website established for that purpose by following the instructions that appear
on the enclosed proxy card. If we do not hear from you after a reasonable amount
of time, you may receive a telephone call from our proxy solicitor, Georgeson
Shareholder Communications Inc., reminding you to vote your shares.
Sincerely,
-s- Raymond R. Cunningham
Raymond R. Cunningham
President
INVESCO GROWTH & INCOME FUND,
A PORTFOLIO OF
INVESCO STOCK FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 21, 2003
To the Shareholders of INVESCO Growth & Income Fund:
We cordially invite you to attend our Special Meeting of Shareholders to:
1. Approve an Agreement and Plan of Reorganization (the "Agreement")
under which all of the assets of your Fund, an investment portfolio of
INVESCO Stock Funds, Inc. ("Company"), will be transferred to AIM Blue Chip
Fund ("Buying Fund"), an investment portfolio of AIM Equity Funds
("Buyer"), Buying Fund will assume the liabilities of your Fund and Buyer
will issue shares of each class of Buying Fund to shareholders of the
corresponding class of shares of your Fund.
2. Elect 16 directors to the Board of Directors of Company, each of
whom will serve until his or her successor is elected and qualified.
3. Approve a new investment advisory agreement with A I M Advisors,
Inc. for your Fund.
4. Approve an Agreement and Plan of Reorganization (the "Plan") which
provides for the redomestication of Company as a Delaware statutory trust
and, in connection therewith, the sale of all of Company's assets and the
dissolution of Company as a Maryland corporation.
5. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies
or their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas, 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on July 25, 2003 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment of
the Special Meeting.
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
THE ACCOMPANYING PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
COMPANY. YOU MAY ALSO VOTE YOUR SHARES BY TELEPHONE OR THROUGH A WEBSITE
ESTABLISHED FOR THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY
MATERIALS. YOUR VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE
SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY
EXECUTING AND SUBMITTING A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION
TO THE SECRETARY OF COMPANY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
-s- Glen A. Payne
Glen A. Payne
Secretary
August 25, 2003
<Table>
INVESCO GROWTH & INCOME FUND, AIM BLUE CHIP FUND,
A PORTFOLIO OF A PORTFOLIO OF
INVESCO STOCK FUNDS, INC. AIM EQUITY FUNDS
4350 SOUTH MONACO STREET 11 GREENWAY PLAZA, SUITE 100
DENVER, COLORADO 80237 HOUSTON, TEXAS 77046-1173
(800) 525-8085 (800) 347-4246
</Table>
COMBINED PROXY STATEMENT AND PROSPECTUS
AUGUST 25, 2003
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
INVESCO Growth & Income Fund (your Fund). The Special Meeting will be held on
October 21, 2003. We intend to mail this Proxy Statement/Prospectus, the
enclosed Notice of Special Meeting of Shareholders and the enclosed proxy card
on or about August 25, 2003 to all shareholders entitled to vote.
At the Special Meeting, we are asking shareholders of your Fund to vote on
four Proposals. The first Proposal to be voted on is an Agreement and Plan of
Reorganization (the "Agreement") which provides for the combination of your
Fund, an investment portfolio of INVESCO Stock Funds, Inc. ("Company"), with AIM
Blue Chip Fund ("Buying Fund"), an investment portfolio of AIM Equity Funds
("Buyer") (the "Reorganization").
Under the Agreement, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund and Buyer will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of your Fund, as set forth on Exhibit A.
The value of your account with Buying Fund immediately after the
Reorganization will be the same as the value of your account with your Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No sales charges will be imposed in connection with
the Reorganization.
The Board of Directors of Company (the "Board") has approved the Agreement
and the Reorganization as being advisable and in the best interests of your
Fund.
Company and Buyer are both registered open-end management investment
companies that issue their shares in separate series. Your Fund is a series of
Company and Buying Fund is a series of Buyer. INVESCO Funds Group, Inc.
("INVESCO") serves as the investment advisor to your Fund and A I M Advisors,
Inc. ("AIM") serves as the investment advisor to Buying Fund. Both AIM and
INVESCO are wholly owned subsidiaries of AMVESCAP PLC ("AMVESCAP"), an
independent global investment management company.
Although Buyer Fund and your Fund have slightly different investment
objectives (your Fund seeks high total return and Buying Fund seeks long-term
growth of capital and, secondarily, current income), they both invest in large,
well established companies with the potential for long-term growth. See
"Comparison of Investment Objectives and Principal Strategies."
This Proxy Statement/Prospectus sets forth the information that you should
know before voting on the Agreement and the other Proposals described below. It
is both the Proxy Statement of your Fund and the Prospectus of Buying Fund. You
should read and retain this Proxy Statement/Prospectus for future reference.
The Prospectus of your Fund dated November 30, 2002, as supplemented
December 5, 2002, April 11, 2003, June 30, 2003, August 1, 2003 and August 14,
2003 (the "Selling Fund Prospectus"), together with the related Statement of
Additional Information dated November 30, 2002, as supplemented August 14, 2003,
are on file with the Securities and Exchange Commission (the "SEC"). The Selling
Fund Prospectus is incorporated by reference into this Proxy
Statement/Prospectus. The Prospectus of Buying Fund dated July 21, 2003 (the
"Buying Fund Prospectus"), and the related Statement of Additional Information
dated July 21, 2003 and the Statement of Additional Information relating to the
i
Reorganization dated August 15, 2003, are on file with the SEC. The Buying Fund
Prospectus is incorporated by reference into this Proxy Statement/Prospectus and
a copy of the Buying Fund Prospectus is attached as Appendix II to this Proxy
Statement/Prospectus. The Statement of Additional Information relating to the
Reorganization dated August 15, 2003 also is incorporated by reference into this
Proxy Statement/Prospectus. The SEC maintains a website at www.sec.gov that
contains the Prospectuses and Statements of Additional Information described
above, material incorporated by reference, and other information about Company
and Buyer.
Copies of the Buying Fund Prospectus, the Selling Fund Prospectus and the
related Statements of Additional Information are available without charge by
writing to A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739,
or by calling (800) 347-4246. Additional information about your Fund and Buying
Fund may be obtained on the internet at www.aiminvestments.com.
The remaining three Proposals to be voted on are: the election of 16
directors to the Board of Directors of Company; the approval of a new advisory
agreement with AIM for your Fund; and the approval of an Agreement and Plan of
Reorganization (the "Plan") which provides for the redomestication of Company as
a Delaware statutory trust and, in connection therewith, the sale of all of
Company's assets and the dissolution of Company as a Maryland corporation. The
Board has approved the nomination of the persons set forth in this Proxy
Statement/Prospectus for election as directors of Company and has approved the
new advisory agreement with AIM. Finally, the Board has approved the Plan as
being advisable.
All four Proposals are being submitted to you to implement an integration
initiative undertaken by AMVESCAP with respect to its North American mutual fund
operations, which includes your Fund.
Company has previously sent to shareholders the most recent annual report
for your Fund, including financial statements, and the most recent semiannual
report succeeding the annual report, if any. If you have not received such
report(s) or would like to receive an additional copy, please contact A I M Fund
Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, or call (800)
347-4246. Such report(s) will be furnished free of charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
INTRODUCTION................................................ 1
PROPOSAL 1 -- APPROVAL OF THE AGREEMENT TO COMBINE YOUR FUND
AND BUYING FUND........................................... 2
SUMMARY..................................................... 2
The Reorganization........................................ 2
Comparison of Investment Objectives and Principal
Strategies............................................. 3
Comparison of Principal Service Providers................. 5
Comparison of Performance................................. 5
Comparison of Fees and Expenses........................... 5
Comparison of Multiple Class Structures................... 5
Comparison of Sales Charges............................... 6
Comparison of Distribution, Purchase and Redemption
Procedures and Exchange Rights......................... 7
The Board's Recommendation on Proposal 1.................. 7
RISK FACTORS................................................ 8
Risks Associated with Buying Fund......................... 8
Comparison of Risks of Buying Fund and Your Fund.......... 8
INFORMATION ABOUT BUYING FUND............................... 8
Description of Buying Fund Shares......................... 8
Management's Discussion of Fund Performance............... 8
Financial Highlights...................................... 9
ADDITIONAL INFORMATION ABOUT THE AGREEMENT.................. 9
Terms of the Reorganization............................... 9
The Reorganization........................................ 9
Board Considerations...................................... 9
Other Terms............................................... 10
Federal Income Tax Consequences........................... 11
Accounting Treatment...................................... 12
RIGHTS OF SHAREHOLDERS...................................... 12
General................................................... 12
Liability of Shareholders................................. 12
Election of Directors/Trustees; Terms..................... 12
Removal of Directors/Trustees............................. 13
Meetings of Shareholders.................................. 13
Liability of Directors/Trustees and Officers;
Indemnification........................................ 13
Dissolution and Termination............................... 14
Voting Rights of Shareholders............................. 14
Dissenters' Rights........................................ 14
Amendments to Organization Documents...................... 14
CAPITALIZATION.............................................. 15
INTERESTS OF CERTAIN PERSONS................................ 16
LEGAL MATTERS............................................... 16
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND...... 16
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION................................................ 16
PROPOSAL 2 -- ELECTION OF DIRECTORS......................... 17
Background................................................ 17
Structure of the Board of Directors....................... 17
Nominees for Directors.................................... 17
The Board's Recommendation on Proposal 2.................. 21
Current Committees of the Board........................... 21
Board and Committee Meeting Attendance.................... 23
</Table>
iii
<Table>
<Caption>
PAGE
----
Future Committee Structure................................ 23
Director's Compensation................................... 24
Current Retirement Plan for Directors..................... 24
Current Deferred Compensation Plan........................ 25
New Retirement Plan for Directors......................... 25
New Deferred Compensation Agreements...................... 26
Officers of Company....................................... 26
Security Ownership of Management.......................... 26
Director Ownership of Your Fund's Shares.................. 26
PROPOSAL 3 -- APPROVAL OF A NEW INVESTMENT ADVISORY
AGREEMENT................................................. 26
Background................................................ 26
Your Fund's Current Investment Advisor.................... 27
The Proposed New Investment Advisor for Your Fund......... 27
Positions with AIM Held by Company's Directors or
Executive Officers..................................... 27
Terms of the Current Advisory Agreement................... 27
Additional Services Provided by INVESCO and its
Affiliates............................................. 29
Advisory Fees Charged by AIM for Similar Funds it
Manages................................................ 29
Terms of the Proposed Advisory Agreement.................. 29
Factors the Directors Considered in Approving the Advisory
Agreement.............................................. 33
The Board's Recommendation on Proposal 3.................. 35
PROPOSAL 4 -- APPROVAL OF THE PLAN TO REDOMESTICATE COMPANY
AS A DELAWARE STATUTORY TRUST............................. 35
Background................................................ 35
Reasons for the Proposed Redomestication.................. 36
What the Proposed Redomestication Will Involve............ 36
The Federal Income Tax Consequences of the
Redomestication........................................ 38
Appraisal Rights.......................................... 38
The Trust Compared to Company............................. 38
The Board's Recommendation on Proposal 4.................. 39
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING............ 39
Proxy Statement/Prospectus................................ 39
Time and Place of Special Meeting......................... 39
Voting in Person.......................................... 39
Voting by Proxy........................................... 39
Voting by Telephone or the Internet....................... 40
Quorum Requirement and Adjournment........................ 40
Vote Necessary to Approve Each Proposal................... 40
Proxy Solicitation........................................ 41
Other Matters............................................. 41
Shareholder Proposals..................................... 41
Ownership of Shares....................................... 41
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 41
Fees Paid to the Auditor Related to Company............... 42
Fees Paid to the Auditor Not Related to Company........... 42
</Table>
EXHIBIT A.....Classes of Shares of Your Fund and Corresponding Classes of Shares
of Buying Fund
EXHIBIT B.................Comparison of Performance of Your Fund and Buying Fund
EXHIBIT C...............................Comparison Fee Table and Expense Example
EXHIBIT D............................................Director Compensation Table
EXHIBIT E....................................................Officers of Company
EXHIBIT F.......................................Security Ownership of Management
EXHIBIT G......................................Director Ownership of Fund Shares
iv
EXHIBIT H......Principal Executive Officer and Directors of A I M Advisors, Inc.
EXHIBIT I..............................Compensation to INVESCO Funds Group, Inc.
EXHIBIT J...Fees Paid to INVESCO Funds Group, Inc. and Affiliates in Most Recent
Fiscal Year
EXHIBIT K.............................Advisory Fee Schedules for Other AIM Funds
EXHIBIT L..........................Proposed Compensation to A I M Advisors, Inc.
EXHIBIT M...........Shares Outstanding of Each Class of Your Fund on Record Date
EXHIBIT N.......................................Ownership of Shares of Your Fund
EXHIBIT O.....................................Ownership of Shares of Buying Fund
APPENDIX I.....Agreement and Plan of Reorganization for Your Fund (to Effect the
Reorganization)
APPENDIX II............................................Prospectus of Buying Fund
APPENDIX III............................Discussion of Performance of Buying Fund
APPENDIX IV......Form of Investment Advisory Agreement with A I M Advisors, Inc.
APPENDIX V.....Agreement and Plan of Reorganization for Your Fund (to Effect the
Redomestication)
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTOR, AIM LIFETIME AMERICA, AIM LINK, AIM INSTITUTIONAL FUNDS,
AIMFUNDS.COM, LA FAMILIA AIM DE FONDOS, LA FAMILIA AIM DE FONDOS AND DESIGN,
INVIERTA CON DISCIPLINA AND INVEST WITH DISCIPLINE ARE REGISTERED SERVICE MARKS
AND AIM BANK CONNECTION, AIM INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM
PRIVATE ASSET MANAGEMENT AND DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE
ASSETS AND DESIGN, AIM INVESTMENTS, AIM INVESTMENTS AND DESIGN, MYAIM.COM, THE
AIM COLLEGE SAVINGS PLAN, AIM SOLO 401(k) AND YOUR GOALS. OUR SOLUTIONS. ARE
SERVICE MARKS OF A I M MANAGEMENT GROUP INC.
INVESCO, THE OPEN CIRCLE DESIGN, INVESCO FUNDS, INVESCO FUNDS GROUP,
INVESCO -- YOUR GLOBAL INVESTMENT PARTNER AND YOU SHOULD KNOW WHAT INVESCO KNOWS
ARE REGISTERED SERVICE MARKS OF AMVESCAP PLC.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
v
INTRODUCTION
Your Fund is one of 46 portfolios advised by INVESCO and Buying Fund is one
of 86 portfolios advised by AIM. Proposals 1 through 4 that you are being asked
to vote on relate to or result from an integration initiative announced on March
27, 2003, by AMVESCAP, the parent company of AIM and INVESCO, with respect to
its North American mutual fund operations. The primary components of AMVESCAP's
integration initiative are:
- Using a single distributor for all AMVESCAP mutual funds in the United
States. To that end, A I M Distributors, Inc., the distributor for the
retail mutual funds advised by AIM (the "AIM Funds"), replaced INVESCO
Distributors, Inc. as the distributor for the retail mutual funds advised
by INVESCO (the "INVESCO Funds") effective July 1, 2003.
- Integrating back office support and creating a single platform for back
office support of AMVESCAP's mutual fund operations in the United States,
including such support services as transfer agency and information
technology. One result of this integration will be that shares of the AIM
Funds and shares of the INVESCO Funds generally will be able to be
exchanged for shares of the same or a similar class of each other.
- Rationalizing and streamlining of the various AIM Funds and INVESCO
Funds. In that regard, AMVESCAP has undertaken an extensive review of
these funds and concluded that it would be appropriate to reduce the
number of smaller and less efficient funds that compete for limited
shareholder assets and to consolidate certain funds having similar
investment objectives and strategies. Reducing both the number of AIM
Funds and INVESCO Funds will allow AIM and INVESCO to concentrate on
managing their core products. The Reorganization is one of a number of
fund reorganizations proposed by AMVESCAP as a result of this review
process. AMVESCAP's belief is that the Reorganization will allow Buying
Fund the best available opportunities for investment management, growth
prospects and potential economies of scale. Proposal 1 relates to this
component of AMVESCAP's integration initiative.
- Rationalizing the contractual arrangements for the provision of
investment advisory and administrative services to the AIM Funds and the
INVESCO Funds. The objective of this component is to have AIM assume
primary responsibility for the investment advisory, administrative,
accounting and legal and compliance services for the INVESCO Funds. To
implement this component, each INVESCO Fund is seeking shareholder
approval to enter into a new investment advisory agreement with AIM.
These changes will simplify AMVESCAP's mutual fund operations in the
United States in that there will be a uniform arrangement for investment
management for both the AIM Funds and the INVESCO Funds. Proposal 3
relates to this component of AMVESCAP's integration initiative.
- Simplifying the organizational structure of the AIM Funds and the INVESCO
Funds so that they are all organized as Delaware statutory trusts, using
as few entities as practicable. To implement this component, each AIM
Fund and each INVESCO Fund that currently is organized as a Maryland
corporation is seeking shareholder approval to redomesticate as a new
Delaware statutory trust, which also should provide these Funds with
greater flexibility in conducting their business operations. In addition,
certain series portfolios of AIM Funds with few portfolios are seeking
shareholder approval to be restructured as new series portfolios of
existing AIM Funds that are organized as Delaware statutory trusts.
Proposal 4 relates to this component of AMVESCAP's integration
initiative.
In considering the integration initiative proposed by AMVESCAP, the
directors of the INVESCO Funds and the directors/trustees of the AIM Funds who
are not "interested persons" (as defined in the Investment Company Act of 1940
(the "1940 Act")) of the Funds or their advisors determined that the
shareholders of both the AIM Funds and the INVESCO Funds would benefit if one
set of directors/ trustees was responsible for overseeing the operation of both
the AIM Funds and the INVESCO Funds and the services provided by AIM, INVESCO
and their affiliates. Accordingly, these directors/trustees
1
agreed to combine the separate boards and create a unified board of
directors/trustees. Proposal 2 relates to the election of directors of your
Fund.
You are being asked to approve Proposals 2 through 4 so that, in the event
that Proposal 1 is not approved, your Fund will still be able to take advantage
of these other benefits of AMVESCAP's integration initiative. We will be unable
to determine whether a particular Proposal other than Proposal 1, if approved,
should go forward until we have determined whether Proposal 1 has been approved.
Therefore, even if you vote in favor of Proposal 1, it is still important that
you vote on each remaining Proposal. For information about the Special Meeting
and voting on Proposals 1 through 4, see "Information About the Special Meeting
and Voting." For a description of the vote necessary to approve each of
Proposals 1 through 4, see "Information About the Special Meeting and
Voting -- Vote Necessary to Approve Each Proposal."
PROPOSAL 1 --
APPROVAL OF THE AGREEMENT
TO COMBINE YOUR FUND AND BUYING FUND
SUMMARY
The Board, including the independent directors, has determined that the
Reorganization is advisable and in the best interests of your Fund and that the
interests of the shareholders of your Fund will not be diluted as a result of
the Reorganization. The Board believes that a larger combined fund should be
more viable and have greater market presence and should have greater investment
leverage in that portfolio managers should have broader investment opportunities
and lower trading costs. The Board also believes that a larger combined fund
should result in greater operating efficiencies by providing economies of scale
to the combined fund in that certain fixed costs, such as legal, accounting,
shareholder services and director/trustee expenses, will be spread over the
greater assets of the combined fund. For additional information concerning the
factors the Board considered in approving the Agreement, see "Additional
Information About the Agreement -- Board Considerations."
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Agreement. For
more complete information, please read this entire Proxy Statement/Prospectus.
THE REORGANIZATION
The Reorganization will result in the combination of your Fund with Buying
Fund. Your Fund is a series of Company, a Maryland corporation. Buying Fund is a
series of Buyer, a Delaware statutory trust.
If shareholders of your Fund approve the Agreement and other closing
conditions are satisfied, all of the assets of your Fund will be transferred to
Buying Fund and Buying Fund will assume the liabilities of your Fund, and Buyer
will issue shares of each class of Buying Fund to shareholders of the
corresponding class of shares of your Fund, as set forth on Exhibit A. For a
description of certain of the closing conditions that must be satisfied, see
"Additional Information About the Agreement -- Other Terms."
The shares of Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the net value of the assets of your Fund
transferred to Buying Fund. The value of your account with Buying Fund
immediately after the Reorganization will be the same as the value of your
account with your Fund immediately prior to the Reorganization. A copy of the
Agreement is attached as Appendix I to this Proxy Statement/Prospectus. See
"Additional Information About the Agreement."
Company and Buyer will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Reorganization will constitute a tax-free
reorganization for Federal income tax purposes. Thus, shareholders will not have
to pay additional Federal income tax as a result of the Reorganization except to
the extent your Fund disposes of securities at a net gain in anticipation of the
Reorganization, which gain would be included in a taxable distribution. See
"Additional Information About the Agreement -- Federal Income Tax Consequences."
2
No sales charges will be imposed in connection with the Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Although Buying Fund and your Fund have slightly different investment
objectives (your Fund seeks high total return and Buying Fund seeks long-term
growth of capital and, secondarily, current income), they both invest in large,
well established companies with the potential for long-term growth. As a result,
the Reorganization is not expected to cause significant portfolio turnover or
transaction expenses from the sale of securities that are incompatible with the
investment objective of Buying Fund.
The investment objective or goal of your Fund is classified as fundamental,
which means that the Board cannot change it without shareholder approval. The
investment objectives of Buying Fund are not classified as fundamental, which
means that the Board of Trustees of Buyer can change them without shareholder
approval. Having the ability to change the investment objectives without
shareholder approval allows the Board of Trustees to respond more quickly and
efficiently to changing market conditions and to save Buying Fund and its
shareholders money by eliminating the need to solicit proxies to obtain
shareholder approval to change an investment objective to respond to changing
market conditions.
A description of the fundamental and non-fundamental restrictions and
policies applicable to your Fund and Buying Fund can be found in each Fund's
Statement of Additional Information. While your Fund and Buying Fund have
slightly different approaches to disclosing and characterizing these
restrictions and policies, in substance your Fund and Buying Fund operate under
the same general restrictions and are subject to the same general policies.
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and
Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of your Fund and Buying
Fund in the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
<Table>
<Caption>
INVESCO GROWTH & INCOME FUND AIM BLUE CHIP FUND
(YOUR FUND) (BUYING FUND)
---------------------------- ------------------
Investment Objective
- - high rate of total return - long-term growth of capital and,
secondarily, current income
Investment Strategies
- - invests at least 65% of its net assets in - invests at least 80% of its assets in
common stocks, preferred stocks and securities of blue chip companies
securities convertible into common stocks;
core investments are in well-established,
large growth companies and/or dividend
paying companies
- - invest primarily in equity securities and - in complying with the foregoing
equity-related instruments that INVESCO requirement, Buying Fund may invest
believes will rise in price faster than primarily in marketable equity securities,
other securities, as well as in options including convertible securities, but its
and other investments whose values are investments may include synthetic
based upon the values of equity securities instruments such as warrants, futures,
options, exchange-traded funds and
American Depositary Receipts
- - defines large companies as companies that - considers blue chip companies to be large
are included in the Russell 1000(R) Growth and medium sized companies (i.e.,
Index at the time of purchase, or if not companies with market capitalization, at
included in that Index, have market the time of purchase, no smaller than the
capitalizations of at least $5 billion at smallest capitalized company included in
the time of purchase the Russell 1000(R) Index during the most
recent 11-month period, based on month-end
data, plus the most recent data during the
current month) with leading market
positions and certain financial
characteristics
</Table>
3
<Table>
<Caption>
INVESCO GROWTH & INCOME FUND AIM BLUE CHIP FUND
(YOUR FUND) (BUYING FUND)
---------------------------- ------------------
- - relies on many short-term factors - identifies market leaders as companies
including current information about a within an industry that have (i) superior
company, investor interest, price growth prospects compared with other
movements of a company's securities and companies in the same industry; (ii)
general market and monetary conditions; possession of proprietary technology with
investing starts with research from the the potential to bring about major changes
"bottom up," and focuses on company within an industry; and /or (iii) leading
fundamentals and growth prospects sales within an industry, or the potential
to become a market leader
- defines financial characteristics as the
possession by a company of at least one of
the following: (i) faster earnings growth
than its competitors and the market in
general; (ii) higher profit margins
relative to its competitors; (iii) strong
cash flow relative to its competitors;
and/or (iv) a balance sheet with
relatively low debt and a high return on
equity relative to its competitors
- - may invest in securities which do not pay - when the portfolio managers believe
dividends but that INVESCO believes have securities other than marketable equity
the potential to increase in value, securities offer the opportunity for
regardless of the potential for dividends long-term growth of capital and current
income, may invest in United States
government securities and high-quality
debt securities
- - may invest up to 25% of its assets in - may invest up to 25% of its total assets
securities of non-U.S. issuers (securities in foreign securities
of Canadian issuers and American
Depositary Receipts are not subject to
this 25% limitation)
- - actively traded - does not normally engage in active and
frequent trading
- - no corresponding strategy - for cash management purposes, may hold a
portion of its assets in cash or cash
equivalents, including shares of
affiliated money market funds
</Table>
4
COMPARISON OF PRINCIPAL SERVICE PROVIDERS
The following is a list of the current principal service providers for your
Fund and Buying Fund.
<Table>
<Caption>
SERVICE PROVIDERS
--------------------------------------------------------------
INVESCO GROWTH & INCOME FUND AIM BLUE CHIP FUND
SERVICE (YOUR FUND) (BUYING FUND)
- ------- ---------------------------- ------------------
Investment Advisor............ INVESCO Funds Group, Inc.* A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Distributor................... A I M Distributors, Inc.** A I M Distributors, Inc.
11 Greenway Plaza, Suite 100 11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 Houston, Texas 77046-1173
Administrator................. INVESCO Funds Group, Inc.*** A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Custodian..................... State Street Bank and Trust State Street Bank and Trust
Company Company
Transfer Agent and Dividend
Disbursing Agent............ INVESCO Funds Group, Inc.**** A I M Fund Services, Inc.
Independent Auditors.......... PricewaterhouseCoopers LLP Ernst & Young LLP
</Table>
- ---------------
* If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as investment advisor for your Fund effective
November 5, 2003.
** A I M Distributors, Inc. replaced INVESCO Distributors, Inc. as distributor
of your Fund effective July 1, 2003.
*** If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as administrator for your Fund effective
November 5, 2003.
**** A I M Fund Services, Inc. will replace INVESCO as transfer agent and
dividend disbursing agent for your Fund on or about October 1, 2003.
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31 for Investor Class shares of your Fund and Class A shares of Buying
Fund can be found at Exhibit B. Also included as part of Exhibit B is a table
showing the average annual total returns for the periods indicated for your Fund
and Buying Fund, including sales charges. For more information regarding the
total return of your Fund, see the "Financial Highlights" section of the Selling
Fund Prospectus, which has been made a part of this Proxy Statement/Prospectus
by reference. For more information regarding the total return of Buying Fund,
see "Information About Buying Fund -- Financial Highlights." Past performance
cannot guarantee comparable future results.
COMPARISON OF FEES AND EXPENSES
A comparison of shareholder fees and annual operating expenses of each
class of shares of your Fund, as of July 31, 2002, and Buying Fund, as of
October 31, 2002, expressed as a percentage of net assets ("Expense Ratio"), can
be found at Exhibit C. Pro forma estimated Expense Ratios for each class of
shares of Buying Fund after giving effect to the Reorganization are also
provided as of October 31, 2002 as part of Exhibit C.
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of your Fund that are available to
investors and the corresponding share classes of Buying Fund that shareholders
of your Fund will receive in the Reorganization can be found as Exhibit A. In
addition to the share classes of Buying Fund listed on Exhibit A, Class R and
Institutional Class shares of Buying Fund are available to investors. These
classes are not involved in the
5
Reorganization. For information regarding the features of the various share
classes of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
COMPARISON OF SALES CHARGES
No initial sales charges are applicable to shares of Buying Fund received
by holders of your Fund's shares in connection with the Reorganization. No
redemption of your Fund's shares that could cause the imposition of a contingent
deferred sales charge ("CDSC") will result in connection with the
Reorganization. The holding period for purposes of determining whether to charge
a CDSC upon redemptions of shares of Buying Fund received by holders of your
Fund's shares in connection with the Reorganization will begin at the time your
Fund's shares were originally purchased.
The chart below provides a summary for comparison purposes of the initial
sales charges and CDSCs applicable to each class of shares of your Fund and
Buying Fund. The fee tables at Exhibit C include comparative information about
maximum initial sales charges on purchases of Class A shares of your Fund and
Buying Fund and the maximum CDSC on redemptions of certain classes of shares of
your Fund and Buying Fund. For more detailed information on initial sales
charges, including volume purchase breakpoints and waivers, and reductions of
CDSCs over time, see the Selling Fund Prospectus and the Buying Fund Prospectus.
<Table>
<Caption>
CLASS A CLASS B CLASS C
------- ------- -------
- - subject to an initial sales - not subject to an initial - not subject to an initial
charge* sales charge sales charge
- - may be subject to a CDSC on - subject to a CDSC on - subject to a CDSC on
redemptions made within 18 certain redemptions made certain redemptions made
months from the date of within 6 years from the within 12 months from the
certain large purchases** date of purchase date of purchase***
</Table>
<Table>
<Caption>
CLASS R CLASS K INSTITUTIONAL CLASS
(BUYING FUND ONLY) (YOUR FUND ONLY) INVESTOR CLASS (BUYING FUND ONLY)
------------------ ---------------- -------------- -------------------
- - not subject to an - not subject to an - not subject to an - not subject to an
initial sales initial sales initial sales initial sales
charge charge charge charge
- - may be subject to a - may be subject to a - not subject to a - not subject to a
CDSC on redemptions CDSC on redemptions CDSC CDSC
made within 12 made within 12
months from the months from the
date of certain date of certain
purchases purchases
</Table>
- ---------------
* Both your Fund and Buying Fund waive initial sales charges on Class A shares
for certain categories of investors, including certain of their affiliated
entities and certain of their employees, officers and directors/trustees and
those of their investment advisor.
** For qualified plans investing in Class A shares of your Fund, this period is
12 months rather than 18 months.
*** Prior to August 18, 2003, Class C shares of your Fund are subject to a CDSC
on certain redemptions made within 13 months from the date of purchase. This
13 month period changes to 12 months effective August 18, 2003.
The CDSC on redemptions of shares of Buying Fund is computed based on the
lower of their original purchase price or current market value. Prior to August
18, 2003, the CDSC on redemptions of shares of your Fund is computed based on
their original purchase price. This method of computation changes to conform to
Buying Fund's method of computation effective August 18, 2003.
6
COMPARISON OF DISTRIBUTION, PURCHASE AND REDEMPTION PROCEDURES AND EXCHANGE
RIGHTS
Shares of your Fund and Buying Fund are distributed by AIM Distributors,
Inc. ("AIM Distributors"), a registered broker-dealer and wholly owned
subsidiary of AIM. AIM Distributors replaced INVESCO Distributors, Inc. as
distributor of your Fund effective July 1, 2003.
Both your Fund and Buying Fund have adopted a distribution plan that allows
the payment of distribution and service fees for the sale and distribution of
the shares of each of their respective classes other than Institutional Class
shares of Buying Fund. Both your Fund and Buying Fund have engaged AIM
Distributors to provide such services either directly or through third parties.
The fee tables at Exhibit C include comparative information about the
distribution and service fees payable by each class of shares of your Fund and
Buying Fund. Overall, each class of shares of Buying Fund has the same or lower
aggregate distribution and service fees as the corresponding class of shares of
your Fund.
Although there are differences in the purchase, redemption and exchange
procedures of your Fund and Buying Fund as of the date of this Proxy
Statement/Prospectus, it is currently anticipated that the purchase, redemption
and exchange procedures of your Fund and/or Buying Fund will be changed so that
they are substantially the same prior to the consummation of the Reorganization.
For information regarding the current purchase, redemption and exchange
procedures of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
As of the date of this Proxy Statement/Prospectus, shares of your Fund
generally may be exchanged for shares of the same or a similar class of funds
within the INVESCO Family of Funds and shares of Buying Fund generally may be
exchanged for shares of the same or a similar class of funds within The AIM
Family of Funds(R). It is currently anticipated that, prior to the consummation
of the Reorganization, shares of The AIM Family of Funds(R) and shares of the
INVESCO Family of Funds generally will be able to be exchanged for shares of the
same or a similar class of each other. If this exchangeability feature is not
offered to shareholders prior to the consummation of the Reorganization, the
consummation of the Reorganization will be delayed until such time as it is
offered. See "Additional Information About the Agreement -- The Reorganization."
For more detailed information regarding the current exchange rights of your Fund
and Buying Fund, see the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
THE BOARD'S RECOMMENDATION ON PROPOSAL 1
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
7
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with Buying
Fund.
There is a risk that you could lose all or a portion of your investment in
Buying Fund and that the income you may receive from your investment may vary.
The value of your investment in Buying Fund will go up and down with the prices
of the securities in which Buying Fund invests. The prices of equity securities
change in response to many factors including the historical and prospective
earnings of the issuer of the stock, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
An investment in Buying Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
The risks associated with an investment in your Fund are similar to those
described above for Buying Fund because of the similarities in their investment
objectives and strategies. Set forth below is a discussion of certain risks that
differ between Buying Fund and your Fund. You can find more detailed
descriptions of specific risks associated with your Fund in the Selling Fund
Prospectus.
Your Fund may engage in frequent and active trading of its portfolio
securities. Buying Fund does not normally engage in active and frequent trading
of its portfolio securities. Active trading may increase your Fund's transaction
costs, which can lower the actual return on your investment. It may also
increase short-term gains and losses, which may affect the taxes you have to
pay.
Your Fund may also focus its investments in one or more sectors, resulting
in the risk that a certain sector may underperform other sectors or the market
as a whole. If the portfolio managers allocate more of your Fund's portfolio
holdings to a particular economic sector, as compared to Buying Fund, your
Fund's overall performance will be more susceptible to the economic, business,
or other developments which generally affect that sector.
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund are redeemable at their net asset value (subject, in
certain circumstances, to a contingent deferred sales charge) at the option of
the shareholder or at the option of Buyer in certain circumstances. Each share
of Buying Fund represents an equal proportionate interest in Buying Fund with
each other share and is entitled to such dividends and distributions out of the
income belonging to Buying Fund as are declared by the Board of Trustees of
Buying Fund. Each share of Buying Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of Buying Fund is
subject to different sales loads, conversion features, exchange privileges and
class-specific expenses. When issued, shares of Buying Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are freely
transferable. Other than the automatic conversion of Class B shares to Class A
shares, there are no conversion rights.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A discussion of the performance of Buying Fund taken from its annual report
to shareholders for the fiscal year ended October 31, 2002 is set forth in
Appendix III to this Proxy Statement/Prospectus.
8
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
"Financial Highlights" section of the Buying Fund Prospectus, which is attached
to this Proxy Statement/Prospectus as Appendix II.
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Appendix I to this
Proxy Statement/Prospectus.
THE REORGANIZATION
Consummation of the Reorganization (the "Closing") is expected to occur on
November 3, 2003, at 8:00 a.m., Eastern Time (the "Effective Time") on the basis
of values calculated as of the close of regular trading on the New York Stock
Exchange on October 31, 2003 (the "Valuation Date"). At the Effective Time, all
of the assets of your Fund will be delivered to Buyer's custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of the
liabilities of your Fund and delivery by Buyer directly to the holders of record
as of the Effective Time of the issued and outstanding shares of each class of
your Fund of a number of shares of each corresponding class of Buying Fund
(including, if applicable, fractional shares rounded to the nearest thousandth),
having an aggregate net asset value equal to the value of the net assets of your
Fund so transferred, assigned and delivered, all determined and adjusted as
provided in the Agreement. Upon delivery of such assets, Buying Fund will
receive good and marketable title to such assets free and clear of all liens.
In order to ensure continued qualification of your Fund for treatment as a
"regulated investment company" for tax purposes and to eliminate any tax
liability of your Fund arising by reason of undistributed investment company
taxable income or net capital gain, Company will declare on or prior to the
Valuation Date to the shareholders of your Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(a) all of your Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended July 31,
2003 and for the short taxable year beginning on August 1, 2003 and ending on
the Closing and (b) all of your Fund's net capital gain recognized in its
taxable year ended July 31, 2003 and in such short taxable year (after reduction
for any capital loss carryover).
Buying Fund will proceed with the Reorganization if the shareholders of
your Fund approve the Agreement.
It is anticipated that, prior to the Closing, shares of The AIM Family of
Funds(R) and shares of the INVESCO Family of Funds generally will be able to be
exchanged for shares of the same or a similar class of each other. If this
exchangeability feature is not offered to shareholders prior to the Closing, the
Closing will be postponed until a mutually acceptable date not later than
December 31, 2003 (the "Termination Date").
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Company will redeem the outstanding
shares of your Fund from shareholders in accordance with its Charter and the
Maryland General Corporation Law.
BOARD CONSIDERATIONS
AMVESCAP initially proposed that the Board consider the Reorganization at a
telephone meeting of the Board held on May 5, 2003. Preliminary discussions of
the Reorganization took place at the May 5, 2003 telephone meeting and at an
in-person meeting of the Board held on May 13-15, 2003. A special task force of
the Board met to consider the Reorganization on June 3, 2003. The Board
determined that the Reorganization is advisable and in the best interests of
your Fund and will not dilute the interests of
9
your Fund's shareholders, and approved the Agreement and the Reorganization, at
an in-person meeting of the Board held on June 9, 2003.
Over the course of the three Board meetings, the Board received from AIM
and INVESCO written materials that contained information concerning your Fund
and Buying Fund, including comparative total return and fee and expense
information, a comparison of investment objectives and strategies of your Fund
and Buying Fund and pro forma expense ratios for Buying Fund. AIM and INVESCO
also provided the Board with written materials concerning the structure of the
proposed Reorganization and the Federal tax consequences of the Reorganization.
In evaluating the Reorganization, the Board considered a number of factors,
including:
- The investment objective and principal investment strategies of your Fund
and Buying Fund.
- The comparative expenses of your Fund and Buying Fund and the pro forma
expenses of Buying Fund after giving effect to the Reorganization.
- The comparative performance of your Fund and Buying Fund.
- The comparative sizes of your Fund and Buying Fund.
- The consequences of the Reorganization for Federal income tax purposes,
including the treatment of capital loss carryforwards, if any, available
to offset future capital gains of both your Fund and Buying Fund.
- Any fees and expenses that will be borne directly or indirectly by your
Fund or Buying Fund in connection with the Reorganization.
The Board noted that AMVESCAP, on behalf of INVESCO, will bear the costs
and expenses incurred in connection with the Reorganization.
The Board also noted that no sales charges or other charges would be
imposed on any of the shares of Buying Fund issued to the shareholders of your
Fund in connection with the Reorganization.
Based on the foregoing and the information presented at the three Board
meetings discussed above, the Board determined that the Reorganization is
advisable and in the best interests of your Fund and will not dilute the
interests of your Fund's shareholders. Therefore, the Board recommends the
approval of the Agreement by the shareholders of your Fund at the Special
Meeting.
AMVESCAP initially proposed that the Board of Trustees of Buyer consider
the Reorganization at an in-person meeting of the Board of Trustees held on May
13-14, 2003, at which preliminary discussions of the Reorganization took place.
The Board of Trustees of Buyer determined that the Reorganization is in the best
interests of Buying Fund and will not dilute the interests of Buying Fund
shareholders, and approved the Agreement and the Reorganization, at an in-person
meeting of the Board of Trustees held on June 10-11, 2003.
OTHER TERMS
If any amendment is made to the Agreement which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, the Agreement may be amended without
shareholder approval by mutual agreement of the parties.
Company and Buyer have made representations and warranties in the Agreement
that are customary in matters such as the Reorganization. The obligations of
Company and Buyer pursuant to the Agreement are subject to various conditions,
including the following mutual conditions:
- the assets of your Fund to be acquired by Buying Fund shall constitute at
least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by your Fund immediately
prior to the Reorganization;
- Buyer's Registration Statement on Form N-14 under the Securities Act of
1933 (the "1933 Act") shall have been filed with the SEC and such
Registration Statement shall have become effective, and no stop-order
suspending the effectiveness of the Registration Statement shall have
been issued,
10
and no proceeding for that purpose shall have been initiated or
threatened by the SEC (and not withdrawn or terminated);
- the shareholders of your Fund shall have approved the Agreement; and
- Company and Buyer shall have received an opinion from Ballard Spahr
Andrews & Ingersoll, LLP that the consummation of the transactions
contemplated by the Agreement will not result in the recognition of gain
or loss for Federal income tax purposes for your Fund, Buying Fund or
their shareholders.
The Board of Directors of Company and the Board of Trustees of Buyer may
waive without shareholder approval any default by Company or Buyer or any
failure by Company or Buyer to satisfy any of the above conditions as long as
such a waiver is mutual and will not have a material adverse effect on the
benefits intended under the Agreement for the shareholders of your Fund. The
Agreement may be terminated and the Reorganization may be abandoned at any time
by mutual agreement of the parties, or by either party if the shareholders of
your Fund do not approve the Agreement or if the Closing does not occur on or
before the Termination Date.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and published judicial decisions, all of which are
subject to change. The principal Federal income tax consequences that are
expected to result from the Reorganization, under currently applicable law, are
as follows:
- the Reorganization will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code;
- no gain or loss will be recognized by your Fund upon the transfer of its
assets to Buying Fund solely in exchange for shares of Buying Fund and
Buying Fund's assumption of the liabilities of your Fund or on the
distribution of those shares to your Fund's shareholders; notwithstanding
the foregoing, no conclusion is expressed as to the effect of the
Reorganization on your Fund or any shareholder of your Fund with respect
to any asset as to which any unrealized gain or loss is required to be
recognized for Federal income tax purposes at the end of a taxable year
(or on the termination or transfer of a taxpayer's rights (or
obligations) with respect to such asset) under a mark-to-market system of
accounting;
- no gain or loss will be recognized by Buying Fund on its receipt of
assets of your Fund in exchange for shares of Buying Fund issued directly
to your Fund's shareholders;
- no gain or loss will be recognized by any shareholder of your Fund upon
the exchange of shares of your Fund for shares of Buying Fund;
- the tax basis of the shares of Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's tax basis
of the shares of your Fund surrendered in exchange therefor;
- the holding period of the shares of Buying Fund to be received by a
shareholder of your Fund will include the period for which such
shareholder held the shares of your Fund exchanged therefor, provided
that such shares of your Fund are capital assets in the hands of such
shareholder as of the Closing; and
- the tax year of your Fund will end on the date of the Closing, and Buying
Fund will thereafter succeed to and take into account any capital loss
carryover and certain other tax attributes of your Fund, subject to all
relevant conditions and limitations on the use of such tax benefits.
Neither Company nor Buyer has requested or will request an advance ruling
from the IRS as to the Federal tax consequences of the Reorganization. As a
condition to Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a
favorable opinion to Company and Buyer as to the foregoing Federal income tax
consequences of the Reorganization, which opinion will be conditioned upon,
among other things, the
11
accuracy, as of the Effective Time, of certain representations of Company and
Buyer upon which Ballard Spahr Andrews & Ingersoll, LLP will rely in rendering
its opinion. The conclusions reached in that opinion could be jeopardized if the
representations of Company or Buyer are incorrect in any material respect.
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND'S SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganization will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to Buying Fund of the assets of your Fund will
be the same as the book cost basis of such assets to your Fund.
RIGHTS OF SHAREHOLDERS
GENERAL
Company is a Maryland corporation. Buyer is a Delaware statutory trust.
There is much that is similar between Maryland corporations and Delaware
statutory trusts. For example, the responsibilities, powers and fiduciary duties
of the directors of Company are substantially similar to those of the trustees
of Buyer.
There are, however, certain differences between the two forms of
organization. The operations of Company, as a Maryland corporation, are governed
by its Articles of Incorporation, and any restatements, amendments and
supplements thereto (the "Articles of Incorporation"), and applicable Maryland
law. The operations of Buyer, as a Delaware statutory trust, are governed by its
Amended and Restated Agreement and Declaration of Trust, as amended (the
"Declaration of Trust"), and applicable Delaware law.
LIABILITY OF SHAREHOLDERS
Shareholders of a Maryland corporation generally do not have personal
liability for the corporation's obligations, except that a shareholder may be
liable to the extent that he or she receives any distribution which exceeds the
amount which he or she could properly receive under Maryland law or where such
liability is necessary to prevent fraud.
The Delaware Statutory Trust Act provides that shareholders of a Delaware
statutory trust shall be entitled to the same limitations of liability extended
to shareholders of private for-profit corporations. There is, however, a remote
possibility that, under certain circumstances, shareholders of a Delaware
statutory trust might be held personally liable for the trust's obligations to
the extent the courts of another state that does not recognize such limited
liability were to apply the laws of such state to a controversy involving such
obligations. The Declaration of Trust provides that shareholders of the Trust
shall not be subject to any personal liability for acts or obligations of the
Trust and that every written agreement, obligation or other undertaking made or
issued by the Trust shall contain a provision to the effect that shareholders
are not personally liable thereunder. In addition, the Declaration of Trust
provides for indemnification out of the Trust's property for any shareholder
held personally liable solely by reason of his or her being or having been a
shareholder. Therefore, the risk of any shareholder incurring financial loss
beyond his or her investment due to shareholder liability is limited to
circumstances in which the Trust itself is unable to meet its obligations and
the express disclaimer of shareholder liabilities is determined not to be
effective. Given the nature of the assets and operations of the Trust, the
possibility of the Trust being unable to meet its obligations is considered
remote, and even if a claim were brought against the Trust and a court
determined that shareholders were personally liable, it would likely not impose
a material obligation on a shareholder.
ELECTION OF DIRECTORS/TRUSTEES; TERMS
The shareholders of Company have elected a majority of the directors of
Company. Each director serves until a successor is elected, subject to his or
her earlier death, resignation or removal in the manner
12
provided by law (see below). In the case of a vacancy on the Board of Directors
(other than a vacancy created by removal by the shareholders), a majority of the
directors may appoint a successor to fill such vacancy. The right of the Board
of Directors to appoint directors to fill vacancies without shareholder approval
is subject to the provisions of the 1940 Act.
The shareholders of Buyer have elected a majority of the trustees of Buyer.
Such trustees serve for the life of Buyer, subject to their earlier death,
incapacitation, resignation, retirement or removal (see below). In the case of
any vacancy on the Board of Trustees, a majority of the trustees may appoint a
successor to fill such vacancy. The right of the Board of Trustees to appoint
trustees to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
REMOVAL OF DIRECTORS/TRUSTEES
A director of Company may be removed by the affirmative vote of a majority
of the holders of a majority of the outstanding shares of Company.
A trustee of Buyer may be removed at any time by a written instrument
signed by at least two-thirds of the trustees or by vote of two-thirds of the
outstanding shares of Buyer.
MEETINGS OF SHAREHOLDERS
Company is not required to hold annual meetings of shareholders and does
not intend to do so unless required by the 1940 Act. The bylaws of Company
provide that a special meeting of shareholders may be called by the president
or, in his or her absence, the vice-president or by a majority of the Board of
Directors or holders of shares entitled to cast at least 10% of the votes
entitled to be cast at the special meeting. Requests for special meetings must,
among other things, state the purpose of such meeting and the matters to be
voted upon. No special meeting need be called to consider any matter previously
voted upon at a special meeting called by the shareholders during the preceding
twelve months, unless requested by a majority of all shares entitled to vote at
such meeting.
Buyer is not required to hold annual meetings of shareholders unless
required by the 1940 Act and does not intend to do so. The bylaws of Buyer
provide that any trustee may call a special meeting of shareholders and the
trustees shall call a special meeting of the shareholders solely for the purpose
of removing one or more trustees upon written request of the holders of not less
than 10% of the outstanding shares of Buyer. Special meetings may be called for
the purpose of electing trustees or for any other action requiring shareholder
approval, or for any matter deemed by the trustees to be necessary or desirable.
LIABILITY OF DIRECTORS/TRUSTEES AND OFFICERS; INDEMNIFICATION
Maryland law permits a corporation to eliminate liability of its directors
and officers to the corporation or its stockholders, except for liability
arising from receipt of an improper benefit or profit and from active and
deliberate dishonesty. The Articles of Incorporation eliminate director and
officer liability to the fullest extent permitted under Maryland law. Under
Maryland law, indemnification of a corporation's directors and officers is
mandatory if a director or officer has been successful on the merits or
otherwise in the defense of certain proceedings. Maryland law permits
indemnification for other matters unless it is established that the act or
omission giving rise to the proceeding was committed in bad faith, a result of
active and deliberate dishonesty, or one in which a director or officer actually
received an improper benefit.
Delaware law provides that trustees of a statutory trust shall not be
liable to the statutory trust or its shareholders for acting in good faith
reliance on the provisions of its governing instrument and that the trustee's
liabilities may be expanded or restricted by such instrument. Under the
Declaration of Trust, the trustees and officers of Buyer are not liable for any
act or omission or any conduct whatsoever in their capacity as trustees, except
for liability to the trust or shareholders due to willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of trustee. Delaware law allows a statutory trust to
indemnify and hold harmless any trustee or other person against any and all
claims and demands. The Declaration of Trust provides for the indemnification of
its trustees and officers to the extent that such trustees and officers act in
good faith and reasonably believe that their conduct is in the best interests of
Buyer, except with respect to any matter in which it has been
13
determined that such trustee acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of his or her duties.
DISSOLUTION AND TERMINATION
Maryland law provides that Company may be dissolved by the vote of a
majority of the Board of Directors and two-thirds of the shares entitled to vote
on the dissolution; however the Articles of Incorporation reduce the required
shareholder vote from two-thirds to a majority of the shares entitled to vote on
the dissolution.
Pursuant to the Declaration of Trust, Buyer or any series or class of
shares of beneficial interest in Buyer may be terminated by: (1) a majority
shareholder vote of Buyer or the affected series or class, respectively; or (2)
if there are fewer than 100 shareholders of record of Buyer or of such
terminating series or class, the trustees pursuant to written notice to the
shareholders of Buyer or the affected series or class.
VOTING RIGHTS OF SHAREHOLDERS
Shareholders of a Maryland corporation such as Company are entitled to vote
on, among other things, those matters which effect fundamental changes in the
corporate structure (such as a merger, consolidation or sale of substantially
all of the assets of the corporation) as provided by Maryland law.
The Declaration of Trust grants shareholders power to vote only with
respect to the following: (i) election of trustees, provided that a meeting of
shareholders has been called for that purpose; (ii) removal of trustees,
provided that a meeting of shareholders has been called for that purpose; (iii)
termination of Buyer or a series or class of its shares of beneficial interest,
provided that a meeting of shareholders has been called for that purpose; (iv)
sale of all or substantially all of the assets of Buyer or one of its investment
portfolios; (v) merger or consolidation of Buyer or any of its investment
portfolios, with certain exceptions; (vi) approval of any amendments to
shareholders' voting rights under the Declaration of Trust; and (vii) approval
of such additional matters as may be required by law or as the trustees, in
their sole discretion, shall determine.
DISSENTERS' RIGHTS
Under Maryland law, shareholders may not demand the fair value of their
shares from the successor company in a transaction involving the transfer of the
corporation's assets and are, therefore, bound by the terms of the transaction
if the stock is that of an open-end investment company registered with the SEC
under the 1940 Act and the value placed on the stock in the transaction is its
net asset value.
Neither Delaware law nor the Declaration of Trust confers upon shareholders
rights of appraisal or dissenters' rights.
AMENDMENTS TO ORGANIZATION DOCUMENTS
Consistent with Maryland law, Company reserves the right to amend, alter,
change or repeal any provision contained in the Articles of Incorporation in the
manner prescribed by statute, including any amendment that alters the contract
rights, as expressly set forth in the Articles of Incorporation, of any
outstanding stock, and all rights conferred on shareholders are granted subject
to this reservation. The Board of Directors of Company may approve amendments to
the Articles of Incorporation to classify or reclassify unissued shares of a
class of stock without shareholder approval. Other amendments to the Articles of
Incorporation may be adopted if approved by the affirmative vote of a majority
of all the votes entitled to be cast on the matter. The directors shall have the
power to alter, amend or repeal the bylaws of Company or adopt new bylaws at any
time.
Consistent with Delaware law, the Board of Trustees of Buyer may, without
shareholder approval, amend the Declaration of Trust at any time, except to
eliminate any voting rights pertaining to the shares of Buyer, without approval
of the majority of the shares of Buyer. The trustees shall have the power to
alter, amend or repeal the bylaws of Buyer or adopt new bylaws at any time.
14
CAPITALIZATION
The following table sets forth, as of March 31, 2003, (i) the
capitalization of each class of shares of your Fund, (ii) the capitalization of
each class of shares of Buying Fund, and (iii) the pro forma capitalization of
each class of shares of Buying Fund as adjusted to give effect to the
transactions contemplated by the Agreement.
<Table>
<Caption>
PRO FORMA
YOUR FUND YOUR FUND BUYING FUND BUYING FUND
CLASS A SHARES CLASS K SHARES(1) CLASS A SHARES CLASS A SHARES
-------------- ----------------- -------------- --------------
Net Assets...................... $293,667 $149,133 $1,237,379,891 $1,237,822,691
Shares Outstanding.............. 50,966 25,999 140,611,509 140,661,827
Net Asset Value Per Share....... $ 5.76 $ 5.74 $ 8.80 $ 8.80
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS B SHARES CLASS B SHARES CLASS B SHARES
-------------- -------------- --------------
Net Assets...................................... $58,675 $1,058,216,340 $1,058,275,015
Shares Outstanding.............................. 10,271 125,262,907 125,269,852
Net Asset Value Per Share....................... $ 5.71 $ 8.45 $ 8.45
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS C SHARES CLASS C SHARES CLASS C SHARES
-------------- -------------- --------------
Net Assets......................................... $939,570 $259,652,797 $260,592,367
Shares Outstanding................................. 167,381 30,737,249 30,848,474
Net Asset Value Per Share.......................... $ 5.61 $ 8.45 $ 8.45
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INVESTOR CLASS INVESTOR CLASS INVESTOR CLASS
SHARES SHARES(1) SHARES
-------------- -------------- --------------
Net Assets............................................ $40,081,312 0 $40,081,312
Shares Outstanding.................................... 6,962,569 0 4,554,707
Net Asset Value Per Share............................. $ 5.76 $8.80 $ 8.80
</Table>
<Table>
<Caption>
PRO FORMA
BUYING FUND BUYING FUND
CLASS R SHARES CLASS R SHARES(1)
-------------- -----------------
Net Assets.................................................. $485,455 $485,455
Shares Outstanding.......................................... 55,207 55,207
Net Asset Value Per Share................................... $ 8.79 $ 8.79
</Table>
<Table>
<Caption>
PRO FORMA
BUYING FUND BUYING FUND
INSTITUTIONAL CLASS INSTITUTIONAL CLASS
SHARES SHARES
------------------- -------------------
Net Assets.................................................. $138,066 $138,066
Shares Outstanding.......................................... 15,578 15,578
Net Asset Value Per Share................................... $ 8.86 $ 8.86
</Table>
- ---------------
(1) Shareholders of Class K shares of your Fund are receiving Class A shares of
Buying Fund in the Reorganization.
(2) As of March 31, 2003, Investor Class shares of Buying Fund did not exist.
Investor Class shares were added to Buying Fund in connection with the
Reorganization. Investor Class shares of Buying Fund will commence
operations at the net asset value per share of Buying Fund's Class A shares.
Therefore, the Net Asset Value Per Share shown for Investor Class shares of
Buying Fund in the table above is that of Buying Fund's Class A shares.
15
INTERESTS OF CERTAIN PERSONS
If the Reorganization is consummated, AIM, as the investment advisor of
Buying Fund, will gain approximately $42 million in additional assets under
management (based on your Fund's net assets as of March 31, 2003), upon which
AIM will receive advisory fees. Exhibit C sets forth AIM's advisory fees
applicable to Buying Fund.
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the Reorganization
will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market
Street, Philadelphia, PA 19103-7599.
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND
For more information with respect to Buying Fund concerning the following
topics, please refer to the following sections of the Buying Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference and
which is attached to this Proxy Statement/Prospectus as Appendix II: (i) see
"Performance Information" for more information about the performance of Buying
Fund; (ii) see "Fund Management" for more information about the management of
Buying Fund; (iii) see "Other Information" for more information about Buying
Fund's policy with respect to dividends and distributions; and (iv) see "Other
Information" and "Shareholder Information" for more information about sales
charges, including contingent deferred sales charges, applicable to shares of
Buying Fund, the pricing, purchase, redemption and repurchase of shares of
Buying Fund, tax consequences to shareholders of various transactions in shares
of Buying Fund, distribution arrangements and the multiple class structure of
Buying Fund.
For more information with respect to your Fund concerning the following
topics, please refer to the following sections of the Selling Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference: (i)
see "Fund Performance" for more information about the performance of your Fund;
(ii) see "Fund Management" and "Portfolio Managers" for more information about
the management of your Fund; (iii) see "Share Price" for more information about
the pricing of shares of your Fund; (iv) see "Taxes" for more information about
tax consequences to shareholders of various transactions in shares of your Fund;
(v) see "Dividends And Capital Gain Distributions" for more information about
your Fund's policy with respect to dividends and distributions; and (vi) see
"How To Buy Shares", "How To Sell Shares" and "Your Account Services" for more
information about sales charges, including contingent deferred sales charges,
applicable to shares of your Fund, the purchase, redemption and repurchase of
shares of your Fund, distribution arrangements and the multiple class structure
of your Fund.
INFORMATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual reports which Company
and Buyer have filed with the SEC pursuant to the requirements of the 1933 Act
and the 1940 Act, to which reference is hereby made. The SEC file number of
Company's registration statement containing the Selling Fund Prospectus and
related Statement of Additional Information is Registration No. 811-1474. Such
Selling Fund Prospectus is incorporated herein by reference. The SEC file number
for Buyer's registration statement containing the Buying Fund Prospectus and
related Statement of Additional Information is Registration No. 811-1424. Such
Buying Fund Prospectus is incorporated herein by reference.
Company and Buyer are subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
file reports and other information with the SEC. Reports, proxy material,
registration statements and other information filed by Company and Buyer
(including the Registration Statement of Buyer relating to Buying Fund on Form
N-14 of which this Proxy Statement/Prospectus is a part) may be inspected
without charge and copied at the public reference facilities maintained by the
SEC at Room 1014, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC
16
20549, and at the following regional office of the SEC: 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material may also be
obtained from the Public Reference Section of the SEC at 450 Fifth Street, NW,
Washington, DC 20549, at the prescribed rates. The SEC maintains a website at
www.sec.gov that contains information regarding Company and Buyer and other
registrants that file electronically with the SEC.
PROPOSAL 2 --
ELECTION OF DIRECTORS
BACKGROUND
In considering the integration initiative proposed by AMVESCAP, the
independent directors of the INVESCO Funds and the independent
directors/trustees of the AIM Funds determined that the shareholders of all the
AIM Funds and the INVESCO Funds would benefit if a unified board of
directors/trustees was responsible for overseeing the operation of both the AIM
Funds and the INVESCO Funds and the services provided by AIM, INVESCO and their
affiliates. Accordingly, the Boards of Directors of the INVESCO Funds and the
Boards of Directors/Trustees of the AIM Funds agreed to combine the separate
boards and create a unified board of directors/trustees.
You are being asked to approve Proposal 2 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from having
a combined board of directors.
STRUCTURE OF THE BOARD OF DIRECTORS
The Board currently consists of the following 10 persons: Bob R. Baker,
Sueann Ambron, Victor L. Andrews, Lawrence H. Budner, James T. Bunch, Raymond R.
Cunningham, Gerald L. Lewis, John W. McIntyre, Larry Soll, Ph.D. and Mark H.
Williamson. Eight of the current directors are "independent," meaning they are
not "interested persons" of Company within the meaning of the 1940 Act. Two of
the current directors are "interested persons" because of their business and
financial relationships with Company and INVESCO, its investment advisor, and/or
INVESCO's parent, AMVESCAP. Five of the current directors have declined to stand
for re-election as directors of Company. Therefore, their terms as directors of
Company will end upon the election and qualification of their successor
directors at the Special Meeting.
NOMINEES FOR DIRECTORS
Company's nominating committee (which consists solely of independent
directors) has approved the nomination of five of the 10 current directors, as
set forth below, each to serve as director until his successor is elected and
qualified. In addition, the nominating committee has approved the nomination of
11 new nominees, as set forth below, each to serve as director until his or her
successor is elected and qualified. These 11 new nominees were nominated to
effect the proposed combination of the Boards of Directors/Trustees of the AIM
Funds and the Boards of Directors of the INVESCO Funds.
Each nominee who is a current director serves as a director of the ten
registered investment companies comprising the INVESCO Funds. Each nominee who
is a current director oversees 46 portfolios which comprise the INVESCO Funds.
The business address of each nominee who is a current director is 4350 South
Monaco Street, Denver, Colorado 80237.
Each new nominee serves as a director or trustee of the 17 registered
investment companies comprising the AIM Funds. Each new nominee currently
oversees 86 portfolios which comprise the AIM Funds. The business address of
each new nominee is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
If elected, each nominee would oversee a total of 27 registered investment
companies currently comprising 132 portfolios.
17
NOMINEES WHO CURRENTLY ARE INDEPENDENT DIRECTORS
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- ----------------------- --------------------------
Bob R. Baker -- 1936........ 1983 Consultant (2000-present); None
formerly, President and
Chief Executive Officer
(1988-2000) of AMC Cancer
Research Center, Denver,
Colorado; until mid-December
1988, Vice Chairman of the
Board of First Columbia
Financial Corporation,
Englewood, Colorado;
formerly, Chairman of the
Board and Chief Executive
Officer of First Columbia
Financial Corporation.
James T. Bunch -- 1942...... 2000 Co-President and Founder of None
Green, Manning & Bunch Ltd.,
Denver, Colorado (1988-
present) (investment banking
firm); Director and Vice
President of Western Golf
Association and Evans
Scholars Foundation;
Executive Committee, United
States Golf Association;
formerly, General Counsel
and Director of Boettcher &
Co., Denver, Colorado; and
formerly, Chairman and
Managing Partner, law firm
of Davis, Graham & Stubbs,
Denver, Colorado.
Gerald J. Lewis -- 1933..... 2000 Chairman of Lawsuit General Chemical Group,
Resolution Services, San Inc., Hampdon, New
Diego, California Hampshire (1996-present),
(1987-present); formerly, Wheelabrator Technologies,
Associate Justice of the Inc. (waste management
California Court of Appeals; company), Fisher
and Of Counsel, law firm of Scientific, Inc.
Latham & Watkins, San Diego, (laboratory supplies),
California (1987-1997). Henley Manufacturing,
Inc., and California
Coastal Properties, Inc.
Larry Soll, Ph.D. -- 1942... 1997 Retired; formerly, Chairman Synergen Inc. (since
of the Board (1987-1994), incorporation in 1982) and
Chief Executive Officer Isis Pharmaceuticals, Inc.
(1982-1989 and 1993-1994)
and President (1982-1989) of
Synergen Inc. (biotechnology
company); and formerly,
trustee of INVESCO Global
Health Sciences Fund.
</Table>
18
NOMINEE WHO CURRENTLY IS AN INTERESTED PERSON
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- ----------------------- --------------------------
Mark H.
Williamson(1) -- 1951..... 1998 Director, President and Director/trustee of each
Chief Executive Officer, of the 17 AIM Funds
A I M Management Group Inc.;
Director, Chairman and
President, A I M Advisors,
Inc. (registered investment
advisor); Director, A I M
Distributors, Inc.
(registered broker dealer);
and Chief Executive Officer
of the AIM Division of
AMVESCAP PLC (2003-
present); formerly, Chief
Executive Officer, Managed
Products Division, AMVESCAP
PLC (2001-2002); Chairman of
the Board (1998-2002),
President (1998-2002) and
Chief Executive Officer
(1998-2002) of INVESCO Funds
Group, Inc. (registered
investment advisor) and
INVESCO Distributors, Inc.
(registered broker dealer);
Chief Operating Officer and
Chairman of the Board of
INVESCO Global Health
Sciences Fund; Chairman and
Chief Executive Officer of
NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
</Table>
- ---------------
(1) Mr. Williamson is considered an interested person of Company because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, Company.
NEW NOMINEES WHO WILL BE INDEPENDENT DIRECTORS
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ----------------------- --------------------------
Frank S. Bayley -- 1939................... Of Counsel, law firm of Baker & Badgley Funds, Inc.
McKenzie (registered investment
company)
Bruce L. Crockett -- 1944................. Chairman, Crockett Technology ACE Limited (insurance
Associates (technology company); Captaris, Inc.
consulting company) and (unified messaging
Captaris, Inc. (unified provider)
messaging provider)
</Table>
19
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ----------------------- --------------------------
Albert R. Dowden -- 1941.................. Director of a number of public Cortland Trust, Inc.
and private business (Chairman) (registered
corporations, including the investment company);
Boss Group, Ltd. (private Annuity and Life Re
investment and management) and (Holdings), Ltd.
Magellan Insurance Company; (insurance company)
formerly, President, Chief
Executive Officer and Director,
Volvo Group North America,
Inc.; Senior Vice President, AB
Volvo and director of various
affiliated Volvo Group
companies
Edward K. Dunn, Jr. -- 1935............... Formerly, Chairman, Mercantile None
Mortgage Corp.; President and
Chief Operating Officer,
Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
Jack M. Fields -- 1952.................... Chief Executive Officer, Twenty Administaff
First Century Group, Inc.
(government affairs company)
and Texana Timber LP
Carl Frischling -- 1937................... Partner, law firm of Kramer Cortland Trust, Inc.
Levin Naftalis & Frankel LLP (registered investment
company)
Prema Mathai-Davis -- 1950................ Formerly, Chief Executive None
Officer, YWCA of the USA
Lewis F. Pennock -- 1942.................. Partner, law firm of Pennock & None
Cooper
Ruth H. Quigley -- 1935................... Retired None
Louis S. Sklar -- 1939.................... Executive Vice President, None
Development and Operations,
Hines Interests Limited
Partnership (real estate
development company)
</Table>
20
NEW NOMINEE WHO WILL BE AN INTERESTED PERSON
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ----------------------- --------------------------
Robert H. Graham(1) -- 1946.......... Director and Chairman, A I M None
Management Group Inc.
(financial services holding
company); and Director and
Vice Chairman, AMVESCAP PLC
(parent of AIM and a global
investment management firm)
and Chairman, AMVESCAP
PLC -- AIM Division;
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),
A I M Fund Services, Inc.
(registered transfer agent),
and Fund Management Company
(registered broker dealer);
and Chief Executive Officer,
AMVESCAP PLC -- Managed
Products
</Table>
- ---------------
(1) Mr. Graham will be considered an interested person of Company because he is
a director of AMVESCAP PLC, parent of the advisor to, and principal
underwriter of, Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 2
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" these 16 nominees.
CURRENT COMMITTEES OF THE BOARD
The Board currently has nine standing committees: an audit committee, an
investments and management liaison committee, a brokerage committee, a
derivatives committee, a valuation committee, a legal committee, a compensation
committee, a retirement plan committee and a nominating committee.
AUDIT COMMITTEE
Company has an audit committee established for the purpose of overseeing
the accounting and financial reporting process of Company and audits of the
financial statements of Company. The audit committee is comprised entirely of
independent directors. The committee meets quarterly with Company's independent
accountants and officers to review accounting principles used by Company, the
adequacy of internal controls, the responsibilities and fees of the independent
accountants, and other matters. The current members of the audit committee are
Messrs. Baker, Budner, Lewis and McIntyre.
EXECUTIVE COMMITTEE
Company has an executive committee. On occasion, the committee acts upon
the current and ordinary business of Company between the meetings of the Board.
Except for certain powers which, under applicable law, may only be exercised by
the full Board, the committee may exercise all powers and
21
authority of the Board in the management of the business of Company. All
decisions are subsequently submitted for ratification by the Board. The current
members of the executive committee are Messrs. Baker, Bunch, McIntyre and
Williamson.
INVESTMENTS AND MANAGEMENT LIAISON COMMITTEE
Company has an investments and management liaison committee which meets
quarterly with various management personnel of INVESCO in order to facilitate
better understanding of management and operations of Company, and to review
investment, legal and operational matters which have been assigned to the
committee by the Board, in furtherance of the Board's overall duty of
supervision. The current members of the investments and management liaison
committee are Messrs. Andrews, Baker, Bunch, Soll and Dr. Ambron.
BROKERAGE COMMITTEE
Company has a brokerage committee. The committee meets periodically to
review soft dollar and other brokerage transactions by your Fund and to review
policies and procedures of INVESCO with respect to brokerage transactions. It
reports on these matters to the Board. The current members of the brokerage
committee are Messrs. Budner, Bunch and McIntyre.
DERIVATIVES COMMITTEE
Company has a derivatives committee. The committee meets periodically to
review derivatives investments made by your Fund. It monitors the use of
derivatives by your Fund and the procedures utilized by INVESCO to ensure that
the use of such instruments follows the policies adopted by the Board. The
committee reports on these matters to the Board. The current members of the
derivatives committee are Messrs. Andrews, Lewis and Soll.
NOMINATING COMMITTEE
Company has a nominating committee. The committee meets periodically to
review and nominate candidates for positions as independent directors to fill
vacancies on the board of directors. The nominating committee will consider
nominees recommended by shareholders. If a shareholder desires to nominate a
candidate, the shareholder must submit a request in writing to the Chairman of
the nominating committee. The current members of the nominating committee are
Messrs. Baker, Bunch, Lewis and Soll.
LEGAL COMMITTEE
Company has a legal committee. The committee meets periodically to review
compensation arrangements with counsel to Company and to its independent
directors. The committee reports on these matters to the Board. The current
members of the legal committee are Messrs. Bunch, Lewis and McIntyre.
COMPENSATION COMMITTEE
Company has a compensation committee. The committee meets periodically to
review compensation arrangements of Company's independent directors. The
committee reports on these matters to the Board. The current members of the
compensation committee are Messrs. Andrews, Baker, Budner and Soll.
VALUATION COMMITTEE
Company has a valuation committee. The committee meets periodically to
review valuation issues regarding investments made by your Fund. The committee
reports on these matters to the Board. The current members of the valuation
committee are Messrs. Baker, Bunch, Cunningham and McIntyre.
RETIREMENT PLAN COMMITTEE
Company has a retirement plan committee. The committee meets periodically
to review Company's retirement arrangements for its independent directors. The
committee reports on these matters to the Board. The current members of the
retirement plan committee are Messrs. Andrews, Baker, Budner, Cunningham and
Soll.
22
BOARD AND COMMITTEE MEETING ATTENDANCE
During the fiscal year ended July 31, 2003, the Board met eight times, the
audit committee met four times, the executive committee did not meet, the
investments and management liaison committee met four times, the brokerage
committee met four times, the derivatives committee met four times, the
nominating committee met four times, the legal committee met three times, the
compensation committee met two times, and the valuation and retirement plan
committees did not meet. All of the current directors then serving attended at
least 75% of the meetings of the Board or applicable committee during the most
recent fiscal year.
FUTURE COMMITTEE STRUCTURE
As a result of the combination of the Boards of Directors of the INVESCO
Funds and the Boards of Directors/Trustees of the AIM Funds, it is expected that
the Board will adopt a committee structure that is the same as that which is in
effect for the AIM Funds, so that the Board will have four committees: an Audit
Committee, a Committee on Directors/Trustees, an Investments Committee and a
Valuation Committee. These committees are described below.
AUDIT COMMITTEE
The Audit Committee will be comprised entirely of independent directors.
The Audit Committee will be responsible for: (i) the appointment, compensation
and oversight of any independent auditors employed by your Fund (including
resolution of disagreements between your Fund's management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work; (ii) overseeing the financial reporting process of your
Fund; (iii) monitoring the process and the resulting financial statements
prepared by management to promote accuracy of financial reporting and asset
valuation; and (iv) pre-approving permissible non-audit services that are
provided to your Fund by its independent auditors.
COMMITTEE ON DIRECTORS/TRUSTEES
The Committee on Directors/Trustees will be comprised entirely of
independent directors. It will be responsible for: (i) nominating persons who
are not interested persons of Company for election or appointment: (a) as
additions to the Board, (b) to fill vacancies which, from time to time, may
occur in the Board and (c) for election by shareholders of Company at meetings
called for the election of directors; (ii) nominating persons who are not
interested persons of Company for selection as members of each committee of the
Board, including, without limitation, the audit committee, the committee on
directors, the investments committee and the valuation committee, and to
nominate persons for selection as chair and vice chair of each such committee;
(iii) reviewing from time to time the compensation payable to the independent
directors and making recommendations to the Board regarding compensation; (iv)
reviewing and evaluating from time to time the functioning of the Board and the
various committees of the Board; (v) selecting independent legal counsel to the
independent trustees and approving the compensation paid to independent legal
counsel; and (vi) approving the compensation paid to independent counsel and
other advisers, if any, to the Audit Committee of Company.
INVESTMENTS COMMITTEE
The Investments Committee will be responsible for: (i) overseeing the
advisor's investment-related compliance systems and procedures to ensure their
continued adequacy; and (ii) considering and acting, on an interim basis between
meetings of the full Board, on investment-related matters requiring Board
consideration, including dividends and distributions, brokerage policies and
pricing matters.
VALUATION COMMITTEE
The Valuation Committee will be responsible for: (i) periodically reviewing
the advisor's procedures for valuing securities ("Procedures"), and making any
recommendations to the advisor with respect thereto; (ii) reviewing proposed
changes to the Procedures recommended by the advisor from time to time; (iii)
periodically reviewing information provided by the advisor regarding industry
developments in
23
connection with valuation; (iv) periodically reviewing information from the
advisor regarding fair value and liquidity determinations made pursuant to the
Procedures, and making recommendations to the full Board in connection therewith
(whether such information is provided only to the committee or to the committee
and the full Board simultaneously); and (v) if requested by the advisor,
assisting the advisor's internal valuation committee and/or the full Board in
resolving particular valuation anomalies.
DIRECTOR'S COMPENSATION
Each director who is independent is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director of other INVESCO Funds. Each such director receives a fee,
allocated among the INVESCO Funds for which he or she serves as a director,
which consists of an annual retainer component and a meeting fee component.
Information regarding compensation paid or accrued for each continuing
director of Company who was not affiliated with INVESCO during the year ended
December 31, 2002 is found in Exhibit D.
CURRENT RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds have adopted a Retirement Plan
(the "Retirement Plan") and a Deferred Retirement Plan Account Agreement (the
"Account Agreement"). Certain of the independent directors of Company
participate either in the Retirement Plan or in the Account Agreement. Under the
Retirement Plan and the Account Agreement, each participating director who is
not an interested person of the INVESCO Funds and who has served for at least
five years (a "Participating Qualified Director") is entitled to receive a
benefit upon retirement.
Commencing with attainment of age 72 by a Participating Qualified Director
who has elected to participate in the Retirement Plan and who voluntarily
retires prior to reaching age 72, and commencing with the date of retirement of
a Participating Qualified Director who retires upon reaching age 72 or at any
time subsequent to age 72 up to the mandatory retirement age of 75, a
Participating Qualified Director shall receive quarterly payments at an annual
rate of $34,000 (the "Annual Benefit"). Directors who became Participating
Qualified Directors on or before January 1, 2001 who retire upon reaching age 72
(or at age 73 or 74, if the director extends his retirement date for one to two
years, but less than three years) are entitled to payment for one year of twice
the Annual Benefit. Payment of the Annual Benefit will continue for the
remainder of the Participating Qualified Director's life or ten years, whichever
is longer. If a Participating Qualified Director becomes disabled before the
date upon which his or her Annual Benefit payments would normally commence, such
benefit payments will begin. If a Participating Qualified Director dies prior to
the receipt of the Annual Benefit for ten years, the Annual Benefit will be paid
to his/her beneficiary or estate until an aggregate of ten years of payments has
been received. A Participating Qualified Director who has elected to participate
in the Retirement Plan receives no benefits from the Account Agreement. The cost
of the Retirement Plan will be allocated among the INVESCO Funds in a manner
determined to be fair and equitable by the committee administering the
Retirement Plan.
A Participating Qualified Director who has elected to participate in the
Account Agreement receives no benefits from the Retirement Plan. Pursuant to the
terms of the Account Agreement, a deferred retirement account is established for
a Qualified Participating Director (the "Account"). The dollar amount credited
to the Account is in an amount which, based upon an assumed account appreciation
rate per annum (currently 5.75%), will provide the Participating Qualified
Director with an account value of $340,000 upon reaching age 72. Once the
initial dollar amount of the Account is established, Account proceeds are
invested in shares of one or more of the INVESCO Funds. The value of the Account
fluctuates with the appreciation or depreciation in the shares of the INVESCO
Funds owned by the Account and Account shares are increased by the amount of any
dividends and capital gains distributions paid with respect to the shares. Upon
retirement, a Participating Qualified Director is entitled to receive the value
in the Account either in a lump sum payment or in payments over a stipulated
number of months. The Account value continues to fluctuate as long as monthly
payments are made. If a Participating Qualified Director becomes disabled or
dies prior to his or her retirement and if, at the time of disability or death,
the value of a Participating Qualified Director's Account is less than $340,000,
the
24
Director or the Director's beneficiary or estate will not be paid the value in
the Account but will receive $34,000 per annum for ten years. If, at the time of
the Participating Qualified Director's death or disability prior to retirement,
the value in the director's Account is $340,000 or more, the Participating
Qualified Director or his or her estate or beneficiary will receive the value in
the Account either in a lump sum or in quarterly installments. The cost of
providing the initial dollar amount to be allocated to a Participating Qualified
Director's Account and the cost of payment of any death or disability benefit
that aggregates more than the Account value will be allocated among the INVESCO
Funds in a manner determined to be fair and equitable by a committee appointed
to administer the Account Agreement.
Company has no stock options, pension, or retirement plans for affiliated
directors of the INVESCO Funds or for management or other personnel, and pays no
salary or compensation to any of its officers.
CURRENT DEFERRED COMPENSATION PLAN
The independent directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds.
Certain of the deferred amounts have been invested in the shares of all INVESCO
Funds except INVESCO Funds offered by INVESCO Variable Investment Funds, Inc.,
in which the directors are legally precluded from investing. Each independent
director may, therefore, be deemed to have an indirect interest in shares of
each such INVESCO Fund, in addition to any INVESCO Fund shares the independent
director may own either directly or beneficially. Each of the independent
directors has agreed to invest a minimum of $100,000 of his or her own resources
in shares of the INVESCO Funds.
Compensation contributed to a deferred compensation plan may constitute all or a
portion of this $100,000 commitment.
NEW RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds intend to adopt a new
retirement plan (the "New Retirement Plan") for the directors of Company who are
not affiliated with INVESCO, which will be effective as of the date of the
Special Meeting. The New Retirement Plan also will be adopted by the Boards of
Directors/Trustees of the AIM Funds. The reason for adoption of the New
Retirement Plan is to provide for consistency in the retirement plans for the
Boards of Directors of the INVESCO Funds and the Boards of Directors/Trustees of
the AIM Funds. The retirement plan will include a retirement policy as well as
retirement benefits for independent directors.
The retirement policy will permit each independent director to serve until
December 31 of the year in which the director turns 72. A majority of the
directors will be able to extend from time to time the retirement date of a
director.
Annual retirement benefits will be available to each independent director
of Company and/or the other INVESCO Funds and AIM Funds (each, a "Covered Fund")
who has at least five years of credited service as a director (including service
to a predecessor fund) for a Covered Fund. The retirement benefits will equal
75% of the director's annual retainer paid or accrued by any Covered Fund to
such director during the twelve-month period prior to retirement, including the
amount of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the director. The annual retirement benefits will
be payable in quarterly installments for a number of years equal to the lesser
of (i) ten or (ii) the number of such director's credited years of service. A
death benefit will also be available under the New Retirement Plan that will
provide a surviving spouse with a quarterly installment of 50% of a deceased
director's retirement benefits for the same length of time that the director
would have received the benefits based on his or her service. A director must
have attained the age of 65 (55 in the event of death or disability) to receive
any retirement benefit. Payment of benefits under the New Retirement Plan will
not be secured or funded by Company.
Upon the effectiveness of the New Retirement Plan, the independent
directors will cease to accrue benefits under the Retirement Plan and the
Account Agreement. Messrs. Baker and Soll will not receive any additional
benefits under the Retirement Plan or the Account Agreement, but will be
entitled to
25
amounts which have been previously funded under the Retirement Plan or the
Account Agreement for their benefit. An affiliate of INVESCO will reimburse
Company for any amounts funded by Company for Messrs. Baker and Soll under the
Retirement Plan and the Account Agreement.
NEW DEFERRED COMPENSATION AGREEMENTS
The Boards of Directors of the INVESCO Funds intend to adopt new deferred
compensation agreements which are consistent with the deferred compensation
agreements adopted by the Boards of Directors/Trustees of the AIM Funds.
Pursuant to the new deferred compensation agreements ("New Compensation
Agreements"), a director will have the option to elect to defer receipt of up to
100% of his or her compensation payable by Company, and such amounts are placed
into a deferral account. The deferring directors will have the option to select
various INVESCO Funds in which all or part of their deferral account will be
deemed to be invested. The list of funds may change from time to time and may
include AIM Funds in addition to INVESCO Funds. Distributions from the deferring
directors' deferral accounts will be paid in cash, generally in equal quarterly
installments over a period of up to ten years (depending on the New Compensation
Agreement) beginning on the date selected under the New Compensation Agreement.
The Board, in its sole discretion, will be able to accelerate or extend the
distribution of such deferral accounts after the deferring directors' retirement
benefits commence under the New Retirement Plan. The Board, in its sole
discretion, also will be able to accelerate or extend the distribution of such
deferral accounts after the deferring directors' termination of service as a
director of Company. If a deferring director dies prior to the distribution of
amounts in his or her deferral account, the balance of the deferral account will
be distributed to his or her designated beneficiary. The New Compensation
Agreements will not be funded and, with respect to the payments of amounts held
in the deferral accounts, the deferring directors will have the status of
unsecured creditors of Company and of each other INVESCO Fund or AIM Fund from
which they will be deferring compensation.
OFFICERS OF COMPANY
Information regarding the current officers of Company can be found in
Exhibit E.
SECURITY OWNERSHIP OF MANAGEMENT
Information regarding the ownership of each class of your Fund's shares by
the directors, nominees and current executive officers of Company can be found
in Exhibit F.
DIRECTOR OWNERSHIP OF YOUR FUND'S SHARES
The dollar range of equity securities beneficially owned by each continuing
director and nominee as of December 31, 2002 (i) in your Fund and (ii) on an
aggregate basis, in all registered investment companies overseen by the director
within the INVESCO Funds complex can be found in Exhibit G.
PROPOSAL 3 --
APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT
BACKGROUND
INVESCO currently serves as the investment advisor to your Fund. AMVESCAP
has recommended restructuring the advisory and administrative servicing
arrangements so that AIM is the advisor and administrator for all INVESCO Funds
and AIM Funds. Your Board has approved a new advisory agreement under which AIM
will serve as the investment advisor for your Fund. The portfolio management
team for your Fund will not change as a result of this restructuring.
You are being asked to approve Proposal 3 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from a new
investment advisory agreement between AIM and Company.
The Board recommends that you approve the new advisory agreement between
AIM and Company for your Fund. The Board is asking you to vote on this new
agreement because Company may enter into a new advisory agreement for your Fund
only with shareholder approval. If approved, this new agreement
26
would replace the current advisory agreement between INVESCO and Company for
your Fund. The form of Company's proposed Master Investment Advisory Agreement
with AIM is at Appendix IV.
Under the new arrangements, the advisory fees paid by your Fund will not
change. If shareholders of your Fund approve Proposal 3, Company will also enter
into a new Master Administrative Services Agreement with AIM that will replace
the current Administrative Services Agreement between Company and INVESCO, and
move the provision of certain administrative services currently provided by
INVESCO pursuant to the current advisory agreement between Company and INVESCO
to the Master Administrative Services Agreement with AIM. If the proposed
advisory agreement is approved and these new arrangements are implemented, the
aggregate fees paid by your Fund for advisory and administrative services will
not increase.
Any voluntary or contractual expense limitations and fee waivers that have
been agreed to by INVESCO and Company with respect to your Fund will not be
terminated if the proposed new advisory agreement with AIM is approved. Instead,
AIM will assume INVESCO's obligations with respect to these voluntary and
contractual expense limitations and fee waivers, on the same terms and
conditions.
If INVESCO and Company have entered into voluntary or contractual expense
limitations or fee waivers with respect to your Fund, INVESCO currently is
entitled to reimbursement from a share class of your Fund that has fees and
expenses absorbed pursuant to this arrangement if such reimbursement does not
cause such share class to exceed the expense limitation and the reimbursement is
made within three years after INVESCO incurred the expense. If the proposed new
advisory agreement with AIM is approved, INVESCO will assign to AIM its right to
be reimbursed with respect to fees and expenses absorbed by it. Other than
substituting AIM for INVESCO as the party having the right to be reimbursed,
this assignment will not alter in any way the rights or obligations of your Fund
or its shareholders.
A description of how the proposed advisory agreement differs from the
current advisory agreement is set forth below under "Terms of the Proposed
Advisory Agreement." At an in-person meeting of the Board held on August 12-13,
2003, the Board, including a majority of the independent directors, voted to
recommend that shareholders approve a proposal to adopt the proposed advisory
agreement for your Fund.
YOUR FUND'S CURRENT INVESTMENT ADVISOR
INVESCO, the current investment advisor for your Fund, became the
investment advisor for your Fund under the current advisory agreement on June
28, 1998. Your Fund's initial shareholder initially approved the agreement on
May 13, 1999, and your Fund's public shareholders have not subsequently voted on
the agreement. The Board, including a majority of the independent directors,
last approved the current advisory agreement on May 15, 2003.
THE PROPOSED NEW INVESTMENT ADVISOR FOR YOUR FUND
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), a holding company with its principal offices at 11 Greenway Plaza,
Suite 100, Houston, Texas 77046-1173. AIM Management is an indirect wholly owned
subsidiary of AMVESCAP, 30 Finsbury Square, London EC2A1AG, United Kingdom.
AMVESCAP and its subsidiaries are an independent investment management group. A
list of the names, addresses and principal occupations of the principal
executive officer and directors of AIM is in Exhibit H.
POSITIONS WITH AIM HELD BY COMPANY'S DIRECTORS OR EXECUTIVE OFFICERS
Mark H. Williamson, who is a director and/or executive officer of Company,
also is a director and/or officer of AIM. He also beneficially owns shares of
AMVESCAP and/or options to purchase shares of AMVESCAP.
TERMS OF THE CURRENT ADVISORY AGREEMENT
Under the terms of the current advisory agreement with INVESCO for your
Fund, INVESCO acts as investment manager and administrator for your Fund. As
investment manager, INVESCO provides a
27
continuous investment program for your Fund, including investment research and
management, with respect to all securities, investments and cash equivalents of
your Fund. INVESCO also makes recommendations as to the manner in which voting
rights, rights to consent to actions of your Fund and any other rights
pertaining to your Fund's securities shall be exercised, and calculates the net
asset value of your Fund, subject to such procedures established by the Board
and based upon information provided by your Fund, the custodian of your Fund or
other source as designated by the Board. INVESCO provides sub-accounting,
recordkeeping and administrative services to your Fund under an administrative
services agreement. Under the advisory agreement, as administrator, INVESCO also
provides, at its expense and at the request of your Fund, executive,
statistical, administrative, internal accounting and clerical services and
office space, equipment and facilities.
Under the terms of the current advisory agreement, INVESCO has no liability
to Company, your Fund or to your Fund's shareholders or creditors, for any error
of judgment, mistake of law, or for any loss arising out of any investment, nor
for any other act or omission, in the performance of its obligations to Company
or your Fund unless such act or omission involves willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties
under the current advisory agreement.
The current advisory agreement for your Fund continues in effect from year
to year only if such continuance is specifically approved at least annually by
(i) the Board or the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of your Fund, and (ii) the vote of a majority of the
directors of Company who are not interested persons of INVESCO or Company by
votes cast in person at a meeting called for such purpose. The current advisory
agreement provides that the Board, a majority of the outstanding voting
securities of your Fund or INVESCO may terminate the agreement with respect to
your Fund on 60 days' written notice without penalty. The agreement terminates
automatically in the event of its assignment, unless an order is issued by the
SEC conditionally or unconditionally exempting such assignment from the
applicable provisions of the 1940 Act.
The current advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of its expenses not assumed by INVESCO, including
without limitation:
- brokerage commissions, issue and transfer taxes and other costs related
to securities transactions;
- fees, charges and expenses related to accounting, custodian, depository,
dividend disbursing agent, dividend reinvestment agent, transfer agent,
registrar, independent pricing services and legal services performed for
your Fund;
- interest on indebtedness incurred by Company or your Fund;
- taxes;
- fees for maintaining the registration and qualification of your Fund or
its shares under federal and state law;
- compensation and expenses of the Board;
- costs of printing and distributing reports, notices of shareholders'
meetings, proxy statements, dividend notices, prospectuses, statements of
additional information and other communications to your Fund's
shareholders, including expenses relating to Board and shareholder
meetings;
- costs, fees and other expenses arising in connection with the
organization and filing of Company's Articles of Incorporation,
determinations of tax status of your Fund, initial registration and
qualification of your Fund's securities under federal and state
securities laws and approval of Company's operations by any other federal
or state authority;
- expenses of repurchasing and redeeming shares of your Fund;
- insurance premiums;
- costs of designing, printing and issuing certificates representing shares
of your Fund;
- extraordinary expenses, including fees and disbursements of Company's
counsel, in connection with litigation by or against Company or your
Fund;
28
- premiums for the fidelity bond maintained by your Fund pursuant to the
1940 Act (except those premiums that may be allocated to INVESCO as an
insured);
- association and institute dues;
- expenses, if any, of distributing shares of your Fund pursuant to a 12b-1
plan of distribution; and
- all other costs and expenses of your Fund's operations and organization
unless otherwise explicitly provided.
The current advisory agreement requires INVESCO to reimburse your Fund
monthly for any salaries paid by your Fund to officers, directors and full-time
employees of your Fund who are also officers, general partners or employees of
INVESCO or its affiliates. Although INVESCO has this obligation under the
current advisory agreement, your Fund does not pay salaries to its officers,
non-independent directors or employees for services rendered to your Fund.
If, in any given year, the sum of your Fund's expenses exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
promptly reimburse such excess expenses to your Fund pursuant to the current
advisory agreement. Interest, taxes, extraordinary expenses and expenses which
are capitalized are not deemed expenses for purposes of this reimbursement
obligation.
The annual rates at which INVESCO receives fees from your Fund under the
current advisory agreement, the total net assets of your Fund, the dollar
amounts of advisory fees paid to INVESCO by your Fund net of any expense
limitations and the reimbursement, if any, made by INVESCO to your Fund for the
most recent fiscal year are in Exhibit I.
ADDITIONAL SERVICES PROVIDED BY INVESCO AND ITS AFFILIATES
INVESCO and its affiliates also provide additional services to Company and
your Fund. INVESCO currently provides or arranges for others to provide
accounting and administrative services to your Fund. INVESCO currently serves as
your Fund's transfer agent. Prior to July 1, 2003, INVESCO Distributors, Inc.
served as the principal underwriter for your Fund. This company is an indirect
wholly owned subsidiary of AMVESCAP, the parent company of INVESCO. Information
concerning fees paid to INVESCO and its affiliates for these services is in
Exhibit J.
ADVISORY FEES CHARGED BY AIM FOR SIMILAR FUNDS IT MANAGES
The advisory fee schedules for other funds advised by AIM with similar
investment objectives as your Fund are in Exhibit K.
TERMS OF THE PROPOSED ADVISORY AGREEMENT
Under the terms of the proposed advisory agreement, AIM would act as
investment manager and administrator for your Fund. As investment manager, AIM
would provide a continuous investment program for your Fund, including
supervision of all aspects of your Funds' operations, including the investment
and reinvestment of cash, securities or other properties comprising your Funds'
assets and investment research and management, subject at all times to the
policies and control of the Board. AIM would also provide administrative
services pursuant to a Master Administrative Services Agreement.
The proposed advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties under the agreement on the part of AIM or any of its officers,
directors, or employees, AIM would not be subject to liability to Company or
your Fund or to any shareholders of your Fund for any act or omission in the
course of, or connected with, rendering services under the agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.
The proposed advisory agreement for your Fund would continue in effect from
year to year only if such continuance is specifically approved at least annually
by (i) the Board or the vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of your Fund, and (ii) the affirmative vote of a
majority of the directors of Company who are not interested persons of AIM or
Company by votes cast in person at a meeting called for such purpose. The
proposed advisory agreement provides that the
29
Board, a majority of the outstanding voting securities of your Fund or AIM may
terminate the agreement with respect to your Fund on 60 days' written notice
without penalty. The proposed agreement terminates automatically in the event of
its "assignment" (as defined in the 1940 Act).
The proposed advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of the ordinary business expenses incurred in the
operations of your Fund and the offering of its shares. These expenses borne by
your Fund would include, without limitation, brokerage commissions, taxes,
legal, accounting, auditing, or governmental fees, the cost of preparing share
certificates, custodian, transfer and shareholder service agent costs, expenses
of issue, sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, expenses relating to trustees and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by Company on behalf of your
Fund in connection with membership in investment company organizations and the
cost of printing copies of prospectuses and statements of additional information
distributed to your Fund's shareholders.
The compensation to be paid to AIM under the proposed advisory agreement
would be calculated by applying annual rates to the average daily net assets of
your Fund for each calendar year. The annual rates at which AIM will receive
advisory fees from your Fund under the proposed advisory agreement are in
Exhibit L.
If Proposal 3 is approved, Company will be able to take advantage of an
exemptive order obtained from the SEC by AIM and certain of the AIM Funds. This
exemptive order will allow your Fund and each other series portfolio of Company
(each, an "Investing Fund") to invest their uninvested cash in money market
funds that have AIM or an affiliate of AIM as an investment advisor (the
"Affiliated Money Market Funds"), provided that investments in Affiliated Money
Market Funds do not exceed 25% of the total assets of the Investing Fund. AIM
will receive advisory fees from the Affiliated Money Market Fund to the extent
an Investing Fund invests uninvested cash in such Affiliated Money Market Fund.
If the Board approves AIM's use of the exemptive order for Company, AIM intends
to waive a portion of the advisory fees payable by each Investing Fund in an
amount equal to 25% of the advisory fee AIM receives from the Affiliated Money
Market Fund as a result of such Investing Fund's investment of uninvested cash
in such Affiliated Money Market Fund.
The primary differences between the current advisory agreement with INVESCO
and the proposed advisory agreement with AIM that the Board approved are to:
- replace INVESCO with AIM as the investment advisor for your Fund;
- move certain administrative services to an administrative services
agreement with AIM;
- expand provisions regarding broker-dealer relationships that are set
forth in the current advisory agreement to make them consistent with
similar provisions in other AIM advisory agreements;
- add provisions relating to certain functions to be performed by AIM in
connection with your Fund's securities lending program;
- change certain obligations regarding payment of expenses of your Fund;
- simplify certain rights applicable to your Fund's right to terminate
advisory services or amend the proposed advisory agreement;
- revise non-exclusivity provisions that are set forth in the current
advisory agreement;
- amend delegation provisions that are set forth in the current advisory
agreement;
- add to the limitation of liability provisions that are set forth in the
current advisory agreement to, among other things, specifically state the
limitation of liability of Company's shareholders; and
- change the governing state law set forth in the current advisory
agreement.
Although certain terms and provisions in the current advisory agreement
with INVESCO and the proposed advisory agreement with AIM are described slightly
differently, there are few substantive differences between these agreements. The
substantive differences are discussed below.
30
ADMINISTRATIVE SERVICES
For your Fund, the Board, in approving the proposed advisory agreement with
AIM, has approved removing the provision of certain administrative services that
are covered under the current advisory agreement with INVESCO, and consolidating
those administrative services with your Fund's accounting and recordkeeping
services in a new Master Administrative Services Agreement with AIM. The primary
reason for this change is to make your Fund's agreements consistent with similar
agreements for the AIM Funds. If shareholders approve the proposed advisory
agreement, your Fund will continue to receive substantially the same accounting
and administrative services it currently receives and at the same or lower costs
pursuant to the new Master Administrative Services Agreement. As a result, there
would be no loss of services nor would there by any increase in costs borne by
your Fund as a result of the transfer of administrative duties from the advisory
agreement to the Master Administrative Services Agreement.
BROKER-DEALER RELATIONSHIPS AND AFFILIATED BROKERAGE
The current advisory agreement requires INVESCO, when selecting brokers or
dealers, to first obtain the most favorable execution and price for your Fund;
after fulfilling this primary requirement INVESCO may consider, as secondary
factors whether such firms provide statistical research and other information to
INVESCO. The proposed advisory agreement specifies that AIM's primary
consideration in effecting a security transaction will be to obtain the best
execution. In selecting broker-dealers to execute particular transactions, AIM
will consider the best net price available, the reliability, integrity and
financial condition of the broker-dealer, the size of and difficulty in
executing the order and the value of the expected contribution of the
broker-dealer to the investment performance of Company's portfolio funds on a
continuing basis. Accordingly, the price to your Fund in any transaction may be
less favorable than that available from another broker-dealer if the difference
is reasonably justified by other aspects of the fund execution services offered
by the broker-dealer. The broker-dealer relationship provisions of the current
advisory agreement with INVESCO for your Fund do not specify these factors.
Although AIM does not currently execute trades through brokers or dealers
that are affiliated with AIM, the proposed advisory agreement includes a new
provision that would permit such trades, subject to compliance with applicable
federal securities laws, rules, interpretations and exemptions.
SECURITIES LENDING
If your Fund engages in securities lending, AIM will provide it with
investment advisory services and related administrative services. The proposed
advisory agreement includes a new provision that specifies the administrative
services to be rendered by AIM if your Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Administrative services to be provided include: (a) overseeing
participation in the securities lending program to ensure compliance with all
applicable regulatory and investment guidelines; (b) assisting the securities
lending agent or principal (the "agent") in determining which specific
securities are available for loans; (c) monitoring the agent to ensure that
securities loans are effected in accordance with AIM's instructions and with
procedures adopted by the Board; (d) preparing appropriate periodic reports for,
and seeking appropriate approvals from, the Board with respect to securities
lending activities; (e) responding to agent inquiries; and (f) performing such
other duties as may be necessary.
In accordance with an exemptive order issued by the SEC, before your Fund
may participate in a securities lending program, the Board must approve such
participation. In addition, the Board must evaluate the securities lending
arrangements annually, and must determine that it is in the best interests of
the shareholders of your Fund to invest in AIM-advised money market funds any
cash collateral your Fund receives as security for the borrower's obligation to
return the loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees from
these money market funds, because the invested cash collateral will increase the
assets of these funds and AIM receives advisory fees based upon the assets of
these funds.
AIM does not receive any additional compensation for advisory services
rendered in connection with securities lending activities. As compensation for
the related administrative services AIM will provide, your
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Fund will pay AIM a fee equal to 25% of the net monthly interest or fee income
retained or paid to your Fund from such activities. AIM intends to waive this
fee, and has agreed to seek Board approval prior to its receipt of all or a
portion of such fee.
PAYMENT OF EXPENSES AND RESTRICTIONS ON FEES RECEIVED
Under the current advisory agreement with INVESCO, INVESCO has the
obligation to reimburse your Fund for any salaries paid by your Fund to
officers, non-independent directors and employees of your Fund. Your Fund does
not currently pay any such salaries. Such provision is not included in the
proposed advisory agreement with AIM.
The current advisory agreement provides that if annual fees exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
reimburse any such excess to your Fund. Such state-imposed limitations are no
longer applicable because the National Securities Market Improvements Act of
1996 (NSMIA) preempted state laws under which mutual funds such as your Fund
previously were regulated. Accordingly, under the proposed advisory agreement,
such annual expense limitation has been removed. Removing this state-imposed
annual expense limitation will not result in an increase in fees paid by your
Fund.
TERMINATION/AMENDMENT RIGHTS
The current advisory agreement with INVESCO provides that Company can
terminate the agreement with INVESCO or amend the terms of the agreement upon
receipt of the affirmative vote of a majority of the outstanding securities (as
defined in the 1940 Act) of all series portfolios of Company. Under the 1940 Act
and the regulations thereunder, as interpreted by the SEC, advisory services
provided to your Fund cannot be terminated or amended without the approval by a
majority of the outstanding securities of your Fund, unless, in the case of an
amendment, the Board may approve the changes. The proposed advisory agreement
simplifies the language regarding termination and amendment of the agreement to
be consistent with the 1940 Act and the regulations thereunder, as interpreted
by the SEC.
NON-EXCLUSIVITY PROVISIONS
The current advisory agreement with INVESCO provides that the services
furnished by INVESCO are not deemed to be exclusive and that INVESCO shall be
entitled to furnish similar services to others, including other investment
companies with similar objectives, and that INVESCO may aggregate orders for its
other customers together with any securities of the same type to be sold or
purchased for your Fund in order to obtain best execution and lower brokerage
commissions. In such event, INVESCO must allocate the securities purchased or
sold and the expenses incurred in the transaction in a manner it considers most
equitable.
AIM has proposed and the Board has agreed that the non-exclusivity
provisions in the proposed advisory agreement with AIM should be divided into
two separate provisions: one dealing with services provided by AIM to other
investment accounts and the other dealing with employees of AIM. Under the new
provisions, AIM will act as investment manager or advisor to fiduciary and other
managed accounts and to other investment companies and accounts, including
off-shore entities or accounts. The proposed advisory agreement states that
whenever your Fund and one or more other investment companies or accounts
advised by AIM have moneys available for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed to
be equitable to your Fund and such other companies and accounts. Such allocation
procedure may adversely affect the size of the positions obtainable and the
prices realized by your Fund. The non-exclusivity provisions of the proposed
advisory agreement also explicitly recognize that officers and directors of AIM
may serve as officers or directors of Company, and that officers and directors
of Company may serve as officers or directors of AIM to the extent permitted by
law; and that officers and directors of AIM do not owe an exclusive duty to
Company. As described above, unlike the current advisory agreement, the proposed
advisory agreement does not require AIM to reimburse Company for any salaries
paid by Company to officers, directors and full-time employees of Company who
are also officers, directors or employees of AIM or its affiliates. Your Fund
does not currently pay any such salaries.
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DELEGATION
The current advisory agreement provides that INVESCO may, in compliance
with applicable law and with the prior written approval of your Fund, make use
of affiliated companies and their employees in connection with rendering of the
services required of INVESCO. INVESCO must supervise all such services and
remain fully responsible for the services provided.
The proposed advisory agreement expands the extent to which AIM can
delegate its rights, duties and obligations by expressly providing that AIM may
delegate any or all of its rights, duties or obligations under the agreement to
one or more sub-advisors rather than solely certain specified advisory services.
The proposed advisory agreement also provides that AIM may replace sub-advisors
from time to time, in accordance with applicable federal securities laws, rules
and regulations in effect or interpreted from time to time by the SEC or with
exemptive orders or other similar relief. Any such delegation shall require
approval by the applicable Board and the shareholders unless, in accordance with
applicable federal securities laws, rules, interpretations and exemptions, AIM
is not required to seek shareholder approval of the appointment of a
sub-advisor.
LIMITATION OF LIABILITY OF AIM, COMPANY AND SHAREHOLDERS
As described above under the descriptions of the terms of the current
advisory agreement and the proposed advisory agreement, respectively, both
agreements provide limitation of liability for the advisor. The limitation of
liability provisions of the 1940 Act also apply to both INVESCO and AIM in their
capacity as advisor. In addition, the proposed advisory agreement states that no
series of Company shall be liable for the obligations of other series of Company
and the liability of AIM to one series of Company shall not automatically render
AIM liable to any other series of Company. Consistent with applicable law, the
proposed advisory agreement would also include a provision stating that AIM's
obligations under the agreement are not binding on any shareholders of Company
individually and that shareholders are entitled to the same limitation on
personal liability as shareholders of private corporations for profit. The
primary reason for this change is to make your Fund's agreement consistent with
similar agreements for the AIM Funds.
STATE LAW GOVERNING THE AGREEMENT
Questions of state law under the current advisory agreement with INVESCO
are governed by the laws of Colorado. Under the proposed advisory agreement with
AIM, Texas law would apply. The Board determined that, because the services
under the proposed advisory agreement with AIM will primarily be provided in
Texas, it was more appropriate to apply Texas law to the proposed advisory
agreement.
FACTORS THE DIRECTORS CONSIDERED IN APPROVING THE ADVISORY AGREEMENT
At the request of AIM, the Board discussed the approval of the proposed
advisory agreement at an in-person meeting held on August 12-13, 2003. The
independent directors also discussed the approval of the proposed advisory
agreement with independent counsel prior to that meeting. In evaluating the
proposed advisory agreement, the Board requested and received information from
AIM to assist in its deliberations.
The Board considered the following factors in determining reasonableness
and fairness of the proposed changes between the current advisory agreement with
INVESCO and the proposed advisory agreement with AIM:
- The qualifications of AIM to provide investment advisory services. The
Board reviewed the credentials and experience of the officers and
employees of AIM who will provide investment advisory services to your
Fund, and noted that the persons providing portfolio management services
to your Fund would not change if Proposal 3 is approved by shareholders.
- The range of advisory services provided by AIM. The Board reviewed the
services to be provided by AIM under the proposed advisory agreement, and
noted that no material changes in the level or type of services provided
under the current advisory agreement with INVESCO would occur if the
33
proposed advisory agreement is approved by the shareholders, other than
the provision by AIM of certain administrative services if your Fund
engages in securities lending.
- Qualifications of AIM to provide a range of management and administrative
services. The Board reviewed the general nature of the non-investment
advisory services performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the Board also considered the
organizational structure employed by AIM and its affiliates to provide
those services. The Board reviewed the proposed elimination from the
proposed advisory agreement of the provision of administrative services
to your Fund. The Board also reviewed the proposed form of Master
Administrative Services Agreement, noted that the overall services to be
provided under the existing arrangements and under the proposed Master
Administrative Services Agreements are the same, and concluded that the
overall accounting and administrative services to be provided by AIM
would not change under the combination of the proposed advisory agreement
and the Master Administrative Services Agreement.
- The performance record of your Fund. The Board reviewed your Fund's
performance record and determined that AIM has developed the expertise
and resources for managing funds with an investment objective and
strategies similar to those of your Fund and is able, therefore, to
provide advisory and administrative services to your Fund.
- Advisory fees and expenses. The Board examined the expense ratio and the
level of advisory fees for your Fund under the current advisory agreement
and compared them with the advisory fees expected to be incurred under
the proposed advisory agreement. The Board concluded that your Fund's
projected expense ratio and advisory fees under the proposed advisory
agreement were fair and reasonable in comparison with those of other
similar funds (including similar funds advised by AIM) and in light of
the investment management services to be provided by AIM under the
proposed advisory agreement. The advisory fees that are being proposed
under the proposed advisory agreement are the same as the advisory fees
paid to INVESCO under the current advisory agreement, other than the
removal of the reimbursement obligation related to services provided to
both your Fund and AIM by officers and directors which is not currently
applicable, and the provisions that permit AIM's receipt of fees for
providing administrative services in connection with securities lending
activities. Such fees would be paid only to the extent that your Fund
engages in securities lending. The Board noted that AIM intends to waive
its right to receive any fees under the proposed investment advisory
agreement for the administrative services it provides in connection with
securities lending activities. The Board also noted that AIM has agreed
to seek the Board's approval prior to its receipt of all or a portion of
such fees.
- The profitability of AIM. The Board reviewed information concerning the
profitability of AIM's (and its affiliates') investment advisory and
other activities and its financial condition. The Board noted that,
except as described above, no changes to the advisory fees were being
proposed, other than to permit AIM's receipt of fees for providing
services in connection with securities lending, and further noted that
AIM intends to waive its right to receive any such fees and has agreed to
seek the Board's approval prior to its receipt of all or a portion of
such fees. The Board also noted that, in accordance with an exemptive
order issued by the SEC, before your Fund may participate in a securities
lending program, the Board must approve such participation. In addition,
the Board must evaluate the securities lending arrangements annually and
determine that it is in the best interests of the shareholders of your
Fund to invest in AIM-advised money market funds any cash collateral your
Fund receives as security for the borrower's obligation to return the
loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees
from these money market funds, because the invested cash collateral will
increase the assets of these funds and AIM receives advisory fees based
upon the assets of these funds. The Board noted that the cash collateral
relates to assets of your Fund that have already been invested, and the
investment of the cash collateral is intended to benefit your Fund by
34
providing it with additional income. The Board also noted that an
investment of the cash collateral in an AIM-advised money market fund
would have a positive effect on the profitability of AIM.
- The terms of the proposed advisory agreement. The Board reviewed the
terms of the proposed advisory agreement, including changes being made to
clarify or expand non-exclusivity, delegation and liability provisions,
to separate administrative services from advisory services and to have
AIM assist your Fund if it engages in securities lending. The Board
determined that these changes reflect the current environment in which
your Fund operates, and that AIM should have the flexibility to operate
in that environment.
After considering the above factors, the Board concluded that it is in the
best interests of your Fund and its shareholders to approve the proposed
advisory agreement between Company and AIM for your Fund.
The Board reached this conclusion after careful discussion and analysis.
The Board believes that it has carefully and thoroughly examined the pertinent
issues and alternatives. In recommending that you approve the proposed advisory
agreement, the independent directors have taken the action which they believe to
be in your best interests. In so doing, they were advised by independent
counsel, retained by the independent directors and paid for by Company, as to
the nature of the matters to be considered and the standards to be used in
reaching their decision.
If approved, the proposed advisory agreement will become effective on
November 5, 2003, and will expire, unless renewed, on or before June 30, 2005.
If shareholders of your Fund do not approve Proposal 3, the current advisory
agreement with INVESCO will continue in effect for your Fund.
THE BOARD'S RECOMMENDATION ON PROPOSAL 3
The Board, including the independent directors, unanimously recommends that
you vote "FOR" this Proposal.
PROPOSAL 4 --
APPROVAL OF THE PLAN
TO REDOMESTICATE COMPANY AS A DELAWARE STATUTORY TRUST
BACKGROUND
Company currently is organized as a Maryland corporation. AMVESCAP has
identified each series portfolio of Company as appropriate to be redomesticated
as a new series portfolio of a newly created open-end management investment
company organized as a statutory trust under the Delaware Statutory Trust Act
(the "Trust").
If Proposal 1 is approved by the shareholders of your Fund, your Fund will
be combined with Buying Fund and will not be redomesticated as a new series
portfolio of the Trust. You are being asked to approve Proposal 4 so that, in
the event that Proposal 1 is not approved, your Fund will still be able to
benefit from redomesticating as a new series portfolio of the Trust.
The Board has approved the Plan, which provides for a series of
transactions to convert your Fund and each other series portfolio of Company
(each, a "Current Fund") to a corresponding series (a "New Fund") of the Trust.
Under the Plan, each Current Fund will transfer all its assets to a
corresponding New Fund in exchange solely for voting shares of beneficial
interest in the New Fund and the New Fund's assumption of all the Current Fund's
liabilities (collectively, the "Redomestication"). A form of the Plan relating
to the proposed Redomestication is set forth in Appendix V.
Approval of the Plan requires the affirmative vote of a majority of the
issued and outstanding shares of Company. The Board is soliciting the proxies of
the shareholders of your Fund to vote on the Plan with this Proxy
Statement/Prospectus. The Board is soliciting the proxies of the shareholders of
Company's other series portfolios to vote on the Plan with a separate proxy
statement.
The Redomestication is being proposed primarily to provide Company with
greater flexibility in conducting its business operations. The operations of
each New Fund following the Redomestication will
35
be substantially similar to those of its predecessor Current Fund. As described
below, the Trust's Declaration of Trust differs from Company's Articles of
Incorporation in certain respects that are expected to improve Company's and
each Current Fund's operations. The Trust, like Company, will operate as an
open-end management investment company registered with the SEC under the 1940
Act.
REASONS FOR THE PROPOSED REDOMESTICATION
The Redomestication is being proposed because, as noted above, INVESCO and
the Board believe that the Delaware statutory trust organizational form offers a
number of advantages over the Maryland corporate organizational form. As a
result of these advantages, the Delaware statutory trust organizational form has
been increasingly used by mutual funds, including the majority of the AIM Funds.
The Delaware statutory trust organizational form offers greater flexibility
than the Maryland corporate form. A Maryland corporation is governed by the
detailed requirements imposed by Maryland corporate law and by the terms of its
Articles of Incorporation. A Delaware statutory trust is subject to fewer
statutory requirements. The Trust will be governed primarily by the terms of its
Declaration of Trust. In particular, the Trust will have greater flexibility to
conduct business without the necessity of engaging in expensive proxy
solicitations to shareholders. For example, under Maryland corporate law,
amendments to Company's Articles of Incorporation would typically require
shareholder approval. Under Delaware law, unless the Declaration of Trust of a
Delaware statutory trust provides otherwise, amendments to it may be made
without first obtaining shareholder approval. In addition, unlike Maryland
corporate law, which restricts the delegation of a board of directors'
functions, Delaware law permits the board of trustees of a Delaware statutory
trust to delegate certain of its responsibilities. For example, the board of
trustees of a Delaware statutory trust may delegate the responsibility of
declaring dividends to duly empowered committees of the board or to appropriate
officers. Finally, Delaware law permits the trustees to adapt a Delaware
statutory trust to future contingencies. For example, the trustees may, without
a shareholder vote, change a Delaware statutory trust's domicile or
organizational form. In contrast, under Maryland corporate law, a company's
board of directors would be required to obtain shareholder approval prior to
changing domicile or organizational form.
The Redomestication will also have certain other effects on Company, its
shareholders and management, which are described below under the heading "The
Trust Compared to Company."
WHAT THE PROPOSED REDOMESTICATION WILL INVOLVE
To accomplish the Redomestication, the Trust has been formed as a Delaware
statutory trust pursuant to its Declaration of Trust, and each New Fund has been
established as a series portfolio of the Trust. On the closing date, each
Current Fund will transfer all of its assets to the corresponding classes of the
corresponding New Fund in exchange solely for a number of full and fractional
classes of shares of the New Fund equal to the number of full and fractional
shares of common stock of the corresponding classes of the Current Fund then
outstanding and the New Fund's assumption of the Current Fund's liabilities.
Immediately thereafter, each Current Fund will distribute those New Fund shares
to its shareholders in complete liquidation of such Current Fund. Upon
completion of the Redomestication, each shareholder of each Current Fund will be
the owner of full and fractional shares of the corresponding New Fund equal in
number and aggregate net asset value to the shares he or she held in the Current
Fund. As soon as practicable after the consummation of the Redomestication, each
Current Fund will be terminated and Company will be dissolved as a Maryland
corporation.
The obligations of Company and the Trust under the Plan are subject to
various conditions stated therein. To provide against unforeseen events, the
Plan may be terminated or amended at any time prior to the closing of the
Redomestication by action of the Board, notwithstanding the approval of the Plan
by the shareholders of any Current Fund. However, no amendments may be made that
would materially adversely affect the interests of shareholders of any Current
Fund. Company and the Trust may at any time waive compliance with any condition
contained in the Plan, provided that the waiver does not materially adversely
affect the interests of shareholders of any Current Fund.
36
The Plan authorizes Company to acquire one share of each class of each New
Fund and, as the sole shareholder of the Trust prior to the Redomestication, to
do each of the following:
- Approve with respect to each New Fund a new investment advisory agreement
with AIM with an effective date of November 5, 2003 that will be
substantially identical to that described in Proposal 3 and a new
investment advisory agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing investment
advisory agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. Information on
the new advisory agreement, including a description of the differences
between it and Company's current advisory agreement, is set forth above
under Proposal 3. If Proposal 3 is not approved by shareholders of a
Current Fund, Company will approve for the corresponding New Fund an
investment advisory agreement with INVESCO that is substantially
identical to such Current Fund's existing investment advisory agreement
with INVESCO.
- Assuming that Proposal 3 is approved by shareholders, approve with
respect to each New Fund a new administrative services agreement with AIM
with an effective date of November 5, 2003 that will be substantially
identical to the new administrative services agreement with AIM that will
be entered into by Company if shareholders approve Proposal 3 and a new
administrative services agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing administrative
services agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. If Proposal 3
is not approved by shareholders of a Current Fund, Company will approve
for the corresponding New Fund an administrative services agreement with
AIM that is substantially identical to such Current Fund's existing
administrative services agreement with INVESCO.
- Approve with respect to each New Fund a distribution agreement with AIM
Distributors. The proposed distribution agreement will provide for
substantially identical distribution services as currently provided to
each corresponding Current Fund by AIM Distributors.
- Approve a distribution plan pursuant to Rule 12b-1 under the 1940 Act
with respect to each class of each New Fund that will be substantially
identical to the corresponding Current Fund's existing distribution plan
for that class.
- Approve with respect to each New Fund a custodian agreement with State
Street Bank and Trust Company and a transfer agency and servicing
agreement with A I M Fund Services, Inc., each of which currently
provides such services to the corresponding Current Fund, and a multiple
class plan pursuant to Rule 18f-3 of the 1940 Act which will be
substantially identical to the multiple class plan that has been approved
by the Board for the corresponding Current Fund and which is expected to
become effective prior to the consummation of the Redomestication.
- Elect the directors of Company as the trustees of the Trust to serve
without limit in time, except as they may resign or be removed by action
of the Trust's trustees or shareholders, and except as they retire in
accordance with the Trust's retirement policy for trustees. The Trust's
retirement policy for trustees will replace Company's retirement policy
for directors.
- Ratify the selection of PricewaterhouseCoopers LLP, the accountants for
each Current Fund, as the independent public accountants for each New
Fund.
- Approve such other agreements and plans as are necessary for each New
Fund's operation as a series of an open-end management investment
company.
The Trust's transfer agent will establish for each shareholder an account
containing the appropriate number of shares of each class of each New Fund. Such
accounts will be identical in all respects to the accounts currently maintained
by Company's transfer agent for each shareholder of the Current Funds. Shares
held in the Current Fund accounts will automatically be designated as shares of
the New Funds. Certificates for Current Fund shares issued before the
Redomestication will represent shares of the corresponding New Fund after the
Redomestication. Shareholders of the New Funds will not have the right to demand
or require the Trust to issue share certificates. Any account options or
privileges on
37
accounts of shareholders under the Current Funds will be replicated on the New
Fund account. No sales charges will be imposed in connection with the
Redomestication.
Assuming your approval of Proposal 4, Company currently contemplates that
the Redomestication will be consummated on November 4, 2003.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE REDOMESTICATION
Company and the Trust will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Redomestication will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. Accordingly,
the Current Funds, the New Funds and the shareholders of the New Funds will
recognize no gain or loss for Federal income tax purposes as a result of the
Redomestication. Shareholders of the Current Funds should consult their tax
advisers regarding the effect, if any, of the Redomestication in light of their
individual circumstances and as to state and local consequences, if any, of the
Redomestication.
APPRAISAL RIGHTS
Appraisal rights are not available to shareholders. However, shareholders
retain the right to redeem their shares of the Current Funds or the New Funds,
as the case may be, at any time before or after the Redomestication.
THE TRUST COMPARED TO COMPANY
STRUCTURE OF THE TRUST
The Trust has been established under the laws of the State of Delaware by
the filing of a certificate of trust in the office of the Secretary of State of
Delaware. The Trust has established series corresponding to and having identical
designations as the series portfolios of Company. The Trust has also established
classes with respect to each New Fund corresponding to and having identical
designations as the classes of each Current Fund. Each New Fund will have the
same investment objectives, policies, and restrictions as its predecessor
Current Fund. The Trust's fiscal year is the same as that of Company. The Trust
will not have any operations prior to the Redomestication. Initially, Company
will be the sole shareholder of the Trust.
As a Delaware statutory trust, the Trust's operations are governed by its
Declaration of Trust and Amended and Restated Bylaws and applicable Delaware law
rather than by Company's Articles of Incorporation and Amended and Restated
Bylaws and applicable Maryland law. Certain differences between the two
domiciles and organizational forms are summarized below. The operations of the
Trust will continue to be subject to the provisions of the 1940 Act and the
rules and regulations thereunder.
TRUSTEES OF THE TRUST
Subject to the provisions of the Declaration of Trust, the business of the
Trust will be managed by its trustees, who have all powers necessary or
convenient to carry out their responsibilities. The responsibilities, powers,
and fiduciary duties of the trustees of the Trust are substantially the same as
those of the directors of Company.
The trustees of the Trust would be those persons elected at this Special
Meeting to serve as directors of Company. Information concerning the nominees
for election as directors of Company is set forth above under Proposal 2.
SHARES OF THE TRUST
The beneficial interests in the New Funds will be represented by
transferable shares, par value $0.01 per share. Shareholders do not have the
right to demand or require the Trust to issue share certificates. The trustees
have the power under the Declaration of Trust to establish new series and
classes of shares; Company's directors currently have a similar right. The
Declaration of Trust permits the trustees to issue an unlimited number of shares
of each class and series. Company is authorized to issue only the number
38
of shares specified in the Articles of Incorporation and may issue additional
shares only with Board approval and after payment of a fee to the State of
Maryland on any additional shares authorized.
Your Fund currently has the classes of shares set forth in Exhibit A. The
Trust has established for each New Fund the classes that currently exist for its
predecessor Current Fund. Except as discussed in this Proxy
Statement/Prospectus, shares of each class of each New Fund will have rights,
privileges, and terms substantially similar to those of the corresponding class
of the Current Fund.
For a discussion of certain differences between and among Company's
Articles of Incorporation and Amended and Restated Bylaws and Maryland law and
the Trust's Declaration of Trust and Amended and Restated Bylaws and Delaware
law, see "Rights of Shareholders" in Proposal 1 above. The foregoing discussion
and the discussion under the caption "Rights of Shareholders" in Proposal 1
above is only a summary of certain differences and is not a complete description
of all the differences. Shareholders should refer to the provisions of the
governing documents of Company and Trust and state law directly for a more
thorough comparison. Copies of the Articles of Incorporation and Amended and
Restated Bylaws of Company and of the Declaration of Trust and the Trust's
Amended and Restated Bylaws are available to shareholders without charge upon
written request to Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 4
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed proxy
card because the Board is soliciting your proxy to vote at the Special Meeting
and at any adjournments of the Special Meeting. This Proxy Statement/Prospectus
gives you information about the business to be conducted at the Special Meeting.
However, you do not need to attend the Special Meeting to vote your shares.
Instead, you may simply complete, sign and return the enclosed proxy card or
vote by telephone or through a website established for that purpose.
Company intends to mail this Proxy Statement/Prospectus, the enclosed
Notice of Special Meeting of Shareholders and the enclosed proxy card on or
about August 25, 2003 to all shareholders entitled to vote. Shareholders of
record as of the close of business on July 25, 2003 (the "Record Date") are
entitled to vote at the Special Meeting. The number of shares outstanding of
each class of shares of your Fund on the Record Date can be found at Exhibit M.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETING
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas, 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
VOTING IN PERSON
If you do attend the Special Meeting and wish to vote in person, we will
provide you with a ballot prior to the vote. However, if your shares are held in
the name of your broker, bank or other nominee, you must bring a letter from the
nominee indicating that you are the beneficial owner of the shares on the Record
Date and authorizing you to vote. Please call Company at (800) 952-3502 if you
plan to attend the Special Meeting.
VOTING BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote.
39
If you properly fill in and sign your proxy card and send it to us in time
to vote at the Special Meeting, your "proxy" (the individual named on your proxy
card) will vote your shares as you have directed. If you sign your proxy card
but do not make specific choices, your proxy will vote your shares as
recommended by the Board as follows and in accordance with management's
recommendation on other matters:
- FOR the proposal to approve the Agreement.
- FOR the election of all 16 nominees for director.
- FOR the proposal to approve a new investment advisory agreement with AIM
for your Fund.
- FOR the proposal to approve the Plan.
Your proxy will have the authority to vote and act on your behalf at any
adjournment of the Special Meeting.
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of Company in writing to the address of Company set forth on the cover
page of this Proxy Statement/Prospectus before the Special Meeting that you have
revoked your proxy. In addition, although merely attending the Special Meeting
will not revoke your proxy, if you are present at the Special Meeting you may
withdraw your proxy and vote in person. Shareholders may also transact any other
business not currently contemplated that may properly come before the Special
Meeting in the discretion of the proxies or their substitutes.
VOTING BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established for
that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist for Proposals 1 and 3 if shareholders entitled to vote one-third of
the issued and outstanding shares of your Fund on the Record Date are present at
the Special Meeting in person or by proxy. A quorum will exist for Proposals 2
and 4 if shareholders entitled to vote one-third of the issued and outstanding
shares of Company on the Record Date are present at the Special Meeting in
person or by proxy.
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a broker
has not received voting instructions from a shareholder and is barred from
voting the shares without shareholder instructions because the proposal is
non-routine.
Abstentions and broker non-votes will count as shares present at the
Special Meeting for purposes of establishing a quorum.
If a quorum is not present at the Special Meeting or a quorum is present
but sufficient votes to approve a Proposal are not received, the persons named
as proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote FOR a Proposal in favor of such an
adjournment and will vote those proxies required to be voted AGAINST such
Proposal against such adjournment. A shareholder vote may be taken on a Proposal
in this Proxy Statement/Prospectus prior to any such adjournment if sufficient
votes have been received and it is otherwise appropriate.
VOTE NECESSARY TO APPROVE EACH PROPOSAL
Proposals 1 and 3. Approval of Proposals 1 and 3 requires the lesser of
(a) the affirmative vote of 67% or more of the voting securities of your Fund
present or represented by proxy at the Special Meeting, if the holders of more
than 50% of the outstanding voting securities of your Fund are present or
represented by proxy, or (b) the affirmative vote of more than 50% of the
outstanding voting securities of
40
your Fund. Abstentions and broker non-votes are counted as present but are not
considered votes cast at the Special Meeting. As a result, they have the same
effect as a vote against Proposals 1 and 3 because approval of Proposals 1 and 3
requires the affirmative vote of a percentage of the voting securities present
or represented by proxy or a percentage of the outstanding voting securities.
Proposal 2. The affirmative vote of a plurality of votes cast at the
Special Meeting is necessary to elect directors, meaning that the director
nominee with the most affirmative votes for a particular slot is elected for
that slot. In an uncontested election for directors, the plurality requirement
is not a factor. Abstentions will not count as votes cast and will have no
effect on the outcome of this proposal. We expect that brokers will be entitled
to vote on this proposal, but any broker non-vote will have no effect on the
outcome of this proposal.
Proposal 4. Approval of Proposal 4 requires the affirmative vote of a
majority of the issued and outstanding shares of Company. Abstentions and broker
non-votes are counted as present but are not considered votes cast at the
Special Meeting. As a result, they have the same effect as a vote against the
Plan because approval of the Plan requires the affirmative vote of a percentage
of the outstanding voting securities.
PROXY SOLICITATION
Company has engaged the services of Georgeson Shareholder Communications
Inc. ("Solicitor") to assist in the solicitation of proxies for the Special
Meeting. Solicitor's costs are estimated to be approximately $14,800. Company
expects to solicit proxies principally by mail, but Company or Solicitor may
also solicit proxies by telephone, facsimile or personal interview. Company's
officers will not receive any additional or special compensation for any such
solicitation. AMVESCAP, on behalf of INVESCO, will bear the costs and expenses
incurred in connection with the Reorganization, including Solicitor's costs.
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
SHAREHOLDER PROPOSALS
As a general matter, your Fund does not hold regular meetings of
shareholders. If you wish to submit a proposal for consideration at a meeting of
shareholders of your Fund, you should send such proposal to Company at the
address set forth on the first page of this Proxy Statement/Prospectus. To be
considered for presentation at meeting of shareholders, Company must receive
proposals a reasonable time before proxy materials are prepared for the meeting.
Your proposal also must comply with applicable law.
For a discussion of how to propose an individual for nomination as a
director, please refer to the section of this Proxy Statement/Prospectus
entitled "Proposal 2 -- Current Committees of the Board -- Nominating
Committee."
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Company owned 5% or more of any class of the
outstanding shares of your Fund can be found at Exhibit N.
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Buyer owned 5% or more of any class of the
outstanding shares of Buying Fund can be found at Exhibit O.
INDEPENDENT PUBLIC ACCOUNTANTS
The audit committee of the Board has appointed PricewaterhouseCoopers LLP
(the "Auditor") as Company's independent public accountants for the fiscal year
ending July 31, 2004. A representative of the
41
Auditor is expected to be available at the Special Meeting and to have the
opportunity to make a statement and respond to appropriate questions from the
shareholders. The audit committee of the Board has considered whether the
provision of the services below is compatible with maintaining the Auditor's
independence.
FEES PAID TO THE AUDITOR RELATED TO COMPANY
The Auditor billed Company (consisting of eight separate series portfolios)
aggregate fees for professional services rendered for the 2003 fiscal year as
follows:
<Table>
Audit Fees.................................................. $165,650
Financial Information Systems Design and Implementation
Fees...................................................... 0
All Other Fees*............................................. $ 32,713
--------
Total Fees.................................................. $198,363
</Table>
- ---------------
* All Other Fees includes fees billed for all other non-audit services,
including fees for tax-related services rendered to Company.
FEES PAID TO THE AUDITOR NOT RELATED TO COMPANY
The Auditor billed INVESCO aggregate fees for professional services
rendered for the 2003 fiscal year to INVESCO, or any affiliate that provided
services to Company, as follows:
<Table>
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees**............................................ $402,571
--------
Total Fees.................................................. $402,571
</Table>
- ---------------
** As required by SEC rules, All Other Fees includes amounts paid to the Auditor
by your Fund's advisor and other related entities that provide support for
the operations of Company. All Other Fees include services relating to tax
services, controls review on the transfer agency, research on accounting
consultations, a CRM project and other agreed upon procedures. The services
performed for your Fund's advisor and related entities benefit many legal
entities of INVESCO, including many sister funds within the investment
company complex.
42
EXHIBIT A
<Table>
<Caption>
CLASSES OF SHARES OF YOUR FUND CORRESPONDING CLASSES OF SHARES OF BUYING FUND
- ------------------------------ ----------------------------------------------
Class A shares Class A shares
Class B shares Class B shares
Class C shares Class C shares
Class K shares Class A shares
Investor Class shares Investor Class shares
</Table>
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF YOUR FUND AND BUYING FUND
INVESCO GROWTH & INCOME FUND (YOUR FUND)
Performance information in the bar chart below is that of the Fund's
Investor Class shares which has the longest operating history of the Fund's
classes.
The bar chart below shows the Fund's Investor Class actual yearly
performance (commonly known as its "total return") for the years ended December
31 over the past decade or since inception. The table below shows the pre-tax
and after-tax average annual total returns of Investor Class for various periods
ended December 31, 2001 compared to the S&P 500 Index and Russell 1000 Growth
Index.
After-tax returns are provided on a pre-redemption and post-redemption
basis. Pre-redemption return assumes you continue to hold your shares and pay
taxes on Fund distributions (i.e., dividends and capital gains) but do not
reflect taxes that may be incurred upon selling or exchanging shares.
Post-redemption return assumes payment of taxes on fund distributions and also
that you close your account and pay remaining federal taxes. After-tax returns
are calculated using the highest individual federal income tax rate in effect at
the time the distribution is paid. State and local taxes are not considered.
Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. For investors holding their shares in tax-deferred
arrangements such as 401(k) plans or individual retirement accounts, the
after-tax return shown is not relevant.
The information in the chart and table illustrates the variability of the
Fund's total return and how its performance compared to a broad measure of
market performance. Remember, past performance (before and after taxes) does not
indicate how the Fund will perform in the future.
GROWTH & INCOME FUND -- INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1)(2)(3)
<Table>
'99......................................................... 43.48%
'00......................................................... (7.91%)
'01......................................................... (43.60%)
</Table>
Best Calendar Qtr. 12/99 26.14%
Worst Calendar Qtr. 3/01 (35.31%)
B-1
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN
AS OF 12/31/01
----------------------------
1 YEAR SINCE INCEPTION
--------- ----------------
Growth & Income Fund(1)(2)
Return Before Taxes....................................... (43.60)% 1.71%(3)
Return After Taxes on Distributions....................... (43.73)% (0.10)%(3)
Return After Taxes on Distributions and Sale of Fund
Shares................................................. (26.43)% 0.88%(3)
S&P 500 Index(4)
(reflects no deduction for fees, expenses, or taxes)...... (11.88)% 1.65%(3)
Russell 1000 Growth Index(4)
(reflects no deduction for fees, expenses, or taxes)...... (20.42)% (1.54)%(3)
</Table>
- ---------------
(1) Total return figures include reinvested dividends and capital gain
distributions and the effect of each class' expenses.
(2) Returns before taxes for Investor Class shares of Growth & Income Fund
year-to-date as of the calendar quarter ended September 30, 2002 was
(36.52%).
(3) The Fund (Investor Class shares) commenced investment operations on July 1,
1998. Index comparison begins on June 30, 1998.
(4) The S&P 500 Index is an unmanaged index considered representative of the
performance of the broad U.S. stock market. The Russell 1000 Growth Index is
an unmanaged index that measures the performance of those Russell 1000
companies with higher price-to-book ratios and lower forecasted growth
values.
AIM BLUE CHIP FUND (BUYING FUND)
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
ANNUAL TOTAL RETURNS
The following bar chart shows changes in the performance of the fund's
Class A shares from year to year. The bar chart does not reflect sales loads. If
it did, the annual total returns shown would be lower.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1993................................................................... 4.61%
1994................................................................... 4.66%
1995................................................................... 32.00%
1996................................................................... 23.75%
1997................................................................... 31.91%
1998................................................................... 30.42%
1999................................................................... 25.65%
2000................................................................... -9.29%
2001................................................................... -22.91%
2002................................................................... -26.42%
</Table>
The Class A shares' year-to-date total return as of June 30, 2003 was
10.96%.
During the periods shown in the bar chart, the highest quarterly return was
24.45% (quarter ended December 31, 1998) and the lowest quarterly return was
- -20.05% (quarter ended March 31, 2001).
B-2
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of
a broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices do not reflect payment of fees, expenses or taxes.
Average Annual Total Returns (for the periods ended December 31, 2002)
<Table>
<Caption>
INCEPTION
1 YEAR 5 YEARS 10 YEARS DATE
-------- ------- -------- ---------
Class A 02/04/87
Return Before Taxes....................................... (30.48)% (4.44)% 6.52%
Return After Taxes on Distributions....................... (30.48)% (4.46)% 5.50%
Return After Taxes on Distributions and Sale of Fund
Shares.................................................. (18.72)% (3.49)% 5.00%
Russell 1000--Registered Trademark-- Index(1)............... (21.65)% (0.58)% 9.19%
S&P 500 Index(2)............................................ (22.09)% (0.58)% 9.34%
Lipper Large Cap Core Fund Index(3)......................... (21.23)% (0.74)% 8.04%
</Table>
- ---------------
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts.
(1) The Russell 1000--Registered Trademark-- Index is a widely recognized,
unmanaged index of common stocks that measures the performance of the 1,000
largest companies in the Russell 3000--Registered Trademark-- Index, which
measures the performance of the 3,000 largest U.S. companies based on total
market capitalization.
(2) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance.
(3) The Lipper Large Cap Core Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Large Cap Core category. These funds
typically invest in stocks with market capitalizations greater than $5
billion at the time of purchase and have an average price-to-earnings ratio,
price-to-book ratio, and a three year sales-per-growth value, compared to
the S&P 500 Index.
B-3
EXHIBIT C
COMPARISON FEE TABLE AND EXPENSE EXAMPLE
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C, Investor Class, and Class K shares of INVESCO Growth & Income Fund
("Selling Fund"), and of Class A, Class B, Class C, Class R and Institutional
Class shares of AIM Blue Chip Fund ("Buying Fund"). Pro Forma Combined Expense
Ratios of Buying Fund giving effect to the reorganization of Selling Fund into
Buying Fund are also provided.
<Table>
<Caption>
SELLING FUND BUYING FUND
(AS OF 7/31/02) (AS OF 10/31/02)
------------------------------------------------------ -------------------------------
INVESTOR
CLASS A CLASS B CLASS C CLASS K CLASS CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------- ------- ------- -------
SHAREHOLDER FEES (fees paid
directly from your
investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price).................... 5.50% None None None None 5.50% None None
Maximum Deferred Sales
Charge (Load)(1).......... None (2)(3) 5.00% 1.00% None (4) None None (2)(5) 5.00% 1.00%
ANNUAL FUND OPERATING
EXPENSES(7) (expenses that
are deducted from fund
assets)
Management Fees(8)......... 0.75% 0.75% 0.75% 0.75% 0.75% 0.64% 0.64% 0.64%
Distribution and/or Service
(12b-1) Fees(9)........... 0.35% 1.00% 1.00% 0.45% 0.25% 0.35% 1.00% 1.00%
Other Expenses............. 1.11% (10) 1.11% (10) 1.58% 29.75% 1.40% 0.41% 0.41% 0.41%
Total Annual Fund Operating
Expenses(11).............. 2.21% 2.86% 3.33% 30.95% 2.40% 1.40% 2.05% 2.05%
Fee
Waivers/Reimbursements.... 0.11% 0.11% 0.58% 28.75% None None None None
Net Expenses............... 2.10% 2.75% 2.75% 2.20% 2.40% 1.40% 2.05% 2.05%
<Caption>
BUYING FUND
BUYING FUND PRO FORMA COMBINED
(AS OF 10/31/02) (AS OF 10/31/02)
------------------------- ----------------------------------------------------------------------
INVESTOR
CLASS R INSTITUTIONAL CLASS A CLASS B CLASS C CLASS R CLASS INSTITUTIONAL
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------------- ------- ------- ------- ------- -------- -------------
SHAREHOLDER FEES (fees paid
directly from your
investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price).................... None None 5.50% None None None None None
Maximum Deferred Sales
Charge (Load)(1).......... None (6) None None (2)(5) 5.00% 1.00% None (6) None None
ANNUAL FUND OPERATING
EXPENSES(7) (expenses that
are deducted from fund
assets)
Management Fees(8)......... 0.64% 0.64% 0.64% 0.64% 0.64% 0.64% 0.64% 0.64%
Distribution and/or Service
(12b-1) Fees(9)........... 0.50% 0.00% 0.35% 1.00% 1.00% 0.50% 0.25% 0.00%
Other Expenses............. 0.41% (10) 0.13% 0.42% 0.42% 0.42% 0.42% (10) 0.42% 0.13%
Total Annual Fund Operating
Expenses(11).............. 1.55% 0.77% 1.41% 2.06% 2.06% 1.56% 1.31% 0.77%
Fee
Waivers/Reimbursements.... None None None None None None None None
Net Expenses............... 1.55% 0.77% 1.41% 2.06% 2.06% 1.56% 1.31% 0.77%
</Table>
- ---------------
(1) For Selling Fund, calculated as a percentage of original purchase price.
For Buying Fund and Buying Fund Pro Forma Combined, calculated as a
percentage of original purchase price or redemption proceeds, whichever is
less.
(2) If you buy $1,000,000 or more of Class A shares and redeem those shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(3) For qualified plans investing in Class A shares, you may pay a CDSC of 1%
on your Class A shares if the plan is redeemed within 12 months from
initial deposit in the plan's INVESCO account.
(4) For qualified plans investing in Class K shares, you may pay a CDSC of
0.70% on your Class K shares if the plan is redeemed within 12 months from
the initial deposit in the plan's INVESCO account.
(5) Effective November 1, 2002, if you are a retirement plan participant and
you bought $1,000,000 or more of Class A shares, you may pay a 1% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
C-1
(6) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total
redemption of the retirement plan assets occurs within 12 months from the
date of the retirement plan's initial purchase.
(7) There is no guarantee that actual expenses will be the same as those shown
in the table.
(8) The investment advisor has agreed to waive a portion of the management fee
on assets in excess of $5 billion for Buying Fund. Termination of this
agreement requires approval by the Board of Trustees.
(9) Because each class pays a 12b-1 distribution and service fee which is based
upon such class' assets, if you own shares for a long period of time, you
may pay more than the economic equivalent of the maximum front-end sales
charge permitted for mutual funds by the National Association of Securities
Dealers, Inc.
(10) Other Expenses are based on estimated expenses for the current fiscal year.
(11) INVESCO has contractually agreed to waive fees and bear any expenses on
Selling Fund through April 30, 2004 to limit Total Annual Operating
Expenses (excluding interest, taxes, brokerage commissions, extraordinary
expenses and increases in expenses due to expense offset arrangements, if
any) to 2.10%, 2.75%, 2.75% and 2.20% on Class A, Class B, Class C and
Class K shares, respectively. INVESCO has also voluntarily agreed to limit
Total Annual Operating Expenses (excluding interest, taxes, brokerage
commissions, extraordinary expenses and increases in expenses due to
expense offset arrangements, if any) to 1.60%, 2.25%, 2.25%, 1.70% and
1.50% on Class A, Class B, Class C, Class K and Investor Class shares,
respectively. The voluntary expense limitations cannot be revoked by
INVESCO prior to May 2004. Effective June 1, 2002, INVESCO is entitled to
reimbursement from the classes for fees and expenses absorbed pursuant to
voluntary and contractual expense limitation commitments between INVESCO
and Selling Fund if such reimbursements do not cause a class to exceed
expense limitations and the reimbursement is made within three years after
INVESCO incurred the expense.
C-2
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of Selling Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the reorganization of Selling Fund into Buying
Fund are also provided. All costs are based upon the information set forth in
the Fee Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay both if you redeem all of your shares
at the end of those periods and if you do not redeem your shares. The Example
also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ------ ------ -------
SELLING FUND
Class A shares(1)
Assuming complete redemption at end of period.... $751 $1,183 $1,650 $ 2,938
Assuming no redemption........................... $751 $1,183 $1,650 $ 2,938
Class B shares
Assuming complete redemption at end of
period(2)(3).................................. $778 $1,165 $1,689 $ 3,015
Assuming no redemption(3)........................ $278 $ 865 $1,489 $ 3,015
Class C shares
Assuming complete redemption at end of
period(2)..................................... $378 $ 914 $1,633 $ 3,541
Assuming no redemption........................... $278 $ 914 $1,633 $ 3,541
Class K shares
Assuming complete redemption at end of period.... $223 $3,299 $6,967 $10,429
Assuming no redemption........................... $223 $3,299 $6,967 $10,429
Investor Class shares
Assuming complete redemption at end of period.... $243 $ 748 $1,280 $ 2,736
Assuming no redemption........................... $243 $ 748 $1,280 $ 2,736
BUYING FUND
Class A shares(1)
Assuming complete redemption at end of period.... $685 $ 969 $1,274 $ 2,137
Assuming no redemption........................... $685 $ 969 $1,274 $ 2,137
Class B shares
Assuming complete redemption at end of
period(2)(3).................................. $708 $ 943 $1,303 $ 2,213
Assuming no redemption(3)........................ $208 $ 643 $1,103 $ 2,213
Class C shares
Assuming complete redemption at end of
period(2)..................................... $308 $ 643 $1,103 $ 2,379
Assuming no redemption........................... $208 $ 643 $1,103 $ 2,379
Class R shares
Assuming complete redemption at end of period.... $158 $ 490 $ 845 $ 1,845
Assuming no redemption........................... $158 $ 490 $ 845 $ 1,845
Institutional Class shares
Assuming complete redemption at end of period.... $ 79 $ 246 $ 428 $ 954
Assuming no redemption........................... $ 79 $ 246 $ 428 $ 954
</Table>
C-3
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ------ ------ -------
BUYING FUND -- PRO FORMA COMBINED
Class A shares(1)
Assuming complete redemption at end of period.... $686 $ 972 $1,279 $ 2,148
Assuming no redemption........................... $686 $ 972 $1,279 $ 2,148
Class B shares
Assuming complete redemption at end of
period(2)(3).................................. $709 $ 946 $1,308 $ 2,223
Assuming no redemption(3)........................ $209 $ 646 $1,108 $ 2,223
Class C shares
Assuming complete redemption at end of
period(2)..................................... $309 $ 646 $1,108 $ 2,390
Assuming no redemption........................... $209 $ 646 $1,108 $ 2,390
Class R shares
Assuming complete redemption at end of period.... $159 $ 493 $ 850 $ 1,856
Assuming no redemption........................... $159 $ 493 $ 850 $ 1,856
Investor Class shares
Assuming complete redemption at end of period.... $133 $ 415 $ 718 $ 1,579
Assuming no redemption........................... $133 $ 415 $ 718 $ 1,579
Institutional Class R shares
Assuming complete redemption at end of period.... $ 79 $ 246 $ 428 $ 954
Assuming no redemption........................... $ 79 $ 246 $ 428 $ 954
</Table>
- ---------------
(1) Assumes payment of maximum sales charge by the investor.
(2) Assumes payment of the applicable CDSC.
(3) Assumes conversion of Class B shares to Class A shares at the end of the
eighth year.
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. SELLING
FUND'S AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT SELLING FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL
PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-4
EXHIBIT D
DIRECTOR COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for
each continuing director of Company who was not affiliated with INVESCO during
the year ended December 31, 2002.
<Table>
<Caption>
TOTAL
COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM ALL
COMPENSATION ACCRUED BY BENEFITS UPON INVESCO
NAME OF DIRECTOR FROM COMPANY(1) COMPANY(2) RETIREMENT(3) FUNDS(4)
- ---------------- --------------- ------------------- ---------------- ------------
Bob R. Baker................... $29,095 $5,233 $34,000 $138,000
James T. Bunch................. $25,150 0 0 $124,625
Gerald J. Lewis................ $25,612 0 0 $116,500
Larry Soll, Ph.D. ............. $26,476 0 0 $126,000
</Table>
- ---------------
(1) The vice chairman of the Board, the chairs of certain of your Fund's
committees who are independent directors, and the members of your Fund's
committees who are independent directors each receive compensation for
serving in such capacities in addition to the compensation paid to all
independent directors. Amounts shown are for the fiscal year ended July 31,
2002.
(2) Represents estimated benefits accrued with respect to the current Retirement
Plan and Deferred Retirement Plan Account Agreement, and not compensation
deferred at the election of the directors. Amounts shown are for the fiscal
year ended July 31, 2002.
(3) These amounts represent the estimated annual benefits payable by the ten
INVESCO Funds upon the directors' retirement under the current Retirement
Plan and Deferred Retirement Plan Account Agreement, calculated using the
current method of allocating director compensation among the INVESCO Funds.
These estimated benefits assume retirement at age 72. With the exception of
Messrs. Bunch and Lewis, each of these directors has served as a director of
one or more of the INVESCO Funds for the minimum five-year period required
to be eligible to participate in the current Retirement Plan.
(4) All continuing directors currently serve as directors of ten registered
investment companies advised by INVESCO.
D-1
EXHIBIT E
OFFICERS OF COMPANY
The following table provides information with respect to the current
officers of Company. Each officer is elected by the Board and serves until his
or her successor is chosen and qualified or until his or her resignation or
removal by the Board. The business address of all officers of Company is 4350
South Monaco Street, Denver, Colorado 80237.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND POSITION(S) OFFICER
HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------------- ------- -------------------------------------------
Mark H. Williamson -- 1951 1998 Director, President and Chief Executive Officer, A
Chairman of the Board I M Management Group Inc.; Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Distributors,
Inc. (registered broker dealer); and Chief
Executive Officer of the AIM Division of AMVESCAP
PLC (2003-present); formerly, Chief Executive
Officer, Managed Products Division, AMVESCAP PLC
(2001-2002); Chairman of the Board (1998-2002),
President (1998-2002) and Chief Executive Officer
(1998-2002) of INVESCO Funds Group, Inc.
(registered investment advisor) and INVESCO
Distributors, Inc. (registered broker dealer);
Chief Operating Officer and Chairman of the Board
of INVESCO Global Health Sciences Fund; Chairman
and Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
Raymond R. Cunningham -- 1951 2001 President (2001-present) and Chief Executive
President and Chief Executive Officer (2003-present) of INVESCO Funds Group,
Officer Inc.; Chairman of the Board (2003-present) and
President (2003-present) of INVESCO Distributors,
Inc.; formerly, Chief Operating Officer
(2001-2003) and Senior Vice President (1999-2002)
of INVESCO Funds Group, Inc. and INVESCO
Distributors, Inc.; and Senior Vice President of
GT Global -- North America (1992-1998).
Glen A. Payne -- 1947 1989 Senior Vice President, General Counsel and
Secretary Secretary of INVESCO Funds Group, Inc.; Senior
Vice President, Secretary and General Counsel of
INVESCO Distributors, Inc.; formerly, Secretary of
INVESCO Global Health Sciences Fund; General
Counsel of INVESCO Trust Company (1989-1998); and
employee of the Securities and Exchange
Commission, Washington, DC (1973-1989).
Ronald L. Grooms -- 1946 1988 Senior Vice President and Treasurer of INVESCO
Chief Accounting Officer, Chief Funds Group, Inc.; and Senior Vice President and
Financial Officer and Treasurer Treasurer of INVESCO Distributors, Inc.; formerly,
Treasurer and Principal Financial and Accounting
Officer of INVESCO Global Health Sciences Fund;
and Senior Vice President and Treasurer of INVESCO
Trust Company (1988-1998).
William J. Galvin, Jr. -- 1956 1992 Senior Vice President and Assistant Secretary
Assistant Secretary INVESCO Funds Group, Inc.; and Senior Vice
President and Assistant Secretary of INVESCO
Distributors, Inc.; formerly, Trust Officer of
INVESCO Trust Company (1995-1998).
</Table>
E-1
<Table>
<Caption>
NAME, YEAR OF BIRTH AND POSITION(S) OFFICER
HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------------- ------- -------------------------------------------
Pamela J. Piro -- 1960 1999 Vice President and Assistant Treasurer of INVESCO
Assistant Treasurer Funds Group, Inc.; and Assistant Treasurer of
INVESCO Distributors, Inc.; formerly, Assistant
Vice President (1996-1997).
Tane T. Tyler -- 1965 2002 Vice President and Assistant General Counsel of
Assistant Secretary INVESCO Funds Group, Inc.
</Table>
E-2
EXHIBIT F
SECURITY OWNERSHIP OF MANAGEMENT
To the best knowledge of Company, the following table sets forth certain
information regarding the ownership as of July 25, 2003 of the shares of common
stock of each class of each series portfolio of Company by the directors,
nominees, and current executive officers of Company:
<Table>
<Caption>
NUMBER OF SHARES
OWNED BENEFICIALLY
SERIES AND CLASS AND PERCENTAGE OF CLASS*
---------------- ------------------------
Bob R. Baker..............................................
Sueann Ambron.............................................
Victor L. Andrews.........................................
Lawrence H. Budner........................................
James T. Bunch............................................
Raymond R. Cunningham.....................................
Richard W. Healey.........................................
Gerald J. Lewis...........................................
John W. McIntyre..........................................
Larry Soll, Ph.D. ........................................
Mark H. Williamson........................................
Frank S. Bayley...........................................
Bruce L. Crockett.........................................
Albert R. Dowden..........................................
Edward K. Dunn, Jr. ......................................
Jack M. Fields............................................
Carl Frischling...........................................
Robert H. Graham..........................................
Prema Mathai-Davis........................................
Lewis F. Pennock..........................................
Ruth H. Quigley...........................................
Louis S. Sklar............................................
Glen A. Payne.............................................
Ronald L. Grooms..........................................
William J. Galvin, Jr. ...................................
Pamela J. Piro............................................
Tane T. Tyler.............................................
</Table>
- ---------------
* To the best knowledge of Company, the ownership of shares of each series
portfolio of Company by current directors, nominees, and current executive
officers of Company as a group constituted less than 1% of each class of each
series portfolio of Company as of July 25, 2003.
F-1
EXHIBIT G
DIRECTOR OWNERSHIP OF FUND SHARES
Set forth below is the dollar range of equity securities beneficially owned
by each continuing director and nominee as of December 31, 2002 (i) in your Fund
and (ii) on an aggregate basis, in all registered investment companies overseen
by the director within the INVESCO Funds complex:
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN BY
DOLLAR RANGE OF EQUITY SECURITIES DIRECTOR IN THE INVESCO
NAME OF DIRECTOR IN YOUR FUND FUNDS COMPLEX
- ---------------- --------------------------------- -------------------------
INDEPENDENT DIRECTORS
Bob R. Baker................................. $1-$10,000 $10,001-$50,000
James T. Bunch............................... $1-$10,000 $50,001-$100,000
Gerald J. Lewis.............................. $1-$10,000 $50,001-$100,000
Larry Soll, Ph.D. ........................... $1-$10,000 Over $100,000
INTERESTED DIRECTOR
Mark H. Williamson........................... None Over $100,000
INDEPENDENT NOMINEES
Frank S. Bayley.............................. None None
Bruce L. Crockett............................ None None
Albert R. Dowden............................. None None
Edward K. Dunn............................... None None
Jack M. Fields............................... None None
Carl Frischling.............................. None None
Prema Mathai-Davis........................... None None
Lewis F. Pennock............................. None None
Ruth H. Quigley.............................. None None
Louis S. Sklar............................... None None
NOMINEE WHO WILL BE INTERESTED
Robert H. Graham............................. None None
</Table>
G-1
EXHIBIT H
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF
A I M ADVISORS, INC.
The following table provides information with respect to the principal
executive officer and the directors of A I M Advisors, Inc. ("AIM"). The
business address of the principal executive officer and the directors of AIM is
11 Greenway Plaza, Suite 100, Houston, Texas 77046.
<Table>
<Caption>
NAME POSITION WITH AIM PRINCIPAL OCCUPATION
- ---- ----------------- --------------------
Mark H. Williamson...... Director, Chairman and Director, President and Chief Executive
President Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Distributors,
Inc. (registered broker dealer); and Chief
Executive Officer of the A I M Division of
AMVESCAP PLC
Kevin M. Carome......... Director, Senior Vice Director, Senior Vice President, Secretary
President, General Counsel and and General Counsel, A I M Management Group
Secretary Inc.; Vice President, A I M Capital
Management Inc., A I M Distributors, Inc.
and A I M Fund Services, Inc., and
Director, Vice President and General
Counsel, Fund Management Company
Gary T. Crum............ Director and Senior Vice Chairman, Director and Director of
President Investments, A I M Capital Management,
Inc.; Director and Executive Vice
President, A I M Management Group Inc.;
Director, A I M Distributors, Inc. and
AMVESCAP PLC
Dawn M. Hawley.......... Director, Senior Vice President Director, Senior Vice President and Chief
and Chief Financial Officer Financial Officer, A I M Management Group
Inc.; Vice President and Treasurer, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director, Vice
President and Chief Financial Officer, A I
M Fund Services, Inc.; and Vice President
and Chief Financial Officer, Fund
Management Company
</Table>
H-1
EXHIBIT I
COMPENSATION TO INVESCO FUNDS GROUP, INC.
Company pays INVESCO Funds Group, Inc., out of the assets of your Fund, as
full compensation for all services rendered, an advisory fee for your Fund set
forth below. Such fee shall be calculated by applying the following annual rate
to the average daily net assets of your Fund for the calendar year, computed in
the manner used for the determination of the net asset value of shares of your
Fund.
<Table>
<Caption>
NET FEES PAID TO FEE WAIVERS OR
TOTAL NET ASSETS INVESCO FUNDS EXPENSE
FOR THE MOST GROUP, INC. FOR THE REIMBURSEMENTS FOR
RECENTLY COMPLETED MOST RECENTLY THE MOST RECENTLY
ANNUAL RATE FISCAL PERIOD COMPLETED FISCAL COMPLETED FISCAL
(BASED ON AVERAGE DAILY NET ASSETS) OR YEAR PERIOD OR YEAR PERIOD OR YEAR
- ----------------------------------- ------------------ ------------------- ------------------
0.75% of the first $500 million; 0.65% of $45,358,657 $0 $651,211
the next $500 million; 0.55% from $1
billion; 0.45% from $2 billion; 0.40%
from $4 billion; 0.375% from $6 billion;
0.35% from $8 billion
</Table>
I-1
EXHIBIT J
FEES PAID TO INVESCO FUNDS GROUP, INC. AND AFFILIATES IN MOST RECENT FISCAL YEAR
The following chart sets forth the non-advisory fees paid by your Fund
during its most recently completed fiscal year to INVESCO Funds Group, Inc. and
to affiliates of INVESCO Funds Group, Inc.
<Table>
<Caption>
INVESCO
(ADMINISTRATIVE INVESCO INVESCO
NAME OF FUND SERVICES)* DISTRIBUTORS, INC.** (TRANSFER AGENCY)
- ------------ --------------- -------------------- -----------------
INVESCO Growth & Income Fund........... $41,792 $115,909 $692,789
</Table>
- ---------------
* Fees paid to INVESCO for administrative services for the prior fiscal year
were paid pursuant to an agreement other than the advisory agreement.
** Net amount received from Rule 12b-1 fees. Excluded are amounts reallowed to
broker-dealers, agents and other service providers.
J-1
EXHIBIT K
ADVISORY FEE SCHEDULES FOR OTHER AIM FUNDS
The following table provides information with respect to the annual
advisory fee rates paid to A I M Advisors, Inc. by certain funds that have a
similar investment objective as your Fund.
<Table>
<Caption>
TOTAL NET ASSETS
FOR THE MOST FEE WAIVERS, EXPENSE LIMITATIONS
ANNUAL RATE RECENTLY AND/OR EXPENSE REIMBURSEMENTS
(BASED ON AVERAGE COMPLETED FOR THE MOST RECENTLY
NAME OF FUND DAILY NET ASSETS) FISCAL YEAR COMPLETED FISCAL YEAR
- ------------ ----------------- ---------------- --------------------------------
AIM Global Utilities
Fund................... 0.60% of the first $200 $157,083,619 Waive 0.02% of advisory fee on
million; 0.50% of the next average net assets
$300 million; 0.40% of the
next $500 million; 0.30%
of the excess over $1
billion
AIM International Core
Equity Fund............ 1.00% $ 90,235,884 N/A
AIM Real Estate Fund..... 0.90% $193,700,806 N/A
AIM V.I. Global Utilities
Fund................... 0.65% of the first $250 $ 21,034,499 Waive advisory fees to extent
million; 0.60% of the necessary to limit expenses
excess over $250 million (excluding Rule 12b-1 plan fees,
if any, interest, taxes,
dividend expense on short sales,
extraordinary items and
increases in expenses due to
expense offset arrangements, if
any) of each Series to 1.30%
</Table>
K-1
EXHIBIT L
PROPOSED COMPENSATION TO A I M ADVISORS, INC.
The following table provides information with respect to the annual
advisory fee rates proposed to be paid to A I M Advisors, Inc. by your Fund
under the proposed advisory agreement.
<Table>
<Caption>
ANNUAL RATE
NET ASSETS (BASED ON AVERAGE DAILY NET ASSETS)
- ---------- -----------------------------------
First $500 Million....................................... 0.75%
Next $500 Million........................................ 0.65%
From $1 Billion.......................................... 0.55%
From $2 Billion.......................................... 0.45%
From $4 Billion.......................................... 0.40%
From $6 Billion.......................................... 0.375%
From $8 Billion.......................................... 0.35%
</Table>
L-1
EXHIBIT M
SHARES OUTSTANDING OF EACH CLASS OF YOUR FUND ON RECORD DATE
As of July 25, 2003, there were the following number of shares outstanding
of each class of your Fund:
CLASS A SHARES
52,504.46
CLASS B SHARES
10,078.70
CLASS C SHARES
165,577.36
CLASS K SHARES
31,468.09
INVESTOR CLASS SHARES
6,662,426.20
M-1
EXHIBIT N
OWNERSHIP OF SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Company owned 5% or more of any
class of the outstanding shares of your Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of your Fund is presumed
to "control" your Fund as defined in the 1940 Act. Such control may affect the
voting rights of other shareholders.
<Table>
<Caption>
PERCENT
NUMBER OF SHARES OWNED OF
NAME AND ADDRESS CLASS OF SHARES OWNED RECORD*
- ---------------- --------------- ---------------- --------
INVESCO Trust Company TTEE........................... Investor Class 779,504.53 11.70%
FBO AMVESCAP 401K Plan
P.O. Box 105779
Atlanta, GA 30348-5779
Charles Schwab & Co. Inc. ........................... Investor Class 554,893.78 8.33%
Special Custody Acct. for the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Charles Schwab & Co. Inc. ........................... Class A 38,870.05 74.03%
Special Custody Acct. for the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
UBS Financial Services Inc. FBO...................... Class B 3,534.17 35.07%
UBS-FINSVC CDN FBO
Emilio Alonso
P.O. Box 3321
Weehawken, NJ 07086-8154
American Enterprise Investment Svcs. ................ Class B 1,280.15 12.70%
FBO 215221491
P.O. Box 9446
Minneapolis, MN 55440-9446
Merrill Lynch........................................ Class B 1,208.05 11.99%
4800 Deer Lake Drive East
Jacksonville, FL 32246-6486
Pershing LLC......................................... Class B 857.63 8.51%
P.O. Box 2052
Jersey City, NJ 07303-2052
American Enterprise Investment Svcs. ................ Class B 705.65 7.00%
FBO 167896121
P.O. Box 9446
Minneapolis, MN 55440-9446
Circle Trust Company Cust. .......................... Class K 10,565.48 33.58%
GoldK Omnibus Account
Metro Center
1 Station Pl.
Stamford, CT 06902-6800
</Table>
N-1
<Table>
<Caption>
PERCENT
NUMBER OF SHARES OWNED OF
NAME AND ADDRESS CLASS OF SHARES OWNED RECORD*
- ---------------- --------------- ---------------- --------
Great West Life & Annuity Co. ....................... Class K 5,136.37 16.32%
Attn: Mutual Fund Trading (2T2)
8515 E. Orchard Rd.
Englewood, CO 80111-5037
The New England Life Insurance Co. .................. Class K 2,556.49 8.12%
Attn: Christy Wright
1 Mellon Ctr. Rm. 1510930
Pittsburgh, PA 15258-0001
Circle Trust Co. Cust. .............................. Class K 1,727.77 5.49%
Hazel Land Companies Inc.
401K Plan Bin# Hazel
Metro Center
1 Station Pl.
Stamford, CT 06902-6800
</Table>
- ---------------
* Company has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
N-2
EXHIBIT O
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
As of July 25, 2003, to the best knowledge of Buyer, there were no holders
of 5% or more of any class of the outstanding shares of your Fund.
O-1
APPENDIX I
AGREEMENT
AND
PLAN OF REORGANIZATION
FOR
INVESCO GROWTH & INCOME FUND,
A SEPARATE PORTFOLIO OF
INVESCO STOCK FUNDS, INC.
AUGUST 13, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE 1 DEFINITIONS........................................................ I-1
SECTION 1.1. Definitions................................................. I-1
ARTICLE 2 TRANSFER OF ASSETS................................................. I-4
SECTION 2.1. Reorganization of Selling Fund.............................. I-4
SECTION 2.2. Computation of Net Asset Value.............................. I-4
SECTION 2.3. Valuation Date.............................................. I-4
SECTION 2.4. Delivery.................................................... I-5
SECTION 2.5. Termination of Series and Redemption of Selling Fund
Shares...................................................... I-5
SECTION 2.6. Issuance of Buying Fund Shares.............................. I-5
SECTION 2.7. Investment Securities....................................... I-5
SECTION 2.8. Liabilities................................................. I-6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER........................... I-6
SECTION 3.1. Organization; Authority..................................... I-6
SECTION 3.2. Registration and Regulation of Seller....................... I-6
SECTION 3.3. Financial Statements........................................ I-6
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities......... I-6
SECTION 3.5. Selling Fund Shares; Business Operations.................... I-6
SECTION 3.6. Accountants................................................. I-7
SECTION 3.7. Binding Obligation.......................................... I-7
SECTION 3.8. No Breaches or Defaults..................................... I-7
SECTION 3.9. Authorizations or Consents.................................. I-7
SECTION 3.10. Permits..................................................... I-8
SECTION 3.11. No Actions, Suits or Proceedings............................ I-8
SECTION 3.12. Contracts................................................... I-8
SECTION 3.13. Properties and Assets....................................... I-8
SECTION 3.14. Taxes....................................................... I-8
SECTION 3.15. Benefit and Employment Obligations.......................... I-9
SECTION 3.16. Brokers..................................................... I-9
SECTION 3.17. Voting Requirements......................................... I-9
SECTION 3.18. State Takeover Statutes..................................... I-9
SECTION 3.19. Books and Records........................................... I-9
SECTION 3.20. Prospectus and Statement of Additional Information.......... I-9
SECTION 3.21. No Distribution............................................. I-9
SECTION 3.22. Liabilities of Selling Fund................................. I-9
SECTION 3.23. Value of Shares............................................. I-10
SECTION 3.24. Shareholder Expenses........................................ I-10
SECTION 3.25. Intercompany Indebtedness; Consideration.................... I-10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER............................ I-10
SECTION 4.1. Organization; Authority..................................... I-10
SECTION 4.2. Registration and Regulation of Buyer........................ I-10
SECTION 4.3. Financial Statements........................................ I-10
</Table>
I-i
<Table>
<Caption>
PAGE
----
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities......... I-10
SECTION 4.5. Registration of Buying Fund Shares.......................... I-11
SECTION 4.6. Accountants................................................. I-11
SECTION 4.7. Binding Obligation.......................................... I-11
SECTION 4.8. No Breaches or Defaults..................................... I-11
SECTION 4.9. Authorizations or Consents.................................. I-12
SECTION 4.10. Permits..................................................... I-12
SECTION 4.11. No Actions, Suits or Proceedings............................ I-12
SECTION 4.12. Taxes....................................................... I-12
SECTION 4.13. Brokers..................................................... I-13
SECTION 4.14. Representations Concerning the Reorganization............... I-13
SECTION 4.15. Prospectus and Statement of Additional Information.......... I-13
SECTION 4.16. Value of Shares............................................. I-13
SECTION 4.17. Intercompany Indebtedness; Consideration.................... I-13
ARTICLE 5 COVENANTS.......................................................... I-14
SECTION 5.1. Conduct of Business......................................... I-14
SECTION 5.2. Announcements............................................... I-14
SECTION 5.3. Expenses.................................................... I-14
SECTION 5.4. Further Assurances.......................................... I-14
SECTION 5.5. Notice of Events............................................ I-14
SECTION 5.6. Access to Information....................................... I-15
SECTION 5.7. Consents, Approvals and Filings............................. I-15
SECTION 5.8. Submission of Agreement to Shareholders..................... I-15
SECTION 5.9. Delay of Consummation of Reorganization..................... I-15
ARTICLE 6 CONDITIONS PRECEDENT TO THE REORGANIZATION......................... I-15
SECTION 6.1. Conditions Precedent of Buyer............................... I-15
SECTION 6.2. Mutual Conditions........................................... I-16
SECTION 6.3. Conditions Precedent of Seller.............................. I-17
ARTICLE 7 TERMINATION OF AGREEMENT........................................... I-17
SECTION 7.1. Termination................................................. I-17
SECTION 7.2. Survival After Termination.................................. I-17
ARTICLE 8 MISCELLANEOUS...................................................... I-18
SECTION 8.1. Survival of Representations, Warranties and Covenants....... I-18
SECTION 8.2. Governing Law............................................... I-18
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment........... I-18
SECTION 8.4. Obligations of Buyer and Seller............................. I-18
SECTION 8.5. Amendments.................................................. I-18
SECTION 8.6. Enforcement................................................. I-18
SECTION 8.7. Interpretation.............................................. I-18
SECTION 8.8. Counterparts................................................ I-19
SECTION 8.9. Entire Agreement; Exhibits and Schedules.................... I-19
SECTION 8.10. Notices..................................................... I-19
</Table>
I-ii
<Table>
<Caption>
PAGE
----
SECTION 8.11. Representations by Seller Investment Adviser................ I-19
SECTION 8.12. Representations by Buyer Investment Adviser................. I-19
SECTION 8.13. Successors and Assigns; Assignment.......................... I-20
Exhibit A Excluded Liabilities of Selling Fund
Schedule 2.1 Classes of Shares of Selling Fund and Corresponding Classes
of Shares of Buying Fund
Schedule 3.4 Certain Contingent Liabilities of Selling Fund
Schedule 3.5(d) Permitted Restructurings and Redomestications of Funds
Schedule 4.4 Certain Contingent Liabilities of Buying Fund
Schedule 4.5(a) Portfolios of Buyer
Schedule 4.5(b) Classes of Shares of Buying Fund and Number of Shares of
Each Class Buyer is Authorized to Issue
Schedule 5.1 Permitted Combinations of Funds
Schedule 6.2(f) Tax Opinions
</Table>
I-iii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of August 13, 2003 (this
"Agreement"), by and among INVESCO Stock Funds, Inc., a Maryland corporation
("Seller"), acting on behalf of INVESCO Growth & Income Fund ("Selling Fund"), a
separate series of Seller, AIM Equity Funds, a Delaware statutory trust
("Buyer"), acting on behalf of AIM Blue Chip Fund ("Buying Fund"), a separate
series of Buyer, A I M Advisors, Inc., a Delaware corporation, and INVESCO Funds
Group, Inc., a Delaware corporation.
WITNESSETH
WHEREAS, Seller is a management investment company registered with the SEC
(as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund, for sale to the public; and
WHEREAS, Buyer is a management investment company registered with the SEC
under the Investment Company Act that offers separate series of its shares
representing interests in investment portfolios, including Buying Fund, for sale
to the public; and
WHEREAS, Buyer Investment Adviser (as defined below) provides investment
advisory services to Buyer; and
WHEREAS, Seller Investment Adviser (as defined below) provides investment
advisory services to Seller; and
WHEREAS, Selling Fund desires to provide for its reorganization through the
transfer of all of its assets to Buying Fund in exchange for the assumption by
Buying Fund of all of the Liabilities (as defined below) of Selling Fund and the
issuance by Buyer of shares of Buying Fund in the manner set forth in this
Agreement; and
WHEREAS, this Agreement is intended to be and is adopted by the parties
hereto as a Plan of Reorganization within the meaning of the regulations under
Section 368(a) of the Code (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and undertakings contained in this Agreement, Seller, Buyer, Buyer
Investment Adviser and Seller Investment Adviser agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization, together with
all exhibits and schedules attached hereto and all amendments hereto and
thereof.
"Applicable Law" means the applicable laws of the state in which each of
Buyer and Seller has been organized and shall include, as applicable, the
Maryland General Corporation Law and the Delaware Statutory Trust Act.
I-1
"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Seller on behalf of Selling
Fund, or otherwise providing benefits to any current or former employee, officer
or director/trustee of Seller.
"Buyer" means AIM Equity Funds, a Delaware statutory trust.
"Buyer Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
"Buyer Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Buying Fund.
"Buyer Investment Adviser" means A I M Advisors, Inc..
"Buyer Registration Statement" means the registration statement on Form
N-1A of Buyer, as amended, 1940 Act Registration No. 811-1424.
"Buying Fund" means AIM Blue Chip Fund, a separate series of Buyer.
"Buying Fund Auditors" means Ernst & Young LLP.
"Buying Fund Financial Statements" means the audited financial statements
of Buying Fund for the fiscal year ended October 31, 2002 and the unaudited
financial statements of Buying Fund for the period ended April 30, 2003.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Agreement.
"Closing" means the transfer of the assets of Selling Fund to Buying Fund,
the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Agreement.
"Closing Date" means November 3, 2003 or such other date as the parties may
mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations adopted pursuant thereto.
"corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations adopted pursuant thereto.
"Exchangeability Date" means the first date on which Buyer Investment
Adviser determines that shares of retail mutual funds advised by Buyer
Investment Adviser and shares of retail mutual funds advised by Seller
Investment Adviser generally may be exchanged for shares of the same or a
similar class of each other.
"Governing Documents" means the organic documents which govern the business
and operations of each of Buyer and Seller and shall include, as applicable, the
Charter, Amended and Restated Agreement and Declaration of Trust, Amended and
Restated Bylaws and Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading
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Commission, the National Futures Association, the Investment Management
Regulatory Organization Limited and the Office of Fair Trading).
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in the
condition (financial or otherwise), properties, assets or prospects of an entity
having an adverse monetary effect in an amount equal to or greater than $50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.10 of this
Agreement.
"Person" means an individual or a corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Buyer of Buying Fund Shares
directly to Selling Fund Shareholders as described in this Agreement, and the
termination of Selling Fund's status as a designated series of shares of Seller.
"Required Shareholder Vote" means the lesser of (a) the affirmative vote of
67% or more of the voting securities of Selling Fund present or represented by
proxy at the Shareholders Meeting, if the holders of more than 50% of the
outstanding voting securities of Selling Fund are present or represented by
proxy, or (b) the affirmative vote of more than 50% of the outstanding voting
securities of Selling Fund.
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Seller" means INVESCO Stock Funds, Inc., a Maryland corporation.
"Seller Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Selling Fund.
"Seller Investment Adviser" means INVESCO Funds Group, Inc..
"Seller Registration Statement" means the registration statement on Form
N-1A of Seller, as amended, 1940 Act Registration No. 811-1474.
"Selling Fund" means INVESCO Growth & Income Fund, a separate series of
Seller.
"Selling Fund Auditors" means PricewaterhouseCoopers LLP.
"Selling Fund Financial Statements" means the audited financial statements
of Selling Fund for the fiscal year ended July 31, 2002 and the unaudited
financial statements of Selling Fund for the period ended January 31, 2003.
"Selling Fund Shareholders" means the holders of record of the outstanding
shares of each class of Selling Fund as of the close of regular trading on the
NYSE on the Valuation Date.
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"Selling Fund Shares" means the outstanding shares of each class of Selling
Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling Fund
convened in accordance with Applicable Law and the Governing Documents of Seller
to consider and vote upon the approval of this Agreement.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means December 31, 2003 or such later date as the
parties may mutually agree upon.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Valuation Date" shall have the meaning set forth in Section 2.2 of this
Agreement.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all
of the assets of Selling Fund shall be delivered to Buyer Custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of all of
the Liabilities of Selling Fund and delivery by Buyer directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund Shares, and
the value of the assets and the amount of the Liabilities of Selling Fund,
shall, in each case, be determined as of the close of regular trading on the
NYSE on the business day next preceding the Closing Date (the "Valuation Date").
(b) The net asset value per share of each class of Buying Fund Shares shall
be computed in accordance with the policies and procedures of Buying Fund as
described in the Buyer Registration Statement.
(c) The value of the assets and the amount of the Liabilities of Selling
Fund to be transferred to Buying Fund pursuant to this Agreement shall be
computed in accordance with the policies and procedures of Selling Fund as
described in the Seller Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of value
regarding the assets and Liabilities of Selling Fund and the net asset value per
share of each class of Buying Fund Shares to be issued pursuant to this
Agreement shall be made by agreement of Seller and Buyer. The parties agree to
use commercially reasonable efforts to resolve any material pricing differences
between the prices of portfolio securities determined in accordance with their
respective pricing policies and procedures.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund
will be permanently closed as of the close of business on the Valuation Date and
only requests for the redemption of shares of Selling Fund received in proper
form prior to the close of regular trading on the NYSE on the Valuation Date
shall be accepted by Selling Fund. Redemption requests thereafter received by
Selling Fund shall be
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deemed to be redemption requests for Buying Fund Shares of the corresponding
class (assuming that the transactions contemplated by this Agreement have been
consummated), to be distributed to Selling Fund Shareholders under this
Agreement.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing Date,
Seller shall instruct Seller Custodian to transfer all assets held by Selling
Fund to the account of Buying Fund maintained at Buyer Custodian. Such assets
shall be delivered by Seller to Buyer Custodian on the Closing Date. The assets
so delivered shall be duly endorsed in proper form for transfer in such
condition as to constitute a good delivery thereof, in accordance with the
custom of brokers, and shall be accompanied by all necessary state stock
transfer stamps, if any, or a check for the appropriate purchase price thereof.
Cash held by Selling Fund shall be delivered on the Closing Date and shall be in
the form of currency or wire transfer in Federal funds, payable to the order of
the account of Buying Fund at Buyer Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make delivery in the
manner contemplated by Section 2.4(a) of securities held by Selling Fund for the
reason that any of such securities purchased prior to the Closing Date have not
yet been delivered to Selling Fund or its broker, then Buyer shall waive the
delivery requirements of Section 2.4(a) with respect to said undelivered
securities if Selling Fund has delivered to Buyer Custodian by or on the Closing
Date, and with respect to said undelivered securities, executed copies of an
agreement of assignment and escrow and due bills executed on behalf of said
broker or brokers, together with such other documents as may be required by
Buyer or Buyer Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series and Redemption of Selling Fund
Shares. Following receipt of the Required Shareholder Vote and as soon as
reasonably practicable after the Closing Date, the status of Selling Fund as a
designated series of Seller shall be terminated and Seller shall redeem the
outstanding shares of Selling Fund from Selling Fund Shareholders in accordance
with its Charter and the Maryland General Corporation Law; provided, however,
that the termination of Selling Fund as a designated series of Seller and the
redemption of the outstanding shares of Selling Fund shall not be required if
the Reorganization shall not have been consummated.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date. All issued and outstanding shares of Selling Fund shall thereupon be
canceled on the books of Seller. Seller shall provide instructions to the
transfer agent of Buyer with respect to the shares of each class of Buying Fund
to be issued to Selling Fund Shareholders. Buyer shall have no obligation to
inquire as to the validity, propriety or correctness of any such instruction,
but shall, in each case, assume that such instruction is valid, proper and
correct. Buyer shall record on its books the ownership of the shares of each
class of Buying Fund by Selling Fund Shareholders and shall forward a
confirmation of such ownership to Selling Fund Shareholders. No redemption or
repurchase of such shares credited to former Selling Fund Shareholders in
respect of Selling Fund Shares represented by unsurrendered share certificates
shall be permitted until such certificates have been surrendered to Buyer for
cancellation, or if such certificates are lost or misplaced, until lost
certificate affidavits have been executed and delivered to Buyer.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Seller shall deliver a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases thereof and holding
periods therefor. Seller shall provide to Buyer on or before the Valuation Date
detailed tax basis accounting records for each security to be transferred to it
pursuant to this Agreement. Such records shall be prepared in accordance with
the requirements for specific identification tax lot accounting and clearly
reflect the bases used for determination of gain and loss realized on the sale
of any security transferred to Buying Fund hereunder. Such records shall be made
available by Seller prior to the Valuation Date for inspection by the Treasurer
(or his or her designee) or the auditors of Buyer upon reasonable request.
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SECTION 2.8. Liabilities. Selling Fund shall use reasonable best efforts
to discharge all of its known liabilities, so far as may be possible, prior to
the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, on behalf of Selling Fund, represents and warrants to Buyer as
follows:
SECTION 3.1. Organization; Authority. Seller is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 3.2. Registration and Regulation of Seller. Seller is duly
registered with the SEC as an investment company under the Investment Company
Act and all Selling Fund Shares which have been or are being offered for sale
have been duly registered under the Securities Act and have been duly
registered, qualified or are exempt from registration or qualification under the
securities laws of each state or other jurisdiction in which such shares have
been or are being offered for sale, and no action has been taken by Seller to
revoke or rescind any such registration or qualification. Selling Fund is in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Selling Fund is in compliance in all material respects with the investment
policies and restrictions applicable to it set forth in the Seller Registration
Statement. The value of the net assets of Selling Fund is determined using
portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Selling Fund and
all purchases and redemptions of Selling Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 3.3. Financial Statements. The books of account and related
records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Selling Fund Financial
Statements previously delivered to Buyer present fairly in all material respects
the financial position of Selling Fund as of the date(s) indicated and the
results of operations and changes in net assets for the period(s) then ended in
accordance with generally accepted accounting principles applied on a consistent
basis for the period(s) then ended.
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Selling Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Selling
Fund or the status of Selling Fund as a regulated investment company under the
Code, other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Selling Fund or occurring in the ordinary course of business of Selling Fund or
Seller. Except as set forth on Schedule 3.4, there are no contingent liabilities
of Selling Fund not disclosed in the Selling Fund Financial Statements and no
contingent liabilities of Selling Fund have arisen since the date of the most
recent financial statements included in the Selling Fund Financial Statements.
SECTION 3.5. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly issued and
are fully paid and non-assessable.
(b) During the five-year period ending on the date of the Reorganization,
neither Selling Fund nor any person related to Selling Fund (as defined in
Section 1.368-1(e)(3) of the Treasury Regulations without regard to Section
1.368-1(e)(3)(i)(A)) will have directly or through any transaction, agreement,
or arrangement with any other person, (i) acquired shares of Selling Fund for
consideration other than shares of Selling Fund, except for shares redeemed in
the ordinary course of Selling Fund's business as an open-end investment company
as required by the Investment Company Act, or (ii) made distributions with
respect to Selling Fund's shares, except for (a) distributions necessary to
satisfy the requirements of
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Sections 852 and 4982 of the Code for qualification as a regulated investment
company and avoidance of excise tax liability and (b) additional distributions,
to the extent such additional distributions do not exceed 50 percent of the
value (without giving effect to such distributions) of the proprietary interest
in Selling Fund on the Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Selling Fund Shares, except for
the right of investors to acquire Selling Fund Shares at net asset value in the
normal course of its business as a series of an open-end management investment
company operating under the Investment Company Act.
(d) From the date it commenced operations and ending on the Closing Date,
Selling Fund will have conducted its historic business within the meaning of
Section 1.368-1(d)(2) of the Treasury Regulations in a substantially unchanged
manner. In anticipation of its Reorganization, Selling Fund will not dispose of
assets that, in the aggregate, will result in less than fifty percent (50%) of
its historic business assets (within the meaning of Section 1.368-1(d)(3) of the
Treasury Regulations) being transferred to Buying Fund; provided, however, that
this Section 3.5(d) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(e) Seller does not have, and has not had during the six (6) months prior
to the date of this Agreement, any employees, and shall not hire any employees
from and after the date of this Agreement through the Closing Date.
SECTION 3.6. Accountants. Selling Fund Auditors, which have reported upon
the Selling Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Selling Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 3.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Seller on behalf of Selling Fund and, assuming this
Agreement has been duly executed and delivered by Buyer and approved by the
shareholders of Selling Fund, constitutes the legal, valid and binding
obligation of Seller enforceable against Seller in accordance with its terms
from and with respect to the revenues and assets of Selling Fund, except as the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization
or similar laws relating to or affecting creditors rights generally, or by
general equity principles (whether applied in a court of law or a court of
equity and including limitations on the availability of specific performance or
other equitable remedies).
SECTION 3.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Seller on behalf of Selling Fund and performance by Seller of its
obligations hereunder has been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Seller, other than approval by the
shareholders of Selling Fund, and (i) do not, and on the Closing Date will not,
result in any violation of the Governing Documents of Seller and (ii) do not,
and on the Closing Date will not, result in a breach of any of the terms or
provisions of, or constitute (with or without the giving of notice or the lapse
of time or both) a default under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation or imposition of any Lien upon any
property or assets of Selling Fund (except for such breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect) under (A) any indenture, mortgage or loan
agreement or any other material agreement or instrument to which Seller is a
party or by which it may be bound and which relates to the assets of Selling
Fund or to which any property of Selling Fund may be subject; (B) any Permit (as
defined below); or (C) any existing applicable law, rule, regulation, judgment,
order or decree of any Governmental Authority having jurisdiction over Seller or
any property of Selling Fund. Seller is not under the jurisdiction of a court in
a proceeding under Title 11 of the United States Code or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
SECTION 3.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date and those that must
be made after the Closing Date to comply with
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Section 2.5 of this Agreement, no authorization or approval or other action by,
and no notice to or filing with, any Governmental Authority will be required to
be obtained or made by Seller in connection with the due execution and delivery
by Seller of this Agreement and the consummation by Seller of the transactions
contemplated hereby.
SECTION 3.10. Permits. Seller has in full force and effect all approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights of Governmental Authorities (collectively, "Permits")
necessary for it to conduct its business as presently conducted as it relates to
Selling Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Seller there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Seller, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Seller before any Governmental Authority which
questions the validity or legality of this Agreement or of the actions
contemplated hereby or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Seller, threatened in
writing or, if probable of assertion, orally, against Seller affecting any
property, asset, interest or right of Selling Fund, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Selling Fund. There are not in existence on the date hereof any
plea agreements, judgments, injunctions, consents, decrees, exceptions or orders
that were entered by, filed with or issued by any Governmental Authority
relating to Seller's conduct of the business of Selling Fund affecting in any
significant respect the conduct of such business. Seller is not, and has not
been, to the knowledge of Seller, the target of any investigation by the SEC or
any state securities administrator with respect to its conduct of the business
of Selling Fund.
SECTION 3.12. Contracts. Seller is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party and which involves or affects the assets of Selling Fund,
by which the assets, business, or operations of Selling Fund may be bound or
affected, or under which it or the assets, business or operations of Selling
Fund receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of Seller there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
SECTION 3.13. Properties and Assets. Selling Fund has good and marketable
title to all properties and assets reflected in the Selling Fund Financial
Statements as owned by it, free and clear of all Liens, except as described in
the Selling Fund Financial Statements.
SECTION 3.14. Taxes.
(a) Selling Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Selling Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will have satisfied the requirements of Part
I of Subchapter M of the Code to maintain such qualification for the period
beginning on the first day of its current taxable year and ending on the Closing
Date. Selling Fund has no earnings and profits accumulated in any taxable year
in which the provisions of Subchapter M of the Code did not apply to it. In
order to (i) ensure continued qualification of Selling Fund for treatment as a
"regulated investment company" for tax purposes and (ii) eliminate any tax
liability of Selling Fund arising by reason of undistributed investment company
taxable income or net capital gain, Seller will declare on or prior to the
Valuation Date to the shareholders of Selling Fund a dividend or dividends that,
together with all previous such dividends, shall have the
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effect of distributing (A) all of Selling Fund's investment company taxable
income (determined without regard to any deductions for dividends paid) for the
taxable year ended July 31, 2003 and for the short taxable year beginning on
August 1, 2003 and ending on the Closing Date and (B) all of Selling Fund's net
capital gain recognized in its taxable year ended July 31, 2003 and in such
short taxable year (after reduction for any capital loss carryover).
(b) Selling Fund has timely filed all Returns required to be filed by it
and all Taxes with respect thereto have been paid, except where the failure so
to file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Selling Fund Financial Statements for all Taxes in respect of all periods
ended on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Selling Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Selling Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 3.15. Benefit and Employment Obligations. As of the Closing Date,
Selling Fund will have no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to under any
Benefit Plan, and will have no obligation to provide unfunded deferred
compensation or other unfunded or self-funded benefits to any Person.
SECTION 3.16. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Seller in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Seller or any action taken by it.
SECTION 3.17. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Agreement.
SECTION 3.18. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Agreement or
any of the transactions contemplated by this Agreement.
SECTION 3.19. Books and Records. The books and records of Seller relating
to Selling Fund, reflecting, among other things, the purchase and sale of
Selling Fund Shares, the number of issued and outstanding shares owned by each
Selling Fund Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
SECTION 3.20. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.21. No Distribution. Buying Fund Shares are not being acquired
for the purpose of any distribution thereof, other than in accordance with the
terms of this Agreement.
SECTION 3.22. Liabilities of Selling Fund. The Liabilities of Selling
Fund that are to be assumed by Buying Fund in connection with the
Reorganization, or to which the assets of Selling Fund to be transferred in the
Reorganization are subject, were incurred by Selling Fund in the ordinary course
of its business. The fair market value of the assets of Selling Fund to be
transferred to Buying Fund in the Reorganization will equal or exceed the sum of
the Liabilities to be assumed by Buying Fund, plus the amount of liabilities, if
any, to which such transferred assets will be subject. The total adjusted basis
of the assets of Selling Fund to be transferred to Buying Fund in the
Reorganization will equal or exceed the
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sum of the Liabilities to be assumed by Buying Fund, plus the amount of
liabilities, if any, to which such transferred assets will be subject.
SECTION 3.23. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 3.24. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
SECTION 3.25. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, on behalf of Buying Fund, represents and warrants to Seller as
follows:
SECTION 4.1. Organization; Authority. Buyer is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 4.2. Registration and Regulation of Buyer. Buyer is duly
registered with the SEC as an investment company under the Investment Company
Act. Buying Fund is in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, the Investment
Company Act, the Securities Act, the Exchange Act and all applicable state
securities laws. Buying Fund is in compliance in all material respects with the
applicable investment policies and restrictions set forth in the Buyer
Registration Statement. The value of the net assets of Buying Fund is determined
using portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Buying Fund and
all purchases and redemptions of Buying Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 4.3. Financial Statements. The books of account and related
records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Buying Fund Financial
Statements previously delivered to Seller present fairly in all material
respects the financial position of Buying Fund as of the date(s) indicated and
the results of operations and changes in net assets for the period(s) then ended
in accordance with generally accepted accounting principles applied on a
consistent basis for the period(s) then ended.
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Buying Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Buying Fund
or the status of Buying Fund as a regulated investment company under the Code,
other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Buying Fund or occurring in the ordinary course of business of Buying Fund or
Buyer. There are no contingent liabilities of Buying Fund not disclosed in the
Buying Fund Financial Statements which are required to be disclosed in
accordance with generally accepted accounting principles. Except as set forth on
Schedule 4.4, no contingent liabilities of Buying Fund have arisen since the
date of the most recent financial statements included in the Buying Fund
Financial Statements which are required to be disclosed in accordance with
generally accepted accounting principles.
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SECTION 4.5. Registration of Buying Fund Shares.
(a) The shares of Buyer are divided into those portfolios, including Buying
Fund, that are set forth on Schedule 4.5(a).
(b) Buying Fund currently has those classes of shares that are set forth on
Schedule 4.5(b). Under its Governing Documents, Buyer is authorized to issue the
number of shares of each such class that is set forth on Schedule 4.5(b).
(c) Buying Fund Shares to be issued pursuant to Section 2.6 shall on the
Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of Buyer then in effect.
(d) Buying Fund Shares to be issued pursuant to Section 2.6 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(e) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of Buyer's Registration Statement on
Form N-14, shall be furnished to the shareholders of Selling Fund entitled to
vote at the Shareholders Meeting. The Combined Proxy Statement/Prospectus and
related Statement of Additional Information of Buying Fund, when they become
effective, shall conform to the applicable requirements of the Securities Act
and the Investment Company Act and shall not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading, provided, however, that no
representation or warranty is made with respect to written information provided
by Seller for inclusion in the Combined Proxy Statement/Prospectus.
(f) The shares of Buying Fund which have been or are being offered for sale
(other than the Buying Fund Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the Buyer
Registration Statement and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Buyer to revoke or rescind any such registration
or qualification.
SECTION 4.6. Accountants. Buying Fund Auditors, which have reported upon
the Buying Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Buying Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 4.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Buyer on behalf of Buying Fund and, assuming this
Agreement has been duly executed and delivered by Seller, constitutes the legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms from and with respect to the revenues and assets of Buying Fund,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors' rights
generally, or by general equity principles (whether applied in a court or law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 4.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Buyer on behalf of Buying Fund and performance by Buyer of its
obligations hereunder have been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Buyer and (i) do not, and on the
Closing Date will not, result in any violation of the Governing Documents of
Buyer and (ii) do not, and on the Closing Date will not, result in a breach of
any of the terms or provisions of, or constitute (with or
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without the giving of notice or the lapse of time or both) a default under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
or imposition of any Lien upon any property or assets of Buying Fund (except for
such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Buyer is a party or by which it may be bound and which
relates to the assets of Buying Fund or to which any properties of Buying Fund
may be subject; (B) any Permit; or (C) any existing applicable law, rule,
regulation, judgment, order or decree of any Governmental Authority having
jurisdiction over Buyer or any property of Buying Fund. Buyer is not under the
jurisdiction of a court in a proceeding under Title 11 of the United States Code
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
SECTION 4.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date, no authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority will be required to be obtained or made by Buyer in connection with
the due execution and delivery by Buyer of this Agreement and the consummation
by Buyer of the transactions contemplated hereby.
SECTION 4.10. Permits. Buyer has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Buying Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Buyer there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 4.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Buyer, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Buyer before any Governmental Authority which
questions the validity or legality of this Agreement or of the transactions
contemplated hereby, or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Buyer, threatened in
writing or, if probable of assertion, orally, against Buyer, affecting any
property, asset, interest or right of Buying Fund, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Buying Fund. There are not in existence on the date hereof any
plea agreements, judgments, injunctions, consents, decrees, exceptions or orders
that were entered by, filed with or issued by any Governmental Authority
relating to Buyer's conduct of the business of Buying Fund affecting in any
significant respect the conduct of such business. Buyer is not, and has not
been, to the knowledge of Buyer, the target of any investigation by the SEC or
any state securities administrator with respect to its conduct of the business
of Buying Fund.
SECTION 4.12. Taxes.
(a) Buying Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Buying Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will satisfy the requirements of Part I of
Subchapter M of the Code to maintain such qualification for its current taxable
year. Buying Fund has no earnings or profits accumulated in any taxable year in
which the provisions of Subchapter M of the Code did not apply to it.
(b) Buying Fund has timely filed all Returns required to be filed by it and
all Taxes with respect thereto have been paid, except where the failure so to
file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Buying Fund Financial Statements for all Taxes in respect of all periods
ending on or before the date
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of such financial statements, except where the failure to make such provisions
would not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect. No deficiencies for any Taxes have been proposed,
assessed or asserted in writing by any taxing authority against Buying Fund, and
no deficiency has been proposed, assessed or asserted, in writing, where such
deficiency would reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect. No waivers of the time to assess any such Taxes
are outstanding nor are any written requests for such waivers pending and no
Return of Buying Fund is currently being or has been audited with respect to
income taxes or other Taxes by any Federal, state, local or foreign Tax
authority.
SECTION 4.13. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Buyer in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Buyer or any action taken by it.
SECTION 4.14. Representations Concerning the Reorganization.
(a) Buyer has no plan or intention to reacquire any Buying Fund Shares
issued in the Reorganization, except to the extent that Buying Fund is required
by the Investment Company Act to redeem any of its shares presented for
redemption at net asset value in the ordinary course of its business as an
open-end, management investment company.
(b) Buying Fund has no plan or intention to sell or otherwise dispose of
any of the assets of Selling Fund acquired in the Reorganization, other than in
the ordinary course of its business and to the extent necessary to maintain its
status as a "regulated investment company" under the Code; provided, however,
that this Section 4.14(b) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(c) Following the Reorganization, Buying Fund will continue an "historic
business" of Selling Fund or use a significant portion of Selling Fund's
"historic business assets" in a business. For purposes of this representation,
the terms "historic business" and "historic business assets" shall have the
meanings ascribed to them in Section 1.368-1(d) of the Treasury Regulations;
provided, however, that this Section 4.14(c) shall not preclude any of the
restructurings or redomestications of funds set forth on Schedule 3.5(d).
(d) Prior to or in the Reorganization, neither Buying Fund nor any person
related to Buying Fund (for purposes of this paragraph as defined in Section
1.368-1(e)(3) of the Treasury Regulations) will have acquired directly or
through any transaction, agreement or arrangement with any other person, shares
of Selling Fund with consideration other than shares of Buying Fund. There is no
plan or intention by Buying Fund or any person related to Buying Fund to acquire
or redeem any of the Buying Fund Shares issued in the Reorganization either
directly or through any transaction, agreement, or arrangement with any other
person, other than redemptions in the ordinary course of Buying Fund's business
as an open-end investment company as required by the Investment Company Act.
SECTION 4.15. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 4.16. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 4.17. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration
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other than Buying Fund Shares (and Buying Fund's assumption of Selling Fund's
Liabilities, including for this purpose any liabilities to which the assets of
Selling Fund are subject) will be given in exchange for the assets of Selling
Fund acquired by Buying Fund in connection with the Reorganization. The fair
market value of the assets of Selling Fund transferred to Buying Fund in the
Reorganization will equal or exceed the sum of the Liabilities assumed by Buying
Fund, plus the amount of liabilities, if any, to which such transferred assets
are subject.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Seller shall conduct the business of Selling Fund only in the
ordinary course and substantially in accordance with past practices, and shall
use its reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Selling Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(a) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
(b) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Buyer shall conduct the business of Buying Fund only in the ordinary
course and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Buying Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(b) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
SECTION 5.2. Announcements. Seller and Buyer shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement and the transactions contemplated by this
Agreement, and neither Seller nor Buyer shall issue any such press release or
make any public statement without the prior written approval of the other party
to this Agreement, such approval not to be unreasonably withheld, except as may
be required by law.
SECTION 5.3. Expenses. AMVESCAP PLC, on behalf of either Buyer Investment
Adviser or Seller Investment Adviser, shall bear the costs and expenses incurred
in connection with this Agreement and the Reorganization and other transactions
contemplated hereby; provided that any such expenses incurred by or on behalf of
Buying Fund or Selling Fund shall not be reimbursed or paid for by another
Person unless those expenses are solely and directly related to the
Reorganization.
SECTION 5.4. Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
SECTION 5.5. Notice of Events. Buyer shall give prompt notice to Seller,
and Seller shall give prompt notice to Buyer, of (a) the occurrence or
non-occurrence of any event which to the knowledge of Buyer or to the knowledge
of Seller, the occurrence or non-occurrence of which would be likely to result
in any of the conditions specified in (i) in the case of Seller, Sections 6.1
and 6.2 or (ii) in the case of Buyer, Sections 6.2 and 6.3, not being satisfied
so as to permit the consummation of the Reorganization and (b) any material
failure on its part, or on the part of the other party hereto of which it has
knowledge,
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to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.5 shall not limit or otherwise affect the
remedies available hereunder to any party.
SECTION 5.6. Access to Information.
(a) Seller will, during regular business hours and on reasonable prior
notice, allow Buyer and its authorized representatives reasonable access to the
books and records of Seller pertaining to the assets of Selling Fund and to
officers of Seller knowledgeable thereof; provided, however, that any such
access shall not significantly interfere with the business or operations of
Seller.
(b) Buyer will, during regular business hours and on reasonable prior
notice, allow Seller and its authorized representatives reasonable access to the
books and records of Buyer pertaining to the assets of Buying Fund and to
officers of Buyer knowledgeable thereof; provided, however, that any such access
shall not significantly interfere with the business or operations of Buyer.
SECTION 5.7. Consents, Approvals and Filings. Each of Seller and Buyer
shall make all necessary filings, as soon as reasonably practicable, including,
without limitation, those required under the Maryland General Corporation Law,
the Securities Act, the Exchange Act, the Investment Company Act and the
Advisers Act, in order to facilitate prompt consummation of the Reorganization
and the other transactions contemplated by this Agreement. In addition, each of
Seller and Buyer shall use its reasonable best efforts, and shall cooperate
fully with each other (i) to comply as promptly as reasonably practicable with
all requirements of Governmental Authorities applicable to the Reorganization
and the other transactions contemplated herein and (ii) to obtain as promptly as
reasonably practicable all necessary permits, orders or other consents of
Governmental Authorities and consents of all third parties necessary for the
consummation of the Reorganization and the other transactions contemplated
herein. Each of Seller and Buyer shall use reasonable efforts to provide such
information and communications to Governmental Authorities as such Governmental
Authorities may request.
SECTION 5.8. Submission of Agreement to Shareholders. Seller shall take
all action necessary in accordance with applicable law and its Governing
Documents to convene the Shareholders Meeting. Seller shall, through its Board
of Directors/Trustees, recommend to the shareholders of Selling Fund approval of
this Agreement. Seller shall use its reasonable best efforts to hold a
Shareholders Meeting as soon as practicable after the date hereof.
SECTION 5.9. Delay of Consummation of Reorganization. The parties
acknowledge and agree that if the Exchangeability Date has not occurred prior to
the Closing Date, consummation of the Reorganization shall not occur on the
Closing Date but instead shall be postponed until a mutually acceptable date
occurring subsequent to the Exchangeability Date; provided, however, that in no
event shall the consummation of the Reorganization occur on a date subsequent to
the Termination Date. In the case of such postponement of the consummation of
the Reorganization, the parties agree that the term "Closing Date" in this
Agreement shall mean in each instance such mutually acceptable date subsequent
to the Exchangeability Date as the parties may choose to consummate the
Reorganization.
ARTICLE 6
CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Conditions Precedent of Buyer. The obligation of Buyer to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Buyer.
(a) The representations and warranties of Seller on behalf of Selling Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
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(b) Seller shall have complied with and satisfied in all material respects
all agreements and conditions relating to Selling Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Buyer shall have received at the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Seller, in such individual's capacity
as an officer of Seller and not as an individual, to the effect that the
conditions specified in Sections 6.1(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Seller certifying as to the accuracy and completeness of the
attached Governing Documents of Seller, and resolutions, consents and
authorizations of or regarding Seller with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
(d) The dividend or dividends described in the last sentence of Section
3.14(a) shall have been declared.
(e) Buyer shall have received from Seller confirmations or other adequate
evidence as to the tax costs and holding periods of the assets and property of
Selling Fund transferred to Buying Fund in accordance with the terms of this
Agreement.
(f) To the extent applicable, Seller Investment Adviser shall have
terminated or waived, in either case in writing, any rights to reimbursement
from Selling Fund to which it is entitled for fees and expenses absorbed by
Seller Investment Adviser pursuant to voluntary and contractual fee waiver or
expense limitation commitments between Seller Investment Adviser and Selling
Fund.
SECTION 6.2. Mutual Conditions. The obligations of Seller and Buyer to
consummate the Reorganization are subject to the satisfaction, at or prior to
the Closing Date, of all of the following further conditions, any one or more of
which may be waived in writing by Seller and Buyer, but only if and to the
extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing Date with, and all
consents, approvals, permits and authorizations required to be obtained on or
prior to the Closing Date from Governmental Authorities in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein by Seller and Buyer shall have been made or
obtained, as the case may be; provided, however, that such consents, approvals,
permits and authorizations may be subject to conditions that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
(b) This Agreement, the Reorganization of Selling Fund and related matters
shall have been approved and adopted at the Shareholders Meeting by the
shareholders of Selling Fund on the record date by the Required Shareholder
Vote.
(c) The assets of Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.2(c),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Agreement and the Reorganization and to effect all shareholder redemptions
and distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Agreement shall be included as assets of Selling
Fund held immediately prior to the Reorganization.
(d) No temporary restraining order, preliminary or permanent injunction or
other order issued by any Governmental Authority preventing the consummation of
the Reorganization on the Closing Date shall be in effect; provided, however,
that the party or parties invoking this condition shall use reasonable efforts
to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by Buyer with respect to
Buying Fund Shares to be issued to Selling Fund Shareholders in connection with
the Reorganization shall have become effective
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under the Securities Act and no stop order suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the Securities Act.
(f) Seller and Buyer shall have received on or before the Closing Date an
opinion of Buyer Counsel in form and substance reasonably acceptable to Seller
and Buyer, as to the matters set forth on Schedule 6.2(f). In rendering such
opinion, Buyer Counsel may request and rely upon representations contained in
certificates of officers of Seller, Buyer and others, and the officers of Seller
and Buyer shall use their best efforts to make available such truthful
certificates.
SECTION 6.3. Conditions Precedent of Seller. The obligation of Seller to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Seller.
(a) The representations and warranties of Buyer on behalf of Buying Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
(b) Buyer shall have complied with and satisfied in all material respects
all agreements and conditions relating to Buying Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Seller shall have received on the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Buyer, in such individual's capacity
as an officer of Buyer and not as an individual, to the effect that the
conditions specified in Sections 6.3(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Buyer certifying as to the accuracy and completeness of the
attached Governing Documents of Buyer and resolutions, consents and
authorizations of or regarding Buyer with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
ARTICLE 7
TERMINATION OF AGREEMENT
SECTION 7.1. Termination. This Agreement may be terminated on or prior to
the Closing Date as follows:
(a) by mutual written consent of Seller and Buyer; or
(b) at the election of Seller or Buyer, to be effectuated by the delivery
by the terminating party to the other party of a written notice of such
termination:
(i) if the Closing Date shall not be on or before the Termination
Date, unless the failure to consummate the Reorganization is the result of
a willful and material breach of this Agreement by the party seeking to
terminate this Agreement;
(ii) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been
obtained as contemplated by Section 5.8; or
(iii) if any Governmental Authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Reorganization and such order, decree, ruling or
other action shall have become final and nonappealable.
SECTION 7.2. Survival After Termination. If this Agreement is terminated
in accordance with Section 7.1 hereof and the Reorganization of Selling Fund is
not consummated, this Agreement shall become void and of no further force and
effect with respect to the Reorganization and Selling Fund, except for the
provisions of Section 5.3.
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ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Agreement, and the covenants in this
Agreement that are required to be performed at or prior to the Closing Date,
shall terminate upon the consummation of the transactions contemplated
hereunder. The covenants in this Agreement that are required to be performed in
whole or in part subsequent to the Closing Date shall survive the consummation
of the transactions contemplated hereunder for a period of one (1) year
following the Closing Date.
SECTION 8.2. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such Persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or Person other than the parties hereto and their respective successors
and permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof. Without the prior written consent of the parties
hereto, this Agreement may not be assigned by any of the parties hereto.
SECTION 8.4. Obligations of Buyer and Seller.
(a) Seller and Buyer hereby acknowledge and agree that Buying Fund is a
separate investment portfolio of Buyer, that Buyer is executing this Agreement
on behalf of Buying Fund, and that any amounts payable by Buyer under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Buying Fund. Seller further acknowledges and agrees that this
Agreement has been executed by a duly authorized officer of Buyer in his or her
capacity as an officer of Buyer intending to bind Buyer as provided herein, and
that no officer, trustee or shareholder of Buyer shall be personally liable for
the liabilities or obligations of Buyer incurred hereunder. Finally, Seller
acknowledges and agrees that the liabilities and obligations of Buying Fund
pursuant to this Agreement shall be enforceable against the assets of Buying
Fund only and not against the assets of Buyer generally or assets belonging to
any other series of Buyer.
(b) Seller and Buyer hereby acknowledge and agree that Selling Fund is a
separate investment portfolio of Seller, that Seller is executing this Agreement
on behalf of Selling Fund and that any amounts payable by Seller under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Selling Fund.
SECTION 8.5. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by Seller and Buyer.
SECTION 8.6. Enforcement. The parties agree irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state having jurisdiction, in addition to any other remedy to which they are
entitled at law or in equity.
SECTION 8.7. Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or a Schedule to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." Each representation and warranty contained in Article 3 or 4 that
relates to a general category of a subject matter shall be deemed superseded by
a specific representation and warranty relating to a subcategory thereof to the
extent of such specific representation or warranty.
I-18
SECTION 8.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
SECTION 8.9. Entire Agreement; Exhibits and Schedules. This Agreement,
including the Exhibits, Schedules, certificates and lists referred to herein,
and any documents executed by the parties simultaneously herewith or pursuant
thereto, constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, written or oral, between the parties with respect
to such subject matter.
SECTION 8.10. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or by overnight courier, two days after being
sent by registered mail, return receipt requested, or when sent by telecopier
(with receipt confirmed), provided, in the case of a telecopied notice, a copy
is also sent by registered mail, return receipt requested, or by courier,
addressed as follows (or to such other address as a party may designate by
notice to the other):
(a) If to Seller:
INVESCO Stock Funds, Inc.
4350 South Monaco Street
Denver, CO 80237
Attn: Glen A. Payne
with a copy to:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., N.W.
Second Floor
Washington, DC 20036-1800
Attn: Clifford J. Alexander
(b) If to Buyer:
AIM Equity Funds
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Attn: Kevin M. Carome
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attn: Martha J. Hays
SECTION 8.11. Representations by Seller Investment Adviser. In its
capacity as investment adviser to Seller, Seller Investment Adviser represents
to Buyer that to the best of its knowledge the representations and warranties of
Seller and Selling Fund contained in this Agreement are true and correct as of
the date of this Agreement. For purposes of this Section 8.11, the best
knowledge standard shall be deemed to mean that the officers of Seller
Investment Adviser who have substantive responsibility for the provision of
investment advisory services to Seller do not have actual knowledge to the
contrary after due inquiry.
SECTION 8.12. Representations by Buyer Investment Adviser. In its
capacity as investment adviser to Buyer, Buyer Investment Adviser represents to
Seller that to the best of its knowledge the representations and warranties of
Buyer and Buying Fund contained in this Agreement are true and correct as of the
date of this Agreement. For purposes of this Section 8.12, the best knowledge
standard shall be deemed to mean that the officers of Buyer Investment Adviser
who have substantive responsibility for the provision of investment advisory
services to Buyer do not have actual knowledge to the contrary after due
inquiry.
I-19
SECTION 8.13. Successors and Assigns; Assignment. This Agreement shall be
binding upon and inure to the benefit of Seller, on behalf of Selling Fund, and
Buyer, on behalf of Buying Fund, and their respective successors and assigns.
The parties hereto expressly acknowledge and agree that this Agreement shall be
binding upon and inure to the benefit of those Delaware statutory trusts that
are the resulting entities in the permitted restructurings and redomestications
of funds set forth on Schedule 3.5(d).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
INVESCO STOCK FUNDS, INC., acting on
behalf of
INVESCO GROWTH & INCOME FUND
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
AIM EQUITY FUNDS, acting on behalf of
AIM BLUE CHIP FUND
By: /s/ ROBERT H. GRAHAM
------------------------------------
A I M ADVISORS, INC.
By: /s/ MARK H. WILLIAMSON
------------------------------------
INVESCO FUNDS GROUP, INC.
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
I-20
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
SCHEDULE 2.1
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF SHARES OF SELLING FUND SHARES OF BUYING FUND
- --------------------------------- ------------------------
Class A shares.............................................. Class A shares
Class B shares.............................................. Class B shares
Class C shares.............................................. Class C shares
Class K shares.............................................. Class A shares
Investor Class shares....................................... Investor Class shares
</Table>
SCHEDULE 3.4
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
SCHEDULE 3.5(d)
PERMITTED RESTRUCTURINGS AND REDOMESTICATIONS OF FUNDS
<Table>
<Caption>
CURRENT FUNDS CORRESPONDING NEW FUNDS
- ------------- -----------------------
AIM ADVISOR FUNDS................................ AIM INVESTMENT SECURITIES FUNDS
(DELAWARE STATUTORY TRUST) (DELAWARE STATUTORY TRUST)
AIM International Core Equity Fund............... AIM International Core Equity Fund
AIM Real Estate Fund............................. AIM Real Estate Fund
AIM INTERNATIONAL FUNDS, INC. ................... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
AIM European Growth Fund......................... AIM European Growth Fund
INVESCO BOND FUNDS, INC. ........................ AIM BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO High Yield Fund.......................... INVESCO High Yield Fund
INVESCO Select Income Fund....................... INVESCO Select Income Fund
INVESCO Tax-Free Bond Fund....................... INVESCO Tax-Free Bond Fund
INVESCO U.S. Government Securities Fund.......... INVESCO U.S. Government Securities Fund
INVESCO COMBINATION STOCK & BOND FUNDS, INC...... AIM COMBINATION STOCK & BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Balanced Fund............................ INVESCO Balanced Fund
INVESCO Total Return Fund........................ INVESCO Total Return Fund
INVESCO COUNSELOR SERIES FUNDS, INC. ............ AIM COUNSELOR SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Advantage Fund........................... INVESCO Advantage Fund
INVESCO INTERNATIONAL FUNDS, INC. ............... AIM/AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO European Fund............................ INVESCO European Fund
INVESCO International Blue Chip Value Fund....... INVESCO International Blue Chip Value Fund
INVESCO MONEY MARKET FUNDS, INC. ................ AIM TREASURER'S SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Cash Reserves Fund....................... INVESCO Cash Reserves Fund
INVESCO Tax-Free Money Fund...................... INVESCO Tax-Free Money Fund
INVESCO SECTOR FUNDS, INC. ...................... AIM SECTOR FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Energy Fund.............................. INVESCO Energy Fund
INVESCO Financial Services Fund.................. INVESCO Financial Services Fund
INVESCO Real Estate Opportunity Fund............. INVESCO Real Estate Opportunity Fund
INVESCO Technology Fund.......................... INVESCO Technology Fund
INVESCO Telecommunications Fund.................. INVESCO Telecommunications Fund
INVESCO Utilities Fund........................... INVESCO Utilities Fund
INVESCO STOCK FUNDS, INC......................... AIM STOCK FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Growth Fund.............................. INVESCO Growth Fund
INVESCO Growth & Income Fund..................... INVESCO Growth & Income Fund
INVESCO Value Equity Fund........................ INVESCO Value Equity Fund
</Table>
SCHEDULE 4.4
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
SCHEDULE 4.5(a)
PORTFOLIOS OF BUYER
AIM Aggressive Growth Fund
AIM Basic Value II Fund
AIM Blue Chip Fund
AIM Capital Development Fund
AIM Charter Fund
AIM Constellation Fund
AIM Core Strategies Fund
AIM Dent Demographic Trends Fund
AIM Diversified Dividend Fund
AIM Emerging Growth Fund
AIM Large Cap Basic Value Fund
AIM Large Cap Growth Fund
AIM Mid Cap Growth Fund
AIM U.S. Growth Fund
AIM Weingarten Fund
SCHEDULE 4.5(b)
<Table>
<Caption>
NUMBER OF SHARES OF EACH CLASS
CLASSES OF SHARES OF BUYING FUND BUYER IS AUTHORIZED TO ISSUE
- -------------------------------- ------------------------------
Class A shares.............................................. Unlimited
Class B shares.............................................. Unlimited
Class C shares.............................................. Unlimited
Class R shares.............................................. Unlimited
Investor Class shares....................................... Unlimited
Institutional Class shares.................................. Unlimited
</Table>
SCHEDULE 5.1
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
SCHEDULE 6.2(f)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in exchange
solely for Buying Fund Shares distributed directly to Selling Fund Shareholders
and Buying Fund's assumption of the Liabilities, as provided in the Agreement,
will constitute a "reorganization" within the meaning of Section 368(a) of the
Code and Selling Fund and Buying Fund will be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the Code,
no gain or loss will be recognized by Selling Fund on the transfer of its assets
to Buying Fund solely in exchange for Buying Fund Shares and Buying Fund's
assumption of the Liabilities or on the distribution of Buying Fund Shares to
Selling Fund Shareholders; provided that, no opinion is expressed as to the
effect of the Reorganization on Selling Fund or any Selling Fund Shareholder
with respect to any asset as to which any unrealized gain or loss is required to
be recognized for Federal income tax purposes at the end of a taxable year (or
on the termination or transfer of a taxpayer's rights (or obligations) with
respect to such asset) under a mark-to-market system of accounting.
(iii) In accordance with Section 1032 of the Code, no gain or loss will be
recognized by Buying Fund upon the receipt of assets of Selling Fund in exchange
for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss will
be recognized by Selling Fund Shareholders on the receipt of Buying Fund Shares
in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying Fund
of the assets of Selling Fund will be the same as the basis of such assets in
the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Selling Fund transferred to Buying Fund in the
Reorganization will include the holding period for such assets in the hands of
Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
APPENDIX II
AIM BLUE CHIP FUND
July 21, 2003
Prospectus
AIM Blue Chip Fund seeks to provide long-term growth of
capital and, secondarily, current income.
--------------------------------------------------------
This prospectus contains important information about the
Class A, B, C, R and Investor Class shares of the fund.
Please read it before investing and keep it for future
reference.
Investor Class shares offered by this prospectus are
offered only to grandfathered investors. Please see the
section of the prospectus entitled "Purchasing
Shares -- Grandfathered Investors."
As with all other mutual fund securities, the Securities
and Exchange Commission has not approved or disapproved
these securities or determined whether the information
in this prospectus is adequate or accurate. Anyone who
tells you otherwise is committing a crime.
An investment in the fund:
- is not FDIC insured;
- may lose value; and
- is not guaranteed by a bank.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
------------------
AIM BLUE CHIP FUND
------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVES AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- ------------------------------------------------------
The Advisor 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- ------------------------------------------------------
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
SHAREHOLDER INFORMATION A-1
- ------------------------------------------------------
Choosing a Share Class A-1
Purchasing Shares A-4
Redeeming Shares A-5
Exchanging Shares A-8
Pricing of Shares A-10
Taxes A-11
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investor, AIM Lifetime America, AIM LINK, AIM Institutional Funds,
aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and Design,
Invierta con DISCIPLINA and Invest with DISCIPLINE are registered service marks
and AIM Bank Connection, AIM Internet Connect, AIM Private Asset Management, AIM
Private Asset Management and Design, AIM Stylized and/or Design, AIM Alternative
Assets and Design, AIM Investments, AIM Investments and Design, myaim.com, The
AIM College Savings Plan, AIM Solo 401(k) and Your goals. Our solutions. are
service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
------------------
AIM BLUE CHIP FUND
------------------
INVESTMENT OBJECTIVES AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's primary investment objective is long-term growth of capital with a
secondary objective of current income. The investment objectives of the fund may
be changed by the Board of Trustees without shareholder approval.
The fund seeks to meet its objectives by investing, normally, at least 80%
of its assets in securities of blue chip companies. In complying with this 80%
investment requirement, the fund may invest primarily in marketable equity
securities, including convertible securities, but its investments may include
other securities, such as synthetic instruments. Synthetic instruments are
investments that have economic characteristics similar to the fund's direct
investments, and may include warrants, futures, options, exchange-traded funds
and American Depositary Receipts. The fund considers blue chip companies to be
large and medium sized companies (i.e., companies with market capitalizations,
at the time of purchase, no smaller than the smallest capitalized company
included in the Russell 1000--Registered Trademark--Index during the most recent
11-month period, based on month-end data, plus the most recent data during the
current month) with leading market positions and which possess the following
characteristics:
- - MARKET CHARACTERISTICS--Companies that occupy (or in AIM's judgment have the
potential to occupy) leading market positions that are expected to be
maintained or enhanced over time. Strong market positions, particularly in
growing industries, can give a company pricing flexibility as well as the
potential for strong unit sales. These factors can, in turn, lead to higher
earnings growth and greater share price appreciation. Market leaders can be
identified within an industry as those companies that have (i) superior growth
prospects compared with other companies in the same industry; (ii) possession
of proprietary technology with the potential to bring about major changes
within an industry; and/or (iii) leading sales within an industry, or the
potential to become a market leader.
- - FINANCIAL CHARACTERISTICS--Companies that possess at least one of the
following attributes: (i) faster earnings growth than its competitors and the
market in general; (ii) higher profit margins relative to its competitors;
(iii) strong cash flow relative to its competitors; and/or (iv) a balance
sheet with relatively low debt and a high return on equity relative to its
competitors.
The portfolio managers consider whether to sell a particular security when
they believe the issuer of the security no longer is a market leader, and/or it
no longer has the characteristics described above. When the portfolio managers
believe securities other than marketable equity securities offer the opportunity
for long-term growth of capital and current income, the fund may invest in
United States government securities and high-quality debt securities. The fund
may also invest up to 25% of its total assets in foreign securities. For cash
management purposes, the fund may also hold a portion of its assets in cash or
cash equivalents, including shares of affiliated money market funds. Any
percentage limitations with respect to assets of the fund are applied at the
time of purchase.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents or high-quality debt instruments. As a result, the fund may not
achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. The prices of equity securities change in
response to many factors including the historical and prospective earnings of
the issuer of the stock, the value of its assets, general economic conditions,
interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
An investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
------------------
AIM BLUE CHIP FUND
------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1993................................................................... 4.61%
1994................................................................... 4.66%
1995................................................................... 32.00%
1996................................................................... 23.75%
1997................................................................... 31.91%
1998................................................................... 30.42%
1999................................................................... 25.65%
2000................................................................... -9.29%
2001................................................................... -22.91%
2002................................................................... -26.42%
</Table>
The Class A shares' year-to-date total return as of June 30, 2003 was
10.96%.
During the periods shown in the bar chart, the highest quarterly return was
24.45% (quarter ended December 31, 1998) and the lowest quarterly return was
- -20.05% (quarter ended March 31, 2001).
2
------------------
AIM BLUE CHIP FUND
------------------
PERFORMANCE INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices do not reflect payment of fees, expenses or taxes.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 2002) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
- ----------------------------------------------------------------------------------
Class A 02/04/87
Return Before Taxes (30.48)% (4.44)% 6.52% --
Return After Taxes on
Distributions (30.48) (4.46) 5.50 --
Return After Taxes on
Distributions and
Sale of Fund Shares (18.72) (3.49) 5.00 --
Class B 10/01/96
Return Before Taxes (30.53) (4.39) -- 1.89%
Class C 08/04/97
Return Before Taxes (27.60) (4.00) -- (3.35)
Class R(2) 02/04/87(2)
Return Before Taxes (26.39) (3.46) 6.98 --
Investor Class(3) 02/04/87(3)
Return Before Taxes (26.42) (3.35) 7.12 --
- ----------------------------------------------------------------------------------
Russell
1000--Registered
Trademark-- Index(4) (21.65) (0.58) 9.19 --
S&P 500 Index(5) (22.09) (0.58) 9.34 --
Lipper Large Cap Core
Fund Index(6) (21.23) (0.74) 8.04 --
- ----------------------------------------------------------------------------------
</Table>
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A only and after-tax returns for Class B, C, R and Investor Class will
vary.
(1) Since Inception performance is only provided for a class with less than ten
calendar years of performance.
(2) The returns shown for these periods are the blended returns of the
historical performance of the fund's Class R shares since their inception
and the restated historical performance of the fund's Class A shares (for
periods prior to inception of the Class R shares) at net asset value,
adjusted to reflect the higher Rule 12b-1 fees applicable to the Class R
shares. The inception date shown in the table is that of the fund's Class A
shares. The inception date of the fund's Class R shares is June 3, 2002.
(3) The returns shown for these periods are the restated historical performance
of the fund's Class A shares at the net asset value and reflect the higher
Rule 12b-1 fees applicable to Class A shares. Investor Class shares would
have different returns because, although the shares are invested in the same
portfolio of securities, the Investor Class has a different expense
structure. The inception date shown in the table is that of the fund's Class
A shares. As of July 21, 2003, Investor Class shares have not commenced
operations.
(4) The Russell 1000--Registered Trademark-- Index is a widely recognized,
unmanaged index of common stocks that measures the performance of the 1,000
largest companies in the Russell 3000--Registered Trademark-- Index, which
measures the performance of the 3,000 largest U.S. companies based on total
market capitalization.
(5) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance.
(6) The Lipper Large Cap Core Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Large Cap Core category. These funds
typically invest in stocks with market capitalizations greater than $5
billion at the time of purchase and have an average price-to-earnings ratio,
price-to-book ratio, and a three year sales-per-growth value, compared to
the S&P 500 Index.
3
------------------
AIM BLUE CHIP FUND
------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<Table>
<Caption>
SHAREHOLDER FEES
- -------------------------------------------------------------------------------------------
(fees paid directly from your INVESTOR
investment) CLASS A CLASS B CLASS C CLASS R CLASS
- -------------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 5.50% None None None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase price or redemption
proceeds, whichever is less) None(1,2) 5.00% 1.00% None(3) None
- -------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(4)
- --------------------------------------------------------------------------------------------
(expenses that are deducted INVESTOR
from fund assets) CLASS A CLASS B CLASS C CLASS R CLASS
- --------------------------------------------------------------------------------------------
Management Fees 0.64% 0.64% 0.64% 0.64% 0.64%
Distribution and/or
Service (12b-1) Fees 0.35 1.00 1.00 0.50 0.25
Other Expenses(5) 0.41 0.41 0.41 0.41 0.41
Total Annual Fund
Operating Expenses 1.40 2.05 2.05 1.55 1.30
- --------------------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) Effective November 1, 2002, if you are a retirement plan participant and you
bought $1,000,000 or more of Class A shares, you may pay a 1.00% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total redemption
of the retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
(5) Other expenses for Class R shares and Investor Class shares are based on
estimated average net assets for the current fiscal year.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. To the extent fees are waived and/or
expenses are reimbursed, your expenses will be lower. Although your actual
returns and costs may be higher or lower, based on these assumptions your costs
would be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
Class A $685 $969 $1,274 $2,137
Class B 708 943 1,303 2,213
Class C 308 643 1,103 2,379
Class R 158 490 845 1,845
Investor Class 132 412 713 1,568
- -------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
Class A $685 $969 $1,274 $2,137
Class B 208 643 1,103 2,213
Class C 208 643 1,103 2,379
Class R 158 490 845 1,845
Investor Class 132 412 713 1,568
- -------------------------------------------------------------------------------
</Table>
4
------------------
AIM BLUE CHIP FUND
------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in
1976. Today, the advisor, together with its subsidiaries, advises or manages
over 190 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 2002, the advisor received compensation
of 0.64% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the management of the
fund's portfolio are
- - Monika H. Degan (lead manager), Senior Portfolio Manager, who has been
responsible for the fund since 1997 and has been associated with the advisor
and/or its affiliates since 1995.
- - Kirk L. Anderson, Portfolio Manager, who has been responsible for the fund
since 2003 and has been associated with the advisor and/or its affiliates
since 1994.
They are assisted by the Large Cap Growth Team. More information on the
fund's management team may be found on our website
(http://www.aiminvestments.com).
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Blue Chip Fund are subject to the maximum
5.50% initial sales charge as listed under the heading "CATEGORY I Initial Sales
Charges" in the "Shareholder Information--Choosing a Share Class" section of
this prospectus. Certain purchases of Class A shares at net asset value may be
subject to the contingent deferred sales charge listed in that section.
Purchases of Class B and Class C shares are subject to the contingent deferred
sales charges listed in that section. Certain purchases of Class R shares may be
subject to the contingent deferred sales charge listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
capital gains.
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
5
------------------
AIM BLUE CHIP FUND
------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The information for the fiscal period ended 2002 and for the fiscal years
2002 and 2001 has been audited by Ernst & Young LLP, whose report, along with
the fund's financial statements, is included in the fund's annual report, which
is available upon request. Information prior to fiscal year 2001 was audited by
other public accountants.
<Table>
<Caption>
CLASS A(a)
-------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
----------- ---------- ---------- ---------- ---------- -----------
Net asset value, beginning of period $ 9.22 $ 11.22 $ 17.29 $ 15.49 $ 12.05 $ 10.32
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(b) (0.04)(b) (0.04) (0.05)(b) 0.01 0.04(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.25 (1.96) (6.03) 1.85 3.47 1.92
=================================================================================================================================
Total from investment operations 0.24 (2.00) (6.07) 1.80 3.48 1.96
=================================================================================================================================
Less distributions:
Dividends from net investment
income -- -- -- -- (0.01) (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gains -- -- -- -- (0.03) (0.21)
=================================================================================================================================
Total distributions -- -- -- -- (0.04) (0.23)
=================================================================================================================================
Net asset value, end of period $ 9.46 $ 9.22 $ 11.22 $ 17.29 $ 15.49 $ 12.05
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 2.60% (17.82)% (35.11)% 11.60% 29.01% 19.36%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,328,348 $1,402,589 $2,067,602 $3,163,453 $2,299,551 $1,085,648
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.50%(d) 1.40% 1.28% 1.19% 1.19% 1.22%
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.20)%(d) (0.33)% (0.29)% (0.31)% 0.03% 0.33%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 11% 28% 31% 22% 22% 27%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information for all periods prior to October 31, 2000 have been
restated to reflect a 3 for 1 stock split, effected in the form of a 200%
stock dividend, on September 8, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$1,311,081,521.
(e) Not annualized for periods less than one year.
6
------------------
AIM BLUE CHIP FUND
------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS B(a)
-------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
----------- ---------- ---------- ---------- ---------- --------
Net asset value, beginning of period $ 8.88 $ 10.87 $ 16.87 $ 15.22 $ 11.91 $ 10.25
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(b) (0.10)(b) (0.13) (0.17)(b) (0.10)(b) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.23 (1.89) (5.87) 1.82 3.44 1.91
=================================================================================================================================
Total from investment operations 0.19 (1.99) (6.00) 1.65 3.34 1.87
=================================================================================================================================
Less distributions from net realized
gains -- -- -- -- (0.03) (0.21)
=================================================================================================================================
Net asset value, end of period $ 9.07 $ 8.88 $ 10.87 $ 16.87 $ 15.22 $ 11.91
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 2.14% (18.31)% (35.57)% 10.87% 28.08% 18.52%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,131,717 $1,198,513 $1,806,464 $2,746,149 $1,891,171 $745,862
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 2.15%(d) 2.05% 1.94% 1.88% 1.91% 1.94%
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.85)%(d) (0.98)% (0.94)% (1.00)% (0.68)% (0.38)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 11% 28% 31% 22% 22% 27%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information for all periods prior to October 31, 2000 have been
restated to reflect a 3 for 1 stock split, effected in the form of a 200%
stock dividend, on September 8, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$1,126,499,315.
(e) Not annualized for periods less than one year.
7
------------------
AIM BLUE CHIP FUND
------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS C(a)
---------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ----------------------------------------------------------------
2003 2002 2001 2000 1999 1998
---------- -------- -------- -------- -------- -------
Net asset value, beginning of period $ 8.88 $ 10.87 $ 16.86 $ 15.21 $ 11.91 $ 10.25
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(b) (0.10)(b) (0.13) (0.17)(b) (0.10)(b) (0.04)(b)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.23 (1.89) (5.86) 1.82 3.43 1.91
===========================================================================================================================
Total from investment operations 0.19 (1.99) (5.99) 1.65 3.33 1.87
===========================================================================================================================
Less distributions from net realized
gains -- -- -- -- (0.03) (0.21)
===========================================================================================================================
Net asset value, end of period $ 9.07 $ 8.88 $ 10.87 $ 16.86 $ 15.21 $ 11.91
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(c) 2.14% (18.31)% (35.53)% 10.82% 28.09% 18.52%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $275,790 $302,555 $487,838 $720,186 $349,951 $87,554
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 2.15%(d) 2.05% 1.94% 1.88% 1.90% 1.94%
===========================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.85)%(d) (0.98)% (0.94)% (1.00)% (0.68)% (0.38)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(e) 11% 28% 31% 22% 22% 27%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Per share information for all periods prior to October 31, 2000 have been
restated to reflect a 3 for 1 stock split, effected in the form of a 200%
stock dividend, on September 8, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $278,870,886.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
-------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
---------- --------------
Net asset value, beginning of period $ 9.22 $ 10.53
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.02)(a)
- ---------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.25 (1.29)
=============================================================================================
Total from investment operations 0.23 (1.31)
=============================================================================================
Net asset value, end of period $ 9.45 $ 9.22
_____________________________________________________________________________________________
=============================================================================================
Total return(b) 2.49% (12.44)%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 559 $ 37
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets 1.65%(c) 1.55%(d)
=============================================================================================
Ratio of net investment income (loss) to average net assets (0.35)%(c) (0.49)%(d)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(e) 11% 28%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for periods
less than one year.
(c) Ratios are annualized and based on average daily net assets of $222,575.
(d) Annualized
(e) Not annualized for periods less than one year.
8
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consult your financial advisor as to which class is most suitable for
you. In addition, you should consider the factors below.
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B CLASS C CLASS R INVESTOR CLASS(6)
- ----------------------------------------------------------------------------------------------------------------------------
- - Initial sales - No initial sales - No initial sales - No initial sales - No initial sales - No initial sales
charge charge charge charge charge charge
- - Reduced or waived - No contingent - Contingent - Contingent - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent deferred sales
charge for charge charge on charge on deferred sales charge
certain redemptions redemptions charge(2)
purchases(2,3) within six years within one
year(5)
- - Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.50% 0.25%(7)
service (12b-1)
fee than Class B,
Class C or Class
R shares (See
"Fee Table and
Expense Example")
- Does not convert - Converts to Class - Does not convert - Does not convert - Does not convert
to Class A shares A shares at the to Class A shares to Class A shares to Class A shares
end of the month
which is eight
years after the
date on which
shares were
purchased along
with a pro rata
portion of its
reinvested
dividends and
distributions(4)
- - Generally more - Generally more - Purchase orders - Generally more - Generally, only - Closed to new
appropriate for appropriate for limited to appropriate for available to the investors, except
long-term short- term amounts less than short- term following types as described in
investors investors $250,000 investors of retirement the "Purchasing
plans: (i) all Shares -- Grandfathered
section 401 and Investors"
457 plans, (ii) section of your
section 403 plans prospectus
sponsored by
section 501(c)(3)
organizations,
and (iii) IRA
rollovers from
such plans if an
AIM Fund was
offered
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
Certain AIM Funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional Information
for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
(4) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve Shares.
AIM Global Trends Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of that
fund at the end of the month which is seven years after the date on which
shares were purchased. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not convert to
Class A shares until the end of the month which is eight years after the
date on which you purchased your original shares.
(5) A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Short Term Bond Fund unless you exchange Class C
shares of another AIM Fund that are subject to a CDSC into AIM Short Term
Bond Fund.
(6) As of July 21, 2003 Investor Class shares of AIM Blue Chip Fund, AIM
European Growth Fund, AIM High Yield Fund, AIM Income Fund, AIM Intermediate
Government Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund,
AIM Money Market Fund, AIM Municipal Bond Fund, AIM Real Estate Fund and AIM
Tax-Exempt Cash Fund have not commenced operations.
(7) Investor Class shares of AIM Money Market Fund and AIM Tax-Exempt Cash Fund
do not have a 12b-1 fee.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares) has adopted 12b-1 plans that allow the AIM Fund to pay distribution fees
to A I M Distributors, Inc. (the distributor) for the sale and distribution of
its shares and fees for services provided to shareholders, all or a substantial
portion of which are paid to the dealer of record. Because the AIM Fund pays
these fees out of its assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
MCF--07/03
A-1
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Sales charges on the AIM Funds and classes of those Funds are detailed below. As
used below, the term "offering price" with respect to all categories of Class A
shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<Table>
<Caption>
CATEGORY I INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION(1) OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
(1) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
<Table>
<Caption>
CATEGORY II INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CATEGORY III INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ------------------------------------------------------------------------------
</Table>
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales
charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class
shares of any AIM Fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II Funds at net asset value. However, if you redeem these shares
prior to 18 months after the date of purchase, they will be subject to a CDSC of
1%.
If you made a Large Purchase of Class A shares of Category III Funds at
net asset value during the period November 15, 2001 through October 30, 2002,
such shares will be subject to a 0.25% CDSC if you redeem them prior to 12
months after the date of purchase.
If you currently own Class A shares of a Category I, II or III Fund and
make additional purchases (through October 30, 2002 for Category III Funds only)
at net asset value that result in account balances of $1,000,000 or more, the
additional shares purchased will be subject to a CDSC (an 18-month, 1% CDSC for
Category I and II Fund shares, and a 12-month, 0.25% CDSC for Category III Fund
shares). The CDSC for Category III Fund shares will not apply to additional
purchases made prior to November 15, 2001 or after October 30, 2002.
Some retirement plans can purchase Class A shares at their net asset
value per share. Effective November 1, 2002, if the distributor paid a
concession to the dealer of record in connection with a Large Purchase of Class
A shares by a retirement plan, the Class A shares may be subject to a 1% CDSC at
the time of redemption if all retirement plan assets are redeemed within one
year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM
Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired
those shares through an exchange, and the shares originally purchased were
subject to a CDSC.
The distributor may pay a dealer concession and/or a service fee for
Large Purchases and purchases by certain retirement plans.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<Table>
<Caption>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- --------------------------------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- --------------------------------------------------------------------------------
</Table>
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset
value and not subject to a CDSC. However, you may be charged a CDSC when you
redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares
through an exchange, and the shares originally purchased were subject to a CDSC.
MCF--07/03
A-2
-------------
THE AIM FUNDS
-------------
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If the
distributor pays a concession to the dealer of record, however, the Class R
shares are subject to a 0.75% CDSC at the time of redemption if all retirement
plan assets are redeemed within 12 months from the date of the retirement plan's
initial purchase.
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares
of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM
Cash Reserve Shares of AIM Money Market Fund and Class B and Class C shares of
AIM Floating Rate Fund and Investor Class shares of any AIM fund will not be
taken into account in determining whether a purchase qualifies for a reduction
in initial sales charges pursuant to Rights of Accumulation or Letters of
Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares with shares currently owned
(Class A, B, C or R) for the purpose of qualifying for the lower initial sales
charge rates that apply to larger purchases. The applicable initial sales charge
for the new purchase is based on the total of your current purchase and the
current value of all other shares you own.
LETTERS OF INTENT
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privileges; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem Class C shares of an AIM Fund other than AIM Short Term Bond
Fund and you received such Class C shares by exchanging Class C shares of AIM
Short Term Bond Fund;
- - if you redeem Class C shares of AIM Short Term Bond Fund unless you received
such Class C shares by exchanging Class C shares of another AIM Fund and the
original purchase was subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--07/03
A-3
-------------
THE AIM FUNDS
-------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
There are no minimum investments with respect to Class R shares for AIM Fund
accounts. The minimum investments with respect to Class A, A3, B and C shares
and Investor Class shares for AIM Fund accounts (except for investments in AIM
Opportunities I Fund, AIM Opportunities II Fund and AIM Opportunities III Fund)
are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Savings Plans (money-purchase/profit sharing plans, 401(k) $ 0 ($25 per AIM Fund investment for $25
plans, Simplified Employee Pension (SEP) accounts, Salary salary deferrals from Savings
Reduction (SARSEP) accounts, Savings Incentive Match Plans Plans)
for Employee IRA (Simple IRA) accounts, 403(b) or 457 plans)
Systematic Purchase Plan 50 25(1)
IRA, Education IRA or Roth IRA 250 50
All other accounts 500(2) 50
- -------------------------------------------------------------------------------------------------------------------------
</Table>
(1) $50 for Investor Class shares.
(2) $1,000 for Investor Class shares.
The minimum initial investment for AIM Opportunities I Fund, AIM Opportunities
II Fund and AIM Opportunities III Fund (the Special Opportunities Funds)
accounts is $10,000. The minimum subsequent investment is $1,000. The maximum
amount for a single purchase order of AIM Opportunities I Fund is $250,000.
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not
be processed unless the account application and purchase payment are received in
good order. In accordance with the USA PATRIOT Act, if you fail to provide all
the required information requested in the current account application, your
purchase order will not be processed.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, A I M Fund from your confirmation statement to the
Services, Inc., P.O. Box 4739, Houston, transfer agent.
TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
reference number. Then, use the
following wire instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: A I M Fund
Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line. You may place your order after
you have provided the bank instructions
that will be requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in AIM prototype retirement
accounts on the internet.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--07/03
A-4
-------------
THE AIM FUNDS
-------------
GRANDFATHERED INVESTORS
As of July 21, 2003, Investor Class shares of certain funds that intend to offer
such shares have not commenced operations (for a listing of funds that intend to
offer Investor Class shares see the "Choosing a Share Class" section of your
prospectus). Once operations commence, Investor Class shares of such funds may
be purchased only by: (1) persons or entities who had established an account,
prior to April 1, 2002, in Investor Class shares of any of the funds currently
distributed by A I M Distributors, Inc. (the "Grandfathered Funds") and have
continuously maintained such account in Investor Class shares since April 1,
2002; (2) any person or entity listed in the account registration for any
Grandfathered Funds, which account was established prior to April 1, 2002 and
continuously maintained since April 1, 2002, such as joint owners, trustees,
custodians and designated beneficiaries; (3) customers of certain financial
institutions, wrap accounts or other fee-based advisory programs, or insurance
company separate accounts, which have had relationships with A I M Distributors,
Inc. and/or any of the Grandfathered Funds prior to April 1, 2002 and
continuously maintained such relationships since April 1, 2002; (4) defined
benefit, defined contribution and deferred compensation plans; and (5) INVESCO
Funds directors, employees of AMVESCAP PLC and its subsidiaries.
SPECIAL PLANS
SYSTEMATIC PURCHASE PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $25 ($1,000 for any of
the Special Opportunities Funds). You may stop the Systematic Purchase Plan at
any time by giving the transfer agent notice ten days prior to your next
scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to a
Special Opportunities Fund is $1,000. The minimum amount you can exchange to
another AIM Fund is $25.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest
your dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; and (b) in the AIM Fund receiving the dividend must be at
least $500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted to
establish a retirement plan. You may use AIM sponsored retirement plans, which
include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k) plans, SIMPLE IRA
plans, SEP/SARSEP plans and Money Purchase/Profit Sharing plans, or another
sponsor's retirement plan. The plan custodian of the AIM sponsored retirement
plan assesses an annual maintenance fee of $10. Contact your financial
consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. Your broker or
financial consultant may charge service fees for handling redemption
transactions. Your shares also may be subject to a contingent deferred sales
charge (CDSC).
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE PRIOR TO NOVEMBER 15, 2001.
If you purchased $1,000,000 or more of Class A shares of any AIM Fund at net
asset value prior to November 15, 2001, or entered into a Letter of Intent prior
to November 15, 2001 to purchase
MCF--07/03
A-5
-------------
THE AIM FUNDS
-------------
$1,000,000 or more of Class A shares of a Category I, II or III Fund at net
asset value, your shares may be subject to a CDSC upon redemption, as described
below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category III - No CDSC
Fund(1) Fund(1)
- Class A shares of AIM Tax-Exempt
Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE ON AND AFTER NOVEMBER 15, 2001
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on and
after November 15, 2001 (and through October 30, 2002 with respect to Class A
shares of Category III Funds), or if you make additional purchases of Class A
shares on and after November 15, 2001 (and through October 30, 2002 with respect
to Class A shares of Category III Funds) at net asset value, your shares may be
subject to a CDSC upon redemption, as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category I or - 1% if shares are redeemed
Fund II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category III - Class A shares of Category III - 0.25% if shares are redeemed
Fund Fund(1) within 12 months of initial
- Class A shares of AIM Tax-Exempt purchase of Category III Fund
Cash Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE AFTER OCTOBER 30, 2002
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on or after
October 31, 2002, or if you make additional purchases of Class A shares on and
after October 31, 2002 at net asset value, your shares may be subject to a CDSC
upon redemption as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
</Table>
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of Category III Fund.
REDEMPTION OF CLASS B SHARES ACQUIRED BY EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--07/03
A-6
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Consultant Contact your financial consultant.
By Mail Send a written request to the transfer
agent. Requests must include (1) original
signatures of all registered owners; (2) the
name of the AIM Fund and your account
number; (3) if the transfer agent does not
hold your shares, endorsed share
certificates or share certificates
accompanied by an executed stock power; and
(4) signature guarantees, if necessary (see
below). The transfer agent may require that
you provide additional information, such as
corporate resolutions or powers of attorney,
if applicable. If you are redeeming from an
IRA account, you must include a statement of
whether or not you are at least 59 1/2 years
old and whether you wish to have federal
income tax withheld from your proceeds. The
transfer agent may require certain other
information before you can redeem from an
employer-sponsored retirement plan. Contact
your employer for details.
By Telephone Call the transfer agent or our AIM 24-hour
Automated Investor Line. You will be allowed
to redeem by telephone if (1) the proceeds
are to be mailed to the address on record
(if there has been no change communicated to
us within the last 30 days) or transferred
electronically to a pre-authorized checking
account; (2) you do not hold physical share
certificates; (3) you can provide proper
identification information; (4) the proceeds
of the redemption do not exceed $250,000;
and (5) you have not previously declined the
telephone redemption privilege. Certain
accounts, including retirement accounts and
403(b) plans, may not be redeemed by
telephone. The transfer agent must receive
your call during the hours of the customary
trading session of the New York Stock
Exchange (NYSE) in order to effect the
redemption at that day's closing price. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts must be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.com. You will be allowed
to redeem by internet if (1) you do not hold
physical share certificates; (2) you can
provide proper identification information;
(3) the proceeds of the redemption do not
exceed $250,000; and (4) you have already
provided proper bank information. AIM
prototype retirement accounts may not be
redeemed on the internet. The transfer agent
must confirm your transaction during the
hours of the customary trading session of
the NYSE in order to effect the redemption
at that day's closing price.
</Table>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC REDEMPTIONS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Redemption Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM CASH RESERVE SHARES OF AIM MONEY MARKET FUND ONLY)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
MCF--07/03
A-7
-------------
THE AIM FUNDS
-------------
REDEMPTIONS BY CHECK
(CLASS A SHARES OF AIM TAX-EXEMPT CASH FUND AND AIM CASH RESERVE SHARES OF AIM
MONEY MARKET FUND ONLY)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $250,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGES
You may, within 120 days after you sell shares (except Class R shares, Class A
shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market
Fund, Class A shares and Class A3 shares of AIM Limited Maturity Treasury Fund
and AIM Tax-Free Intermediate Fund and Investor Class shares), reinvest all or
part of your redemption proceeds in Class A shares of any Category I or II AIM
Fund at net asset value in an identically registered account.
You may, within 120 days after you sell some but not all of your Class A
shares of a Category III Fund, reinvest all or part of your redemption proceeds
in Class A shares of that same Category III Fund at net asset value in an
identically registered account.
The reinvestment amount must meet the subsequent investment minimum as
indicated in the section "Purchasing Shares".
If you paid an initial sales charge on any reinstated amount, you will
receive credit on purchases of Class A shares of a Category I or II Fund.
If you paid a contingent deferred sales charge (CDSC) on any reinstated
amount, you will not be subject to a CDSC if you later redeem that amount.
You must notify the transfer agent in writing at the time you reinstate
that you are exercising your reinstatement privilege.
REDEMPTIONS BY THE AIM FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares
only) has been open at least one year, you have not made an additional purchase
in the account during the past six calendar months, and the value of your
account falls below $500 ($250 for Investor Class shares) for three consecutive
months due to redemptions or exchanges (excluding retirement accounts), the AIM
Funds have the right to redeem the account after giving you 60 days' prior
written notice. You may avoid having your account redeemed during the notice
period by bringing the account value up to $500 ($250 for Investor Class shares)
or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social
Security or other tax ID number on your account application, the AIM Fund may,
at its discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another AIM Fund.
You may also exchange:
(1) Class A shares of an AIM Fund for AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of an AIM Fund (excluding AIM Limited Maturity Treasury Fund,
AIM Tax-Exempt Cash Fund and AIM Tax-Free Intermediate Fund) for Class A3
shares of an AIM Fund;
(3) Class A3 shares of an AIM Fund for AIM Cash Reserve shares of AIM Money
Market Fund;
(4) Class A3 shares of an AIM Fund for Class A shares of any AIM Fund (excluding
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund);
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class A3 shares of an
AIM Fund;
(6) AIM Cash Reserve Shares of AIM Money Market Fund for Class A shares of any
AIM Fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, effective February 17, 2003, and AIM Tax-Exempt Cash
Fund);
(7) Investor Class shares of an AIM Fund for Class A shares of any AIM Fund
(excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund) or Class A3 shares of an AIM Fund; or
(8) Class A or A3 shares of an AIM Fund for Investor Class shares of any AIM
Fund as long as you own Investor Class shares of any AIM Fund at the time of
exchange.
You may be required to pay an initial sales charge when exchanging from a
Fund with a lower initial sales charge than the one into which you are
exchanging. If you exchange into shares that are subject to a CDSC, we will
begin the holding period for purposes of calculating the CDSC on the date you
made your initial purchase.
MCF--07/03
A-8
-------------
THE AIM FUNDS
-------------
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another AIM Fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares
of AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way
of an exchange from shares with higher initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) Class A shares of an AIM Fund subject to an initial sales charge
(excluding Class A shares of AIM Limited Maturity Treasury Fund and
AIM Tax-Free Intermediate Fund), but only if you acquired the
original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to
an initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject
to an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege.
You may not exchange:
(1) Class A shares of a Category I or II Fund for Class A shares of a Category
III Fund after February 16, 2003; or
(2) Class A shares of a Category III Fund for Class A shares of another Category
III Fund after February 16, 2003.
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III Funds purchased at net asset value for Class
A shares of a Category I or II Fund;
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund;
(4) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for Class A shares of Category I or II Funds that are
subject to a CDSC; or
(5) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market
Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of
Category III Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a CDSC for Class
A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
AIM Fund (i) subject to an initial sales charge or (ii) purchased at net
asset value and subject to a CDSC or for AIM Cash Reserve Shares of AIM
Money Market Fund; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund or for Class A shares of any AIM Fund that are
subject to a CDSC, however, if you originally purchased Class A shares of a
Category I or II Fund, and exchanged those shares for AIM Cash Reserve
Shares of AIM Money Market Fund, you may further exchange the AIM Cash
Reserve Shares for Class A shares of a Category I or II Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange;
MCF--07/03
A-9
-------------
THE AIM FUNDS
-------------
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- - You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or terminate this privilege at any time. The AIM Fund or
the distributor will provide you with notice of such modification or termination
whenever it is required to do so by applicable law, but may impose changes at
any time for emergency purposes.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if you do not hold physical share
certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B or Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R shares,
respectively, into which you exchanged for the purpose of calculating contingent
deferred sales charges (CDSC) if you later redeem the exchanged shares. If you
redeem Class B or Class C shares acquired by exchange via a tender offer by AIM
Floating Rate Fund, you will be credited with the time period you held the Class
B or Class C shares of AIM Floating Rate Fund for the purpose of computing the
early withdrawal charge applicable to those shares.
- --------------------------------------------------------------------------------
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ALL OR ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE SYSTEMATIC PURCHASE PLAN AND
SYSTEMATIC REDEMPTION PLAN OPTIONS ON THE SAME ACCOUNT; OR
- SUSPEND, CHANGE OR WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS
PROSPECTUS.
- --------------------------------------------------------------------------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund and AIM
Tax-Free Intermediate Fund value variable rate securities that have an
unconditional demand or put feature exercisable within seven days or less at
par, which reflects the market value of such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that may materially affect
the value of the security, the AIM Funds may value the security at its fair
value as determined in good faith by or under the supervision of the Board of
Directors or Trustees of the AIM Fund. The effect of using fair value pricing is
that an AIM Fund's net asset value will be subject to the judgment of the Board
of Directors or Trustees or its designee instead of being determined by the
market. Because some of the AIM Funds may invest in securities that are
primarily listed on foreign exchanges that trade on days when the AIM Funds do
not price their shares, the value of those funds' assets may change on days when
you will not be able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares on each day
the NYSE is open for business, as of the close of the customary trading session,
or any earlier NYSE closing time that day. AIM Money Market Fund also determines
its net asset value as of 12:00 noon Eastern Time on each day the NYSE is open
for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary
trading session of the NYSE. The AIM Funds price
MCF--07/03
A-10
-------------
THE AIM FUNDS
-------------
purchase, exchange and redemption orders at the net asset value calculated after
the transfer agent receives an order in good order. An AIM Fund may postpone the
right of redemption only under unusual circumstances, as allowed by the
Securities and Exchange Commission, such as when the NYSE restricts or suspends
trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time the
fund holds its assets and the type of income that the fund earns. Different tax
rates apply to ordinary income, qualified dividend income, and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of
AIM Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE
HEADING "OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN
THEIR PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund
shares may differ materially from the federal income tax consequences described
above. In addition, the preceding discussion concerning the taxability of fund
dividends and distributions and of redemptions and exchanges of AIM Fund shares
is inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401 of the Internal
Revenue Code, individual retirement accounts (IRAs) and Roth IRAs. You should
consult your tax advisor before investing.
MCF--07/03
A-11
------------------
AIM BLUE CHIP FUND
------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
<Table>
- --------------------------------------------------------
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
ON THE INTERNET: You can send us a request
by e-mail or download
prospectuses, annual or
semiannual reports via
our website:
http://www.aiminvestments.com
- --------------------------------------------------------
</Table>
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
publicinfo@sec.gov. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- ------------------------------------
AIM BLUE CHIP FUND
SEC 1940 Act file number: 811-1424
- ------------------------------------
AIMinvestments.com BCH-PRO-1
APPENDIX III
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
FUND'S STRATEGY COMBINES DIVERSIFICATION AND MARKET LEADERS
WHAT HAPPENED IN THE FINANCIAL MARKETS DURING THE FISCAL YEAR?
During the year that this report encompasses, the fund's fiscal year ending
October 31, 2002, the bear market continued, and the disappointments affected
almost all investors. The equity market experienced continued volatility and
considerable losses. Equities in every market capitalization have been
affected--small-cap, mid-cap, and large-cap stocks. Toward the end of the fiscal
year, the U.S. consumer--long the strongest element of our economy--displayed a
loss of confidence, resulting in further negative effects on the financial
markets. During the last month covered by this report, the markets had several
positive weeks in a row, but it is still not clear whether the prolonged bear
market has ended.
HOW DID AIM BLUE CHIP FUND PERFORM?
For the fiscal year ended October 31, 2002, the fund's Class A, Class B, Class C
and Class R shares returned -17.82%, -18.31%, -18.31%, and -17.90%,
respectively. These figures are at net asset value, which does not include
sales charges.
WHAT ARE THE BENCHMARKS THE FUND IS MEASURED AGAINST, AND HOW DID IT PERFORM IN
COMPARISON?
The Russell 1000 Index is the broad-based market index against which AIM Blue
Chip Fund is measured. The Russell 1000 Index returned -14.60% for the year
ended October 31, 2002. The S&P 500 Index, frequently used as a general measure
of U.S. stock market performance, returned -15.10% for the 12 months ended
October 31. The Lipper fund index chosen as the fund's peer group is the Lipper
Large-Cap Core Fund Index, and it returned -14.23% for the same period.
GIVEN THE MARKET TURBULENCE, HOW DID YOU MANAGE THE FUND?
AIM Blue Chip Fund continued to follow its consistent strategy of broad
diversification and stock selection focused on market leaders. Within the
framework of broad sector diversification, we have always evaluated stocks
individually. We blend AIM's growth and growth-at-a-reasonable-price (GARP)
disciplines to identify companies that we feel offer superior earnings
fundamentals and whose stocks also represent good value relative to these
fundamentals. Our intent is to always focus on long-term market leaders. This
results in a rather low turnover. Our turnover rate for this fiscal year was
28%.
Over the longer-term, high quality companies with above-average earnings
fundamentals tend to be awarded premium valuations. As a result of the punishing
market environment this year, we feel that a number of good companies have been
oversold and this has created selective valuation expansion opportunities in our
universe of stocks.
We use the Russell 1000 Index as a reference for our sector allocations, and
we are intent on being diversified across all sectors.
However, we own stocks because of our confidence in their staying power as
market leaders, not because of the sectors they fall within.
Our commitment to market leaders has led us to be slightly overweight (as
compared to the Russell 1000 Index) in health care. Being
PORTFOLIO COMPOSITION
as of 10/31/02, based on total net assets
INVESTMENT TYPE BREAKDOWN
================================================================================
[PIE CHART]
================================================================================
COMMON STOCKS & OTHER
EQUITY INTERESTS 95.34%
CASH 4.39%
U.S. TREASURY BILLS 0.27%
================================================================================
<Table>
<Caption>
==================================================================================================
TOP 10 HOLDINGS TOP 10 INDUSTRIES
==================================================================================================
1. Microsoft Corp. 3.7% 1. Diversified Financial Services 11.8%
2. Pfizer Inc. 3.6 2. Pharmaceuticals 10.4
3. Johnson & Johnson 3.2 3. Banks 5.5
4. Wal-Mart Stores, Inc. 3.1 4. General Merchandise Stores 4.7
5. Exxon Mobil Corp. 3.1 5. Systems Software 4.6
6. Citigroup Inc. 3.1 6. Health Care Equipment 3.9
7. General Electric Co. 3.0 7. Semiconductors 3.7
8. Wells Fargo & Co. 2.0 8. Aerospace & Defense 3.1
9. American International Group, Inc. 2.0 9. Integrated Oil & Gas 3.1
10. Bank of America Corp. 2.0 10. Industrial Conglomerates 3.0
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
==================================================================================================
</Table>
4
overweight in health care has been advantageous. In the third quarter
(July-September) of 2002, it was our best performing sector. Our careful stock
selection paid off as well with most of the health care stocks we owned
outperforming the market and the health care sector of the S&P 500 for the
quarter.
CAN YOU DISCUSS A FEW STOCKS IN PARTICULAR THAT HELPED OR HURT THE FUND?
o As of October 31, 2002, our portfolio contained stocks representing 45
industries falling within all sectors of the S&P 500. This year, in the
health care sector, we owned such companies as Forest Labs, Johnson &
Johnson, Pharmacia, and UnitedHealth Group, all of which benefited the
portfolio.
o Consumer staples was the S&P's best performing sector for the year, and in
that sector, among others, we owned outperformers Procter & Gamble and
SYSCO. SYSCO, the largest food service company in North America, delivers
food and supplies to restaurants, hotels, and institutions throughout the
U.S. and Canada. For the quarter ended September 30, 2002, the firm reported
a 10% growth in sales.
o Telecommunications was one of the worst performing sectors in the S&P, and
those stocks hurt our portfolio as well. However, we have been consistently
underweight in the sector, which has dampened its negative effect; and we
own market leaders such as Vodafone and SBC Communications whose performance
helped the fund on a relative basis.
HOW WOULD YOU CHARACTERIZE THE CLOSE OF THE FISCAL YEAR? HAVE YOU POSITIONED THE
PORTFOLIO ACCORDINGLY?
The market environment at the end of the fiscal year was still characterized by
uncertainty. During times of uncertainty, we are convinced of the importance of
owning market leaders--companies that provide a higher level of assurance that
they will be around long term. During the most recent calendar quarter
(July-September 2002), the market bore us out on this, as large-cap stocks
finally outperformed small- and mid-cap stocks, after having been out of favor
for quite some time. AIM Blue Chip Fund remains a long-term equity strategy.
With the fund's blend of AIM's growth and GARP investment strategies, we have
investment flexibility and risk control. We have always focused on
diversification, both across all sectors and among industries. We believe
diversification positions the fund well for the current environment of
uncertainty and volatility. We also continue to focus on bottom-up earnings
stories, and we feel that this flexibility of active stock selection is the best
way to remain positioned to take advantage of the economic recovery.
================================================================================
PORTFOLIO MANAGEMENT TEAM
AS OF 10/31/02
MONIKA H. DEGAN
JONATHAN C. SCHOOLAR
See important fund and index
disclosures inside front cover.
[GRAPHIC]
For More Information Visit
AIMinvestments.com
================================================================================
The last 2 1/2 years have been challenging for equity mutual fund investors. The
S&P 500, considered representative of U.S. stock market performance, has
declined significantly since hitting an all-time high in early 2000.
The colored bars on the chart represent bear markets, typically defined as a
20% decline in the stock market. As the chart shows, the 2000-2002 bear market
has been more severe and more prolonged than any other in the last 50 years. But
it shows that market declines have always ended--and that the stock market has
risen over time. While past performance cannot guarantee comparable future
results, and while no one can say precisely when the current decline will end,
history shows that bear markets never last.
That is why AIM urges all investors to maintain a long-term investment
discipline.
HISTORY SHOWS THAT BEAR MARKETS NEVER LAST ...
U. S. STOCK MARKET AS REPRESENTED BY S&P 500
<Table>
<Caption>
[LINE CHART]
9/30/52 24 3/31/61 65 9/30/69 93 3/31/78 89 9/30/86 231 3/31/95 500
12/31/52 26 6/30/61 64 12/31/69 92 6/30/78 95 12/31/86 242 6/30/95 544
3/31/53 25 9/29/61 66 3/31/70 89 9/29/78 102 3/31/87 291 9/29/95 584
6/30/53 24 12/29/61 71 6/30/70 72 12/29/78 96 6/30/87 304 12/29/95 615
9/30/53 23 3/30/62 69 9/30/70 84 3/30/79 101 9/30/87 321 3/29/96 645
12/31/53 24 6/29/62 54 12/31/70 92 6/29/79 102 12/31/87 247 6/28/96 670
3/31/54 26 9/28/62 56 3/31/71 100 9/28/79 109 3/31/88 258 9/30/96 687
6/30/54 29 12/31/62 63 6/30/71 99 12/31/79 107 6/30/88 273 12/31/96 740
9/30/54 32 3/29/63 66 9/30/71 98 3/31/80 102 9/30/88 271 3/31/97 757
12/31/54 35 6/28/63 69 12/31/71 102 6/30/80 114 12/30/88 277 6/30/97 885
3/31/55 36 9/30/63 71 3/31/72 107 9/30/80 125 3/31/89 294 9/30/97 947
6/30/55 41 12/31/63 75 6/30/72 107 12/31/80 135 6/30/89 317 12/31/97 970
9/30/55 43 3/31/64 78 9/29/72 110 3/31/81 136 9/29/89 349 3/31/98 1101
12/30/55 45 6/30/64 81 12/29/72 118 6/30/81 131 12/29/89 353 6/30/98 1133
3/30/56 48 9/30/64 84 3/30/73 111 9/30/81 116 3/30/90 339 9/30/98 1017
6/29/56 46 12/31/64 84 6/29/73 104 12/31/81 122 6/29/90 358 12/31/98 1229
9/28/56 45 3/31/65 86 9/28/73 108 3/31/82 111 9/28/90 306 3/31/99 1286
12/31/56 46 6/30/65 84 12/31/73 97 6/30/82 109 12/31/90 330 6/30/99 1372
3/29/57 44 9/30/65 89 3/29/74 93 9/30/82 120 3/29/91 375 9/30/99 1282
6/28/57 47 12/31/65 92 6/28/74 86 12/31/82 140 6/28/91 371 12/31/99 1469
9/30/57 42 3/31/66 89 9/30/74 63 3/31/83 152 9/30/91 387 3/31/00 1498
12/31/57 39 6/30/66 84 12/31/74 68 6/30/83 168 12/31/91 417 6/30/00 1454
3/31/58 42 9/30/66 76 3/31/75 83 9/30/83 166 3/31/92 403 9/29/00 1436
6/30/58 45 12/30/66 80 6/30/75 95 12/30/83 164 6/30/92 408 12/29/00 1320
9/30/58 50 3/31/67 90 9/30/75 83 3/30/84 159 9/30/92 417 3/30/01 1160
12/31/58 55 6/30/67 90 12/31/75 90 6/29/84 153 12/31/92 435 6/29/01 1224
3/31/59 55 9/29/67 96 3/31/76 102 9/28/84 166 3/31/93 451 9/28/01 1040
6/30/59 58 12/29/67 96 6/30/76 104 12/31/84 167 6/30/93 450 12/31/01 1148
9/30/59 56 3/29/68 90 9/30/76 105 3/29/85 180 9/30/93 458 3/29/02 1147
12/31/59 59 6/28/68 99 12/31/76 107 6/28/85 191 12/31/93 466 6/28/02 989
3/31/60 55 9/30/68 102 3/31/77 98 9/30/85 182 3/31/94 445 9/30/02 815
6/30/60 56 12/31/68 103 6/30/77 100 12/31/85 211 6/30/94 444
9/30/60 53 3/31/69 101 9/30/77 96 3/31/86 238 9/30/94 462
12/30/60 58 6/30/69 97 12/30/77 95 6/30/86 250 12/30/94 459
Source: Bloomberg LP
=====================================================================================================================
</Table>
5
FUND PERFORMANCE
================================================================================
RESULTS OF A $10,000 INVESTMENT
10/31/92-10/31/02
[MOUNTAIN CHART]
DATE AIM BLUE CHIP
CLASS A RUSSELL 1000
10/31/92 9450 10000
1/93 9444 10639
4/93 9697 10705
7/93 9604 11038
10/93 9919 11581
1/94 10317 11985
4/94 9925 11306
7/94 10362 11513
10/94 10735 11941
1/95 10893 11978
4/95 11939 13126
7/95 12905 14525
10/95 13286 15167
1/96 14242 16604
4/96 15096 17229
7/96 15010 16811
10/96 16724 18641
1/97 18325 20861
4/97 18522 21079
7/97 22418 25268
10/97 21690 24572
1/98 23133 26352
4/98 26317 29959
7/98 26698 30032
10/98 25889 29415
1/99 30955 34411
4/99 31672 36043
7/99 31766 35932
10/99 33397 36942
1/00 36215 38533
4/00 38314 40533
7/00 38479 39818
10/00 37273 40291
1/01 34667 38271
4/01 29968 34997
7/01 27810 33967
10/01 24185 29801
1/02 25649 32027
4/02 23838 30807
7/02 20217 26190
10/02 19872 25527
Source: Lipper, Inc.
Past performance cannot guarantee comparable future results.
The chart compares AIM Blue Chip Fund Class A shares to a benchmark index. It is
intended to give you a general idea of how your fund performed compared to this
index over the period 10/31/92-10/31/02. It is important to understand the
difference between your fund and an index. Market indexes, such as the Russell
1000 Index, are not managed and incur no sales charges, expenses or fees. If
you could buy all securities that make up a market index, you would incur
expenses that would affect your investment return.
Your fund's total return includes sales charges, expenses and management
fees.
Performance of the fund's Class A, B, C and R shares will differ due to
different sales charge structures and class expenses. For fund performance
calculations and indexes used in this report, please see the inside front cover.
Performance shown in the chart does not reflect deduction of taxes a
shareholder would pay on fund distributions or sale of fund shares. Performance
for the index does not reflect the effects of taxes.
This growth chart uses a logarithmic scale, which means the price scale
(vertical axis) is structured so that a given distance always represents the
same percent change in price, rather than the same absolute change in price. For
example, the distance from one to 10 is the same as the distance from 10 to 100
on a logarithmic chart, but the latter distance is 10 times greater on a linear
chart. A logarithmic scale better illustrates performance in the fund's early
years before reinvested distributions and compounding creates the potential for
very large numbers.
================================================================================
FUND RETURNS
as of 10/31/02
AVERAGE ANNUAL TOTAL RETURNS
including sales charges
CLASS A SHARES
Inception (2/4/87) 8.23%
10 Years 7.11
5 Years -2.84
1 Year -22.33
CLASS B SHARES
Inception (10/1/96) 2.48%
5 Years -2.78
1 Year -22.39
CLASS C SHARES
Inception (8/4/97) -2.86%
5 Years -2.39
1 Year -19.12
CLASS R SHARES*
10 Years 7.56%
5 Years -1.87
1 Year -17.90
In addition to returns as of the close of the reporting period, industry
regulations require us to provide average annual total returns (including sales
charges) as of September 30, 2002, the most recent calendar quarter-end, which
were: Class A shares, inception (2/4/87), 7.70%; 10 years, 6.40%; five years,
- -5.13%; one year, -25.66%. Class B shares, inception (10/1/96), 0.97%; five
years, -5.08%; one year, -25.71%. Class C shares, inception (8/4/97), -4.44%;
five years, -4.71%; one year, -22.58%. Class R shares, 10 years, 6.84%; five
years, -4.19%, one year, -21.40%.
*Class R shares were first offered on June 3, 2002. Returns prior to that date
are hypothetical results based on Class A share returns (inception date 2/4/87)
at net asset value, adjusted to reflect additional Class R 12b-1 fees. Class R
share returns do not include a 0.75% contingent deferred sales charge (CDSC)
that may be imposed on a total redemption of retirement plan assets within the
first year.
DUE TO RECENT SIGNIFICANT MARKET VOLATILITY, RESULTS OF AN INVESTMENT MADE TODAY
MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN. CALL YOUR
FINANCIAL ADVISOR FOR MORE CURRENT PERFORMANCE.
================================================================================
6
APPENDIX IV
[REGISTRANT]
MASTER INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made this day of , 200 , by and between
[Registrant], a Delaware statutory trust (the "Trust") with respect to its
series of shares shown on the Appendix A attached hereto, as the same may be
amended from time to time, and A I M Advisors, Inc., a Delaware corporation (the
"Advisor").
RECITALS
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, diversified management investment
company;
WHEREAS, the Advisor is registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), as an investment advisor and engages in
the business of acting as an investment advisor;
WHEREAS, the Trust's Agreement and Declaration of Trust (the "Declaration
of Trust") authorizes the Board of Trustees of the Trust (the "Board of
Trustees") to create separate series of shares of beneficial interest of the
Trust, and as of the date of this Agreement, the Board of Trustees has created
separate series portfolios (such portfolios and any other portfolios
hereafter added to the Trust being referred to collectively herein as the
"Funds"); and
WHEREAS, the Trust and the Advisor desire to enter into an agreement to
provide for investment advisory services to the Funds upon the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Advisory Services. The Advisor shall act as investment advisor for the
Funds and shall, in such capacity, supervise all aspects of the Funds'
operations, including the investment and reinvestment of cash, securities or
other properties comprising the Funds' assets, subject at all times to the
policies and control of the Board of Trustees. The Advisor shall give the Trust
and the Funds the benefit of its best judgment, efforts and facilities in
rendering its services as investment advisor.
2. Investment Analysis and Implementation. In carrying out its
obligations under Section 1 hereof, the Advisor shall:
(a) supervise all aspects of the operations of the Funds;
(b) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Funds,
and whether concerning the individual issuers whose securities are included
in the assets of the Funds or the activities in which such issuers engage,
or with respect to securities which the Advisor considers desirable for
inclusion in the Funds' assets;
(c) determine which issuers and securities shall be represented in the
Funds' investment portfolios and regularly report thereon to the Board of
Trustees;
(d) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon to the
Board of Trustees; and
(e) take, on behalf of the Trust and the Funds, all actions which
appear to the Trust and the Funds necessary to carry into effect such
purchase and sale programs and supervisory functions as aforesaid,
including but not limited to the placing of orders for the purchase and
sale of securities for the Funds.
IV-1
3. Securities Lending Duties and Fees. The Advisor agrees to provide the
following services in connection with the securities lending activities of each
Fund: (a) oversee participation in the securities lending program to ensure
compliance with all applicable regulatory and investment guidelines; (b) assist
the securities lending agent or principal (the "Agent") in determining which
specific securities are available for loan; (c) monitor the Agent to ensure that
securities loans are effected in accordance with the Advisor's instructions and
with procedures adopted by the Board of Trustees; (d) prepare appropriate
periodic reports for, and seek appropriate approvals from, the Board of Trustees
with respect to securities lending activities; (e) respond to Agent inquiries;
and (f) perform such other duties as necessary.
As compensation for such services provided by the Advisor in connection
with securities lending activities of each Fund, a lending Fund shall pay the
Advisor a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities.
4. Delegation of Responsibilities. The Advisor is authorized to delegate
any or all of its rights, duties and obligations under this Agreement to one or
more sub-advisors, and may enter into agreements with sub-advisors, and may
replace any such sub-advisors from time to time in its discretion, in accordance
with the 1940 Act, the Advisers Act, and rules and regulations thereunder, as
such statutes, rules and regulations are amended from time to time or are
interpreted from time to time by the staff of the Securities and Exchange
Commission ("SEC"), and if applicable, exemptive orders or similar relief
granted by the SEC and upon receipt of approval of such sub-advisors by the
Board of Trustees and by shareholders (unless any such approval is not required
by such statutes, rules, regulations, interpretations, orders or similar
relief).
5. Independent Contractors. The Advisor and any sub-advisors shall for
all purposes herein be deemed to be independent contractors and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Trust in any way or otherwise be deemed to be an agent of the
Trust.
6. Control by Board of Trustees. Any investment program undertaken by the
Advisor pursuant to this Agreement, as well as any other activities undertaken
by the Advisor on behalf of the Funds, shall at all times be subject to any
directives of the Board of Trustees.
7. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and the Advisers Act and
any rules and regulations adopted thereunder;
(b) the provisions of the registration statement of the Trust, as the
same may be amended from time to time under the Securities Act of 1933 and
the 1940 Act;
(c) the provisions of the Declaration of Trust, as the same may be
amended from time to time;
(d) the provisions of the by-laws of the Trust, as the same may be
amended from time to time; and
(e) any other applicable provisions of state, federal or foreign law.
8. Broker-Dealer Relationships. The Advisor is responsible for decisions
to buy and sell securities for the Funds, broker-dealer selection, and
negotiation of brokerage commission rates.
(a) The Advisor's primary consideration in effecting a security
transaction will be to obtain the best execution.
(b) In selecting a broker-dealer to execute each particular
transaction, the Advisor will take the following into consideration: the
best net price available; the reliability, integrity and financial
condition of the broker-dealer; the size of and the difficulty in executing
the order; and the value of the expected contribution of the broker-dealer
to the investment performance of the Funds on a continuing basis.
Accordingly, the price to the Funds in any transaction may be less
favorable than
IV-2
that available from another broker-dealer if the difference is reasonably
justified by other aspects of the fund execution services offered.
(c) Subject to such policies as the Board of Trustees may from time to
time determine, the Advisor shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Funds to pay a broker or dealer that
provides brokerage and research services to the Advisor an amount of
commission for effecting a fund investment transaction in excess of the
amount of commission another broker or dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the Advisor's overall
responsibilities with respect to a particular Fund, other Funds of the
Trust, and to other clients of the Advisor as to which the Advisor
exercises investment discretion. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Funds to such brokers and
dealers who also provide research or statistical material, or other
services to the Funds, to the Advisor, or to any sub-advisor. Such
allocation shall be in such amounts and proportions as the Advisor shall
determine and the Advisor will report on said allocations regularly to the
Board of Trustees indicating the brokers to whom such allocations have been
made and the basis therefor.
(d) With respect to one or more Funds, to the extent the Advisor does
not delegate trading responsibility to one or more sub-advisors, in making
decisions regarding broker-dealer relationships, the Advisor may take into
consideration the recommendations of any sub-advisor appointed to provide
investment research or advisory services in connection with the Funds, and
may take into consideration any research services provided to such
sub-advisor by broker-dealers.
(e) Subject to the other provisions of this Section 8, the 1940 Act,
the Securities Exchange Act of 1934, and rules and regulations thereunder,
as such statutes, rules and regulations are amended from time to time or
are interpreted from time to time by the staff of the SEC, any exemptive
orders issued by the SEC, and any other applicable provisions of law, the
Advisor may select brokers or dealers with which it or the Funds are
affiliated.
9. Compensation. The compensation that each Fund shall pay the Advisor is
set forth in Appendix B attached hereto.
10. Expenses of the Funds. All of the ordinary business expenses incurred
in the operations of the Funds and the offering of their shares shall be borne
by the Funds unless specifically provided otherwise in this Agreement. These
expenses borne by the Funds include but are not limited to brokerage
commissions, taxes, legal, accounting, auditing, or governmental fees, the cost
of preparing share certificates, custodian, transfer and shareholder service
agent costs, expenses of issue, sale, redemption and repurchase of shares,
expenses of registering and qualifying shares for sale, expenses relating to
trustees and shareholder meetings, the cost of preparing and distributing
reports and notices to shareholders, the fees and other expenses incurred by the
Trust on behalf of the Funds in connection with membership in investment company
organizations and the cost of printing copies of prospectuses and statements of
additional information distributed to the Funds' shareholders.
11. Services to Other Companies or Accounts. The Trust understands that
the Advisor now acts, will continue to act and may act in the future as
investment manager or advisor to fiduciary and other managed accounts, and as
investment manager or advisor to other investment companies, including any
offshore entities, or accounts, and the Trust has no objection to the Advisor so
acting, provided that whenever the Trust and one or more other investment
companies or accounts managed or advised by the Advisor have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each company and account.
The Trust recognizes that in some cases this procedure may adversely affect the
size of the positions obtainable and the prices realized for the Funds.
IV-3
12. Non-Exclusivity. The Trust understands that the persons employed by
the Advisor to assist in the performance of the Advisor's duties under this
Agreement will not devote their full time to such service and nothing contained
in this Agreement shall be deemed to limit or restrict the right of the Advisor
or any affiliate of the Advisor to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature. The Trust
further understands and agrees that officers or directors of the Advisor may
serve as officers or trustees of the Trust, and that officers or trustees of the
Trust may serve as officers or directors of the Advisor to the extent permitted
by law; and that the officers and directors of the Advisor are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm or trust, including other investment advisory companies.
13. Effective Date, Term and Approval. This Agreement shall become
effective with respect to a Fund, if approved by the shareholders of such Fund,
on the Effective Date for such Fund, as set forth in Appendix A attached hereto.
If so approved, this Agreement shall thereafter continue in force and effect
until , 200 , and may be continued from year to year thereafter,
provided that the continuation of the Agreement is specifically approved at
least annually:
(a) (i) by the Board of Trustees or (ii) by the vote of "a majority of
the outstanding voting securities" of such Fund (as defined in Section
2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or "interested persons" (as defined in the 1940
Act) of a party to this Agreement (other than as trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated as to the Trust or as
to any one or more of the Funds at any time, without the payment of any penalty,
by vote of the Board of Trustees or by vote of a majority of the outstanding
voting securities of the applicable Fund, or by the Advisor, on sixty (60) days'
written notice to the other party. The notice provided for herein may be waived
by the party entitled to receipt thereof. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for purposes of
this paragraph having the meaning defined in Section 2(a)(4) of the 1940 Act.
15. Amendment. No amendment of this Agreement shall be effective unless
it is in writing and signed by the party against which enforcement of the
amendment is sought.
16. Liability of Advisor and Fund. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Advisor or any of its officers, directors or
employees, the Advisor shall not be subject to liability to the Trust or to the
Funds or to any shareholder of the Funds for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security. Any liability of
the Advisor to one Fund shall not automatically impart liability on the part of
the Advisor to any other Fund. No Fund shall be liable for the obligations of
any other Fund.
17. Liability of Shareholders. Notice is hereby given that, as provided
by applicable law, the obligations of or arising out of this Agreement are not
binding upon any of the shareholders of the Trust individually but are binding
only upon the assets and property of the Trust and that the shareholders shall
be entitled, to the fullest extent permitted by applicable law, to the same
limitation on personal liability as shareholders of private corporations for
profit.
18. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered, telecopied or mailed postage paid, to the other party
entitled to receipt thereof at such address as such party may designate for the
receipt of such notice. Until further notice to the other party, it is agreed
that the address of the Trust and that of the Advisor shall be 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173.
19. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act or the
IV-4
Advisers Act shall be resolved by reference to such term or provision of the
1940 Act or the Advisers Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to said Acts.
In addition, where the effect of a requirement of the 1940 Act or the Advisers
Act reflected in any provision of the Agreement is revised by rule, regulation
or order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Subject to the foregoing, this Agreement shall
be governed by and construed in accordance with the laws (without reference to
conflicts of law provisions) of the State of Texas.
20. License Agreement. The Trust shall have the non-exclusive right to
use the name "AIM" to designate any current or future series of shares only so
long as A I M Advisors, Inc. serves as investment manager or advisor to the
Trust with respect to such series of shares.
IV-5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
written above.
[REGISTRANT]
(a Delaware statutory trust)
Attest:
<Table>
- ----------------------------------------- By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
Attest:
A I M ADVISORS, INC.
- -----------------------------------------
By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
</Table>
IV-6
APPENDIX A
FUNDS AND EFFECTIVE DATES
<Table>
<Caption>
NAME OF FUND EFFECTIVE DATE OF ADVISORY AGREEMENT
- ------------ ------------------------------------
[To Be Added] [To Be Added]
</Table>
A-1
APPENDIX B
COMPENSATION TO THE ADVISOR
The Trust shall pay the Advisor, out of the assets of a Fund, as full
compensation for all services rendered, an advisory fee for such Fund set forth
below. Such fee shall be calculated by applying the following annual rates to
the average daily net assets of such Fund for the calendar year computed in the
manner used for the determination of the net asset value of shares of such Fund.
[To Be Added -- Please see Exhibit L for the annual rates applicable to
your Fund]
B-1
APPENDIX V
[NAME OF INVESCO FUND]
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of August
13, 2003, by and between [name of current INVESCO Fund], a Maryland corporation
(the "Company"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A to this Agreement, and
[name of new Delaware statutory trust], a Delaware statutory trust (the
"Trust"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A.
BACKGROUND
The Company is organized as a series management investment company and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended. The Company currently publicly offers shares of
common stock representing interests in one or more separate series portfolios.
Each of these series portfolios is listed on Schedule A and is referred to in
this Agreement as a "Current Fund."
The Board of Directors of the Company has designated one or more classes of
common stock that represent interests in each Current Fund. Each of these
classes is listed on Schedule B to this Agreement and is referred to in this
Agreement as a "Current Fund Class."
The Company desires to change its form and place of organization by
reorganizing as the Trust. In anticipation of such reorganization, the Board of
Trustees of the Trust has established a series portfolio corresponding to each
of the Current Funds (each a "New Fund"), and has designated one or more classes
of shares of beneficial interest in each New Fund corresponding to the Current
Fund Classes (each a "New Fund Class"). Schedule A lists the New Funds and
Schedule B lists the New Fund Classes.
Each Current Fund desires to provide for its Reorganization (each, a
"Reorganization" and collectively, the "Reorganizations") through the transfer
of all of its assets to the corresponding New Fund in exchange for the
assumption by such New Fund of the liabilities of the corresponding Current Fund
and the issuance by the Trust to such Current Fund of shares of beneficial
interest in the New Fund ("New Fund Shares"). New Fund Shares received by a
Current Fund will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the Current Fund immediately prior to the
Reorganization (the "Current Fund Shares"). Each Current Fund will then
distribute the New Fund Shares it has received to its shareholders.
Each Reorganization of each Current Fund is dependent upon the consummation
of the Reorganization of all of the other Current Funds, so that the
Reorganizations of all of the Current Funds must be consummated if any of them
are to be consummated. For convenience, the balance of this Agreement refers
only to a single Reorganization, but the terms and conditions hereof shall apply
separately to each Reorganization and to the Current Fund and the corresponding
New Fund participating therein, as applicable.
The Reorganization is subject to, and shall be effected in accordance with,
the terms of this Agreement. This Agreement is intended to be and is adopted by
the Company, on its own behalf and on behalf of the Current Funds, and by the
Trust, on its own behalf and on behalf of the New Funds, as a Plan of
Reorganization within the meaning of the regulations under Section 368(a) of the
Internal Revenue Code of 1986, as amended.
V-1
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS
Any capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the preamble or background to this Agreement. In addition,
the following terms shall have the following meanings:
1.1 "Assets" shall mean all assets including, without limitation, all
cash, cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to register shares
under applicable securities laws, books and records, deferred and prepaid
expenses shown as assets on a Current Fund's books, and other property owned by
a Current Fund at the Effective Time.
1.2 "Closing" shall mean the consummation of the transfer of Assets,
assumption of Liabilities and issuance of shares described in Sections 2.1 and
2.2 of this Agreement, together with the related acts necessary to consummate
the Reorganization, to occur on the date set forth in Section 3.1.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.4 "Current Fund" shall mean each of the series portfolios of the Company
as shown on Schedule A.
1.5 "Current Fund Class" shall mean each class of common stock of the
Company representing an interest in a Current Fund as shown on Schedule B.
1.6 "Current Fund Shares" shall mean the shares of a Current Fund
outstanding immediately prior to the Reorganization.
1.7 "Effective Time" shall have the meaning set forth in Section 3.1.
1.8 "Liabilities" shall mean all liabilities of a Current Fund including,
without limitation, all debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
determinable at the Effective Time, and whether or not specifically referred to
herein.
1.9 "New Fund" shall mean each of the series portfolios of the Trust, one
of which shall correspond to one of the Current Funds as shown on Schedule A.
1.10 "New Fund Class" shall mean each class of shares of beneficial
interest in a New Fund, one of which shall correspond to one of the Current Fund
Classes as shown on Schedule B.
1.11 "New Fund Shares" shall mean those shares of beneficial interest in a
New Fund issued to a Current Fund hereunder.
1.12 "Registration Statement" shall have the meaning set forth in Section
5.4.
1.13 "RIC" shall mean a "regulated investment company" (as defined under
Subchapter M of the Code).
1.14 "SEC" shall mean the Securities and Exchange Commission.
1.15 "Shareholder(s)" shall mean a Current Fund's shareholder(s) of
record, determined as of the Effective Time.
1.16 "Shareholders Meeting" shall have the meaning set forth in Section
5.1.
1.17 "Transfer Agent" shall have the meaning set forth in Section 2.2.
1.18 "1940 Act" shall mean the Investment Company Act of 1940, as amended.
V-2
2. PLAN OF REORGANIZATION
2.1 The Company agrees, on behalf of each Current Fund, to assign, sell,
convey, transfer and deliver all of the Assets of each Current Fund to its
corresponding New Fund. The Trust, on behalf of each New Fund, agrees in
exchange therefor:
(a) to issue and deliver to the corresponding Current Fund the number
of full and fractional (rounded to the third decimal place) New Fund Shares
of each New Fund Class designated on Schedule B equal to the number of full
and fractional Current Fund Shares of each corresponding Current Fund Class
designated on Schedule B; and
(b) to assume all of the Current Fund's Liabilities.
Such transactions shall take place at the Closing.
2.2 At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Shares issued pursuant to Section 5.2 shall be
redeemed by each New Fund for $10.00 and (b) each Current Fund shall distribute
the New Fund Shares received by it pursuant to Section 2.1 to the Current Fund's
Shareholders in exchange for such Shareholders' Current Fund Shares. Such
distribution shall be accomplished through opening accounts, by the transfer
agent for the Trust (the "Transfer Agent"), on each New Fund's share transfer
books in the Shareholders' names and transferring New Fund Shares to such
accounts. Each Shareholder's account shall be credited with the respective pro
rata number of full and fractional (rounded to the third decimal place) New Fund
Shares of each New Fund Class due that Shareholder. All outstanding Current Fund
Shares, including those represented by certificates, shall simultaneously be
canceled on each Current Fund's share transfer books. The Trust shall not issue
certificates representing the New Fund Shares in connection with the
Reorganization. However, certificates representing Current Fund Shares shall
represent New Fund Shares after the Reorganization.
2.3 Following receipt of the required shareholder vote and as soon as
reasonably practicable after the Closing, the status of each Current Fund as a
designated series of the Company shall be terminated; provided, however, that
the termination of each Current Fund as a designated series of the Company shall
not be required if the Reorganization shall not have been consummated.
2.4 Following receipt of the required shareholder vote and as soon as
reasonably practicable after distribution of the New Fund Shares pursuant to
Section 2.2, the Company and the Trust shall cause Articles of Transfer to be
filed with the State Department of Assessments and Taxation of Maryland and,
following the filing of Articles of Transfer, the Company shall file Articles of
Dissolution with the State Department of Assessments and Taxation of Maryland to
dissolve the Company as a Maryland corporation; provided, however, that the
filing of Articles of Transfer and Articles of Dissolution as aforesaid shall
not be required if the Reorganization shall not have been consummated.
2.5 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder of the Current Fund Shares exchanged
therefor shall be paid by the person to whom such New Fund Shares are to be
issued, as a condition of such transfer.
2.6 Any reporting responsibility of the Company or each Current Fund to a
public authority is and shall remain its responsibility up to and including the
date on which it is terminated.
3. CLOSING
3.1 The Closing shall occur at the principal office of the Company on
[date], 2003, or on such other date and at such other place upon which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the Company's and the Trust's close of business on
the date of the Closing or at such other time as the parties may agree (the
"Effective Time").
3.2 The Company or its fund accounting agent shall deliver to the Trust at
the Closing, a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, transferred by the Current Funds to
the New
V-3
Funds, as reflected on the New Funds' books immediately following the Closing,
does or will conform to such information on the Current Funds' books immediately
before the Closing. The Company shall cause the custodian for each Current Fund
to deliver at the Closing a certificate of an authorized officer of the
custodian stating that (a) the Assets held by the custodian will be transferred
to each corresponding New Fund at the Effective Time and (b) all necessary taxes
in conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3 The Company shall deliver to the Trust at the Closing a list of the
names and addresses of each Shareholder of each Current Fund and the number of
outstanding Current Fund Shares of the Current Fund Class owned by each
Shareholder, all as of the Effective Time, certified by the Company's Secretary
or Assistant Secretary. The Trust shall cause the Transfer Agent to deliver at
the Closing a certificate as to the opening on each New Fund's share transfer
books of accounts in the Shareholders' names. The Trust shall issue and deliver
a confirmation to the Company evidencing the New Fund Shares to be credited to
each corresponding Current Fund at the Effective Time or provide evidence
satisfactory to the Company that such shares have been credited to each Current
Fund's account on such books. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, stock certificates, receipts, or
other documents as the other party or its counsel may reasonably request.
3.4 The Company and the Trust shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Company represents and warrants on its own behalf and on behalf of
each Current Fund as follows:
(a) The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland, and its Charter
is on file with the Maryland Department of Assessments and Taxation;
(b) The Company is duly registered as an open-end series management
investment company under the 1940 Act, and such registration is in full
force and effect;
(c) Each Current Fund is a duly established and designated series of
the Company;
(d) At the Closing, each Current Fund will have good and marketable
title to its Assets and full right, power, and authority to sell, assign,
transfer, and deliver its Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, the corresponding New Fund
will acquire good and marketable title to the Assets;
(e) The New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms
hereof;
(f) Each Current Fund is a "fund" as defined in Section 851(g)(2) of
the Code; each Current Fund qualified for treatment as a RIC for each
taxable year since it commenced operations that has ended (or will end)
before the Closing and will continue to meet all the requirements for such
qualification for its current taxable year (and the Assets will be invested
at all times through the Effective Time in a manner that ensures compliance
with the foregoing); each Current Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it; and each Current Fund has made all distributions for each
calendar year that has ended (or will end) before the Closing that are
necessary to avoid the imposition of federal excise tax or has paid or
provided for the payment of any excise tax imposed for any such calendar
year;
V-4
(g) During the five-year period ending on the date of the
Reorganization, neither Company nor any person related to Company (as
defined in Section 1.368-1(e)(3) of the Federal income tax regulations
adopted pursuant to the Code without regard to Section 1.368-1(e)(3)(i)(A))
will have directly or through any transaction, agreement, or arrangement
with any other person, (i) acquired shares of a Current Fund for
consideration other than shares of such Current Fund, except for shares
redeemed in the ordinary course of such Current Fund's business as an
open-end investment company as required by the 1940 Act, or (ii) made
distributions with respect to a Current Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and
4982 of the Code for qualification as a regulated investment company and
avoidance of excise tax liability and (b) additional distributions, to the
extent such additional distributions do not exceed 50 percent of the value
(without giving effect to such distributions) of the proprietary interest
in such Current Fund at the Effective Time. There is no plan or intention
of the Shareholders who individually own 5% or more of any Current Fund
Shares and, to the best of the Company's knowledge, there is no plan or
intention of the remaining Shareholders to redeem or otherwise dispose of
any New Fund Shares to be received by them in the Reorganization. The
Company does not anticipate dispositions of those shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
redemptions of shares of the Current Fund as a series of an open-end
investment company. Consequently, the Company is not aware of any plan that
would cause the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganization to be one
percent (1%) or more of the shares of the Current Fund outstanding as of
the Effective Time;
(h) The Liabilities were incurred by the Current Funds in the ordinary
course of their business and are associated with the Assets;
(i) The Company is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
(j) As of the Effective Time, no Current Fund will have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Current Fund Shares except for
the right of investors to acquire its shares at net asset value in the
normal course of its business as a series of an open-end diversified
management investment company operating under the 1940 Act;
(k) At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by the Company's
shareholders;
(l) Throughout the five-year period ending on the date of the Closing,
each Current Fund will have conducted its historic business within the
meaning of Section 1.368-1(d) of the Income Tax Regulations under the Code
in a substantially unchanged manner;
(m) The fair market value of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred Assets are subject; and
(n) The total adjusted basis of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred assets are subject.
4.2 The Trust represents and warrants on its own behalf and on behalf of
each New Fund as follows:
(a) The Trust is a statutory trust duly organized, validly existing,
and in good standing under the laws of the State of Delaware, and its
Certificate of Trust has been duly filed in the office of the Secretary of
State of Delaware;
(b) The Trust is duly registered as an open-end management investment
company under the 1940 Act. At the Effective Time, the New Fund Shares to
be issued pursuant to Section 2.1 of this Agreement shall be duly
registered under the Securities Act of 1933 by a Registration Statement
filed with the SEC;
V-5
(c) At the Effective Time, each New Fund will be a duly established
and designated series of the Trust;
(d) No New Fund has commenced operations nor will it commence
operations until after the Closing;
(e) Prior to the Effective Time, there will be no issued and
outstanding shares in any New Fund or any other securities issued by the
Trust on behalf of any New Fund, except as provided in Section 5.2;
(f) No consideration other than New Fund Shares (and each New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets in
the Reorganization;
(g) The New Fund Shares to be issued and delivered to each
corresponding Current Fund hereunder will, at the Effective Time, have been
duly authorized and, when issued and delivered as provided herein, will be
duly and validly issued and outstanding shares of the New Fund, fully paid
and nonassessable;
(h) Each New Fund will be a "fund" as defined in Section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
(i) The Trust, on behalf of the New Funds, has no plan or intention to
issue additional New Fund Shares following the Reorganization except for
shares issued in the ordinary course of its business as an open-end
investment company; nor does the Trust, on behalf of the New Funds, have
any plan or intention to redeem or otherwise reacquire any New Fund Shares
issued pursuant to the Reorganization, other than in the ordinary course of
such business or to the extent necessary to comply with its legal
obligation under Section 22(e) of the 1940 Act;
(j) Each New Fund will actively continue the corresponding Current
Fund's business in substantially the same manner that the Current Fund
conducted that business immediately before the Reorganization; and no New
Fund has any plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of its business
or dispositions necessary to maintain its qualification as a RIC, although
in the ordinary course of its business the New Fund will continuously
review its investment portfolio (as each Current Fund did before the
Reorganization) to determine whether to retain or dispose of particular
stocks or securities, including those included in the Assets, provided,
however that this Section 4.2(j) shall not preclude any of the combinations
of funds set forth on Schedule C to this Agreement; and
(k) There is no plan or intention for any of the New Funds to be
dissolved or merged into another corporation or statutory trust or "fund"
thereof (within the meaning of Section 851(g)(2) of the Code) following the
Reorganization, provided, however that this Section 4.2(k) shall not
preclude any of the combinations of Funds set forth on Schedule C.
4.3 Each of the Company and the Trust, on its own behalf and on behalf of
each Current Fund or each New Fund, as appropriate, represents and warrants as
follows:
(a) The fair market value of the New Fund Shares of each New Fund
received by each Shareholder will be equal to the fair market value of the
Current Fund Shares of the corresponding Current Fund surrendered in
exchange therefor;
(b) Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares of each New Fund and will own
such shares solely by reason of their ownership of the Current Fund Shares
of the corresponding Current Fund immediately before the Reorganization;
(c) The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
V-6
(d) There is no intercompany indebtedness between a Current Fund and a
New Fund that was issued or acquired, or will be settled, at a discount;
and
(e) Immediately following consummation of the Reorganization, each New
Fund will hold the same assets, except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization, and be subject to
the same liabilities that the corresponding Current Fund held or was
subject to immediately prior to the Reorganization. Assets used to pay (i)
expenses, (ii) all redemptions (other than redemptions at the usual rate
and frequency of the Current Fund as a series of an open-end investment
company), and (iii) distributions (other than regular, normal
distributions), made by a Current Fund after the date of this Agreement
will, in the aggregate, constitute less than one percent (1%) of its net
assets.
5. COVENANTS
5.1 As soon as practicable after the date of this Agreement, the Company
shall call a meeting of its shareholders (the "Shareholders Meeting") to
consider and act on this Agreement and, in connection therewith, the sale of all
of the Company's assets and the dissolution of the Company as a Maryland
corporation. The Board of Directors of the Company shall recommend that
shareholders approve this Agreement and, in connection therewith, sale of all of
the Company's assets and the dissolution of the Company as a Maryland
corporation. Approval by shareholders of this Agreement will authorize the
Company, and the Company hereby agrees, to vote on the matters referred to in
Sections 5.2 and 5.3.
5.2 Prior to the Closing, the Company shall acquire one New Fund Share in
each New Fund Class of each New Fund for the purpose of enabling the Company to
elect the Company's directors as the Trust's trustees (to serve without limit in
time, except as they may resign or be removed by action of the Trust's trustees
or shareholders), to ratify the selection of the Trust's independent
accountants, and to vote on the matters referred to in Section 5.3.
5.3 Immediately prior to the Closing, the Trust (on its own behalf and
with respect to each New Fund or each New Fund Class, as appropriate) shall
enter into a Master Investment Advisory Agreement, a Master Sub-Advisory
Agreement, if applicable, a Master Administrative Services Agreement, Master
Distribution Agreements, a Custodian Agreement, and a Transfer Agency and
Servicing Agreement; shall adopt plans of distribution pursuant to Rule 12b-l of
the 1940 Act, a multiple class plan pursuant to Rule 18f-3 of the 1940 Act; and
shall enter into or adopt, as appropriate, such other agreements and plans as
are necessary for each New Fund's operation as a series of an open-end
investment company. Each such agreement and plan shall have been approved by the
Trust's trustees and, to the extent required by law, by such of those trustees
who are not "interested persons" of the Trust (as defined in the 1940 Act) and
by the Company as the sole shareholder of each New Fund.
5.4 The Company or the Trust, as appropriate, shall file with the SEC one
or more post-effective amendments to the Company's Registration Statement on
Form N-lA under the Securities Act of 1933, as amended, and the 1940 Act, as
amended (the "Registration Statement"), (i) which will contain such amendments
to such Registration Statement as are determined by the Company to be necessary
and appropriate to effect the Reorganization, (ii) which will register the New
Fund Shares to be issued pursuant to Section 2.1 of this Agreement, and (iii) if
applicable, under which the Trust will succeed to the Registration Statement,
and shall use its best efforts to have such post-effective amendment or
amendments to the Registration Statement become effective as of the Closing.
6. CONDITIONS PRECEDENT
The obligations of the Company, on its own behalf and on behalf of each
Current Fund, and the Trust, on its own behalf and on behalf of each New Fund,
will be subject to (a) performance by the other party of all its obligations to
be performed hereunder at or before the Effective Time, (b) all representations
and warranties of the other party contained herein being true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated
V-7
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
6.1 The shareholders of the Company shall have approved this
Agreement and the transactions contemplated by this Agreement in accordance
with applicable law.
6.2 All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry
out the transactions contemplated hereby. All consents, orders, and permits
of federal, state, and local regulatory authorities (including the SEC and
state securities authorities) deemed necessary by either the Company or the
Trust to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain such consults, orders, and permits would not involve a risk of a
material adverse effect on the assets or properties of either a Current
Fund or a New Fund, provided that either the Company or the Trust may for
itself waive any of such conditions.
6.3 Each of the Company and the Trust shall have received an opinion
from Ballard Spahr Andrews & Ingersoll, LLP as to the federal income tax
consequences mentioned below. In rendering such opinion, such counsel may
rely as to factual matters, exclusively and without independent
verification, on the representations made in this Agreement (or in separate
letters of representation that the Company and the Trust shall use their
best efforts to deliver to such counsel) and the certificates delivered
pursuant to Section 3.4. Such opinion shall be substantially to the effect
that, based on the facts and assumptions stated therein and conditioned on
consummation of the Reorganization in accordance with this Agreement, for
federal income tax purposes:
(a) The Reorganization will constitute a reorganization within the
meaning of section 368(a) of the Code, and each Current Fund and each
New Fund will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(b) No gain or loss will be recognized to a Current Fund on the
transfer of its Assets to the corresponding New Fund in exchange solely
for the New Fund's New Fund Shares and the New Fund's assumption of the
Current Fund's Liabilities or on the subsequent distribution of those
New Fund Shares to its Shareholders, in constructive exchange for their
Current Fund Shares, in liquidation of the Current Fund;
(c) No gain or loss will be recognized to a New Fund on its receipt
of the corresponding Current Fund's Assets in exchange for New Fund
Shares and its assumption of the Current Fund's Liabilities;
(d) Each New Fund's basis for the corresponding Current Fund's
Assets will be the same as the basis thereof in the Current Fund's hands
immediately before the Reorganization, and the New Fund's holding period
for those Assets will include the Current Fund's holding period
therefor;
(e) A Shareholder will recognize no gain or loss on the
constructive exchange of Current Fund Shares solely for New Fund Shares
pursuant to the Reorganization; and
(f) A Shareholder's basis for the New Fund Shares of each New Fund
to be received in the Reorganization will be the same as the basis for
the Current Fund Shares of the corresponding Current Fund to be
constructively surrendered in exchange for such New Fund Shares, and a
Shareholder's holding period for such New Fund Shares will include its
holding period for such Current Fund Shares, provided that such Current
Fund Shares are held as capital assets by the Shareholder at the
Effective Time.
6.4 No stop-order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceeding for that purpose shall
have been initiated or threatened by the SEC (and not withdrawn or
terminated).
V-8
At any time prior to the Closing, any of the foregoing conditions (except
those set forth in Sections 6.1 and 6.3) may be waived by the directors/trustees
of either the Company or the Trust if, in their judgment, such waiver will not
have a material adverse effect on the interests of the Current Fund's
Shareholders.
7. EXPENSES
Except as otherwise provided in Section 4.3(c), all expenses incurred in
connection with the transactions contemplated by this Agreement (regardless of
whether they are consummated) will be borne by the parties as they mutually
agree.
8. ENTIRE AGREEMENT
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties.
9. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding its approval by the Company's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
shareholders' interests.
10. TERMINATION
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by the Company's shareholders:
10.1 By either the Company or the Trust (a) in the event of the other
party's material breach of any representation, warranty, or covenant
contained herein to be performed at or prior to the Effective Time, (b) if
a condition to its obligations has not been met and it reasonably appears
that such condition will not or cannot be met, or (c) if the Closing has
not occurred on or before December 31, 2003; or
10.2 By the parties' mutual agreement.
Except as otherwise provided in Section 7, in the event of termination
under Sections 10.1(c) or 10.2, there shall be no liability for damages on the
part of either the Company or the Trust or any Current Fund or corresponding New
Fund, to the other.
11. MISCELLANEOUS
11.1 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2 Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3 The execution and delivery of this Agreement have been authorized by
the Trust's trustees, and this Agreement has been executed and delivered by a
duly authorized officer of the Trust in his or her capacity as an officer of the
Trust intending to bind the Trust as provided herein, and no officer, trustee or
shareholder of the Trust shall be personally liable for the liabilities or
obligations of the Trust incurred hereunder. The liabilities and obligations of
the Trust pursuant to this Agreement shall be enforceable against the assets of
the New Funds only and not against the assets of the Trust generally.
V-9
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.
<Table>
Attest: [NAME OF MARYLAND CORPORATION],
on behalf of each of its series listed in Schedule A
By: ----------------------------------------------------
- --------------------------------------------
Title:
--------------------------------------------------
Attest: [NAME OF DELAWARE STATUTORY TRUST],
on behalf of each of its series listed in Schedule A
By: ----------------------------------------------------
- --------------------------------------------
Title:
--------------------------------------------------
</Table>
V-10
SCHEDULE A
<Table>
<Caption>
SERIES OF CORRESPONDING SERIES OF
[MARYLAND CORPORATION] [DELAWARE STATUTORY TRUST]
(EACH A "CURRENT FUND") (EACH A "NEW FUND")
- ----------------------- --------------------------
[To Be Added]............................................... [To Be Added]
</Table>
V-11
SCHEDULE B
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF EACH CURRENT FUND EACH NEW FUND
- ---------------------------- ------------------------
[To Be Added]............................................... [To Be Added]
</Table>
V-12
SCHEDULE C
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
V-13
GROUP T-IG&I
(INVESCO LOGO)
INVESCO VALUE EQUITY FUND,
A PORTFOLIO OF INVESCO STOCK FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
August 25, 2003
Dear Shareholder:
As you may be aware, AMVESCAP PLC, the parent company of your Fund's
investment advisor, has undertaken an integration initiative for its North
American mutual fund operations.
In the first phase of the integration initiative, A I M Distributors, Inc.
became the sole distributor for all AMVESCAP PLC mutual funds in the United
States. A I M Distributors, Inc. is now the distributor for all INVESCO Funds
(including your Fund) and the AIM Funds.
AMVESCAP PLC also reviewed all INVESCO Funds and AIM Funds and concluded
that it would be appropriate to reduce the number of smaller and less efficient
funds that compete for limited shareholder assets and to consolidate certain
funds having similar investment objectives and strategies. Your Fund is one of
the funds that AMVESCAP PLC recommended, and your Board of Directors approved,
be consolidated with another fund. The attached proxy statement/prospectus seeks
your approval of this consolidation.
As part of the integration initiative, AMVESCAP PLC has recommended
restructuring the advisory and administrative servicing arrangements so that A I
M Advisors, Inc. is the advisor and administrator for all INVESCO Funds and AIM
Funds. Your Board has approved a new advisory agreement under which A I M
Advisors, Inc. will serve as the investment advisor for your Fund. The portfolio
management team for your Fund will not change as a result of this restructuring.
The attached proxy statement/prospectus seeks your approval of this new
investment advisory agreement. If approved, this new agreement will become
effective only if shareholders do not approve the proposal to consolidate your
Fund.
The integration initiative also calls for changing the organizational
structure of the INVESCO Funds and the AIM Funds. To accomplish this goal,
AMVESCAP PLC has recommended that all INVESCO Funds and AIM Funds organized as
Maryland corporations change their form and state of organization to Delaware
statutory trusts. Your Board has approved redomesticating your Fund as a series
of a Delaware statutory trust. The attached proxy statement/prospectus seeks
your approval of this redomestication. If approved, the redomestication will
become effective only if shareholders do not approve the proposal to consolidate
your Fund.
Finally, the independent directors of your Board believe that your
interests would best be served if the INVESCO Funds and the AIM Funds had a
unified board of directors/trustees. The attached proxy statement/prospectus
seeks your vote in favor of the persons nominated to serve as directors.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote your shares in person. If you
expect to attend the meeting in person, or have questions, please notify us by
calling (800) 952-3502. You may also vote your shares by telephone or through a
website established for that purpose by following the instructions that appear
on the enclosed proxy card. If we do not hear from you after a reasonable amount
of time, you may receive a telephone call from our proxy solicitor, Georgeson
Shareholder Communications Inc., reminding you to vote your shares.
Sincerely,
-s- Raymond R. Cunningham
Raymond R. Cunningham
President
INVESCO VALUE EQUITY FUND,
A PORTFOLIO OF
INVESCO STOCK FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 21, 2003
To the Shareholders of INVESCO Value Equity Fund:
We cordially invite you to attend our Special Meeting of Shareholders
to:
1. Approve an Agreement and Plan of Reorganization (the "Agreement")
under which all of the assets of your Fund, an investment portfolio of
INVESCO Stock Funds, Inc. ("Company"), will be transferred to AIM Large Cap
Basic Value Fund ("Buying Fund"), an investment portfolio of AIM Equity
Funds ("Buyer"), Buying Fund will assume the liabilities of your Fund and
Buyer will issue shares of each class of Buying Fund to shareholders of the
corresponding class of shares of your Fund.
2. Elect 16 directors to the Board of Directors of Company, each of
whom will serve until his or her successor is elected and qualified.
3. Approve a new investment advisory agreement with A I M Advisors,
Inc. for your Fund.
4. Approve an Agreement and Plan of Reorganization (the "Plan") which
provides for the redomestication of Company as a Delaware statutory trust
and, in connection therewith, the sale of all of Company's assets and the
dissolution of Company as a Maryland corporation.
5. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies
or their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas, 77406-1173 on October 21, 2003, at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on July 25, 2003 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment of
the Special Meeting.
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
THE ACCOMPANYING PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
COMPANY. YOU MAY ALSO VOTE YOUR SHARES BY TELEPHONE OR THROUGH A WEBSITE
ESTABLISHED FOR THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY
MATERIALS. YOUR VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE
SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY
EXECUTING AND SUBMITTING A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION
TO THE SECRETARY OF COMPANY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
-s- Glen A. Payne
Glen A. Payne
Secretary
August 25, 2003
<Table>
INVESCO VALUE EQUITY FUND, AIM LARGE CAP BASIC VALUE FUND,
A PORTFOLIO OF A PORTFOLIO OF
INVESCO STOCK FUNDS, INC. AIM EQUITY FUNDS
4350 SOUTH MONACO STREET 11 GREENWAY PLAZA, SUITE 100
DENVER, COLORADO 80237 HOUSTON, TEXAS 77046-1173
(800) 525-8085 (800) 347-4246
</Table>
COMBINED PROXY STATEMENT AND PROSPECTUS
AUGUST 25, 2003
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
INVESCO Value Equity Fund (your Fund). The Special Meeting will be held on
October 21, 2003. We intend to mail this Proxy Statement/Prospectus, the
enclosed Notice of Special Meeting of Shareholders and the enclosed proxy card
on or about August 25, 2003 to all shareholders entitled to vote.
At the Special Meeting, we are asking shareholders of your Fund to vote on
four Proposals. The first Proposal to be voted on is an Agreement and Plan of
Reorganization (the "Agreement") which provides for the combination of your
Fund, an investment portfolio of INVESCO Stock Funds, Inc. ("Company"), with AIM
Large Cap Basic Value Fund ("Buying Fund"), an investment portfolio of AIM
Equity Funds ("Buyer") (the "Reorganization").
Under the Agreement, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund and Buyer will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of your Fund, as set forth on Exhibit A.
The value of your account with Buying Fund immediately after the
Reorganization will be the same as the value of your account with your Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No sales charges will be imposed in connection with
the Reorganization.
The Board of Directors of Company (the "Board") has approved the Agreement
and the Reorganization as being advisable and in the best interests of your
Fund.
Company and Buyer are both registered open-end management investment
companies that issue their shares in separate series. Your Fund is a series of
Company and Buying Fund is a series of Buyer. INVESCO Funds Group, Inc.
("INVESCO") serves as the investment advisor to your Fund and A I, M Advisors,
Inc. ("AIM") serves as the investment advisor to Buying Fund. Both AIM and
INVESCO are wholly owned subsidiaries of AMVESCAP PLC ("AMVESCAP"), an
independent global investment management company.
Although the investment objectives of Buying Fund and your Fund are
somewhat different, they have substantially similar investment strategies. See
"Comparison of Investment Objectives and Principal Strategies."
This Proxy Statement/Prospectus sets forth the information that you should
know before voting on the Agreement and the other Proposals described below. It
is both the Proxy Statement of your Fund and the Prospectus of Buying Fund. You
should read and retain this Proxy Statement/Prospectus for future reference.
The Prospectus of your Fund dated November 30, 2002, as supplemented
December 5, 2002, April 11, 2003, June 30, 2003, August 1, 2003 and August 14,
2003 (the "Selling Fund Prospectus"), together with the related Statement of
Additional Information dated November 30, 2002, as supplemented August 14, 2003,
are on file with the Securities and Exchange Commission (the "SEC"). The Selling
Fund Prospectus is incorporated by reference into this Proxy
Statement/Prospectus. The Prospectus of Buying Fund dated July 21, 2003 (the
"Buying Fund Prospectus"), and the related Statement of
i
Additional Information dated July 21, 2003 and the Statement of Additional
Information relating to the Reorganization dated August 15, 2003, are on file
with the SEC. The Buying Fund Prospectus is incorporated by reference into this
Proxy Statement/Prospectus and a copy of the Buying Fund Prospectus is attached
as Appendix II to this Proxy Statement/Prospectus. The Statement of Additional
Information relating to the Reorganization dated August 15, 2003 also is
incorporated by reference into this Proxy Statement/Prospectus. The SEC
maintains a website at www.sec.gov that contains the Prospectuses and Statements
of Additional Information described above, material incorporated by reference,
and other information about Company and Buyer.
Copies of the Buying Fund Prospectus, the Selling Fund Prospectus and the
related Statements of Additional Information are available without charge by
writing to A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739,
or by calling (800) 347-4246. Additional information about your Fund and Buying
Fund may be obtained on the internet at www.aiminvestments.com.
The remaining three Proposals to be voted on are: the election of 16
directors to the Board of Directors of Company; the approval of a new advisory
agreement with AIM for your Fund; and the approval of an Agreement and Plan of
Reorganization (the "Plan") which provides for the redomestication of Company as
a Delaware statutory trust and, in connection therewith, the sale of all of
Company's assets and the dissolution of Company as a Maryland corporation. The
Board has approved the nomination of the persons set forth in this Proxy
Statement/Prospectus for election as directors of Company and has approved the
new advisory agreement with AIM. Finally, the Board has approved the Plan as
being advisable.
All four Proposals are being submitted to you to implement an integration
initiative undertaken by AMVESCAP with respect to its North American mutual fund
operations, which includes your Fund.
Company has previously sent to shareholders the most recent annual report
for your Fund, including financial statements, and the most recent semiannual
report succeeding the annual report, if any. If you have not received such
report(s) or would like to receive an additional copy, please contact A I M Fund
Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, or call (800)
347-4246. Such report(s) will be furnished free of charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
INTRODUCTION................................................ 1
PROPOSAL 1 -- APPROVAL OF THE AGREEMENT TO COMBINE YOUR FUND
AND BUYING FUND........................................... 2
SUMMARY..................................................... 2
The Reorganization........................................ 2
Comparison of Investment Objectives and Principal
Strategies............................................. 3
Comparison of Principal Service Providers................. 5
Comparison of Performance................................. 5
Comparison of Fees and Expenses........................... 5
Comparison of Multiple Class Structures................... 5
Comparison of Sales Charges............................... 6
Comparison of Distribution, Purchase and Redemption
Procedures and Exchange Rights......................... 7
The Board's Recommendation on Proposal 1.................. 7
RISK FACTORS................................................ 8
Risks Associated with Buying Fund......................... 8
Comparison of Risks of Buying Fund and Your Fund.......... 8
INFORMATION ABOUT BUYING FUND............................... 9
Description of Buying Fund Shares......................... 9
Management's Discussion of Fund Performance............... 9
Financial Highlights...................................... 9
ADDITIONAL INFORMATION ABOUT THE AGREEMENT.................. 9
Terms of the Reorganization............................... 9
The Reorganization........................................ 9
Board Considerations...................................... 10
Other Terms............................................... 11
Federal Income Tax Consequences........................... 11
Accounting Treatment...................................... 12
RIGHTS OF SHAREHOLDERS...................................... 12
General................................................... 12
Liability of Shareholders................................. 13
Election of Directors/Trustees; Terms..................... 13
Removal of Directors/Trustees............................. 13
Meetings of Shareholders.................................. 14
Liability of Directors/Trustees and Officers;
Indemnification........................................ 14
Dissolution and Termination............................... 14
Voting Rights of Shareholders............................. 15
Dissenters' Rights........................................ 15
Amendments to Organization Documents...................... 15
CAPITALIZATION.............................................. 16
INTERESTS OF CERTAIN PERSONS................................ 16
LEGAL MATTERS............................................... 17
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND...... 17
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION................................................ 17
PROPOSAL 2 -- ELECTION OF DIRECTORS......................... 18
Background................................................ 18
Structure of the Board of Directors....................... 18
Nominees for Directors.................................... 18
The Board's Recommendation on Proposal 2.................. 21
Current Committees of the Board........................... 22
Board and Committee Meeting Attendance.................... 23
</Table>
iii
<Table>
<Caption>
PAGE
----
Future Committee Structure................................ 23
Director's Compensation................................... 24
Current Retirement Plan for Directors..................... 24
Current Deferred Compensation Plan........................ 25
New Retirement Plan for Directors......................... 26
New Deferred Compensation Agreements...................... 26
Officers of Company....................................... 27
Security Ownership of Management.......................... 27
Director Ownership of Your Fund's Shares.................. 27
PROPOSAL 3 -- APPROVAL OF A NEW INVESTMENT ADVISORY
AGREEMENT................................................. 27
Background................................................ 27
Your Fund's Current Investment Advisor.................... 28
The Proposed New Investment Advisor for Your Fund......... 28
Positions with AIM Held by Company's Directors or
Executive Officers..................................... 28
Terms of the Current Advisory Agreement................... 28
Additional Services Provided by INVESCO and its
Affiliates............................................. 30
Advisory Fees Charged by AIM for Similar Funds it
Manages................................................ 30
Terms of the Proposed Advisory Agreement.................. 30
Factors the Directors Considered in Approving the Advisory
Agreement.............................................. 34
The Board's Recommendation on Proposal 3.................. 36
PROPOSAL 4 -- APPROVAL OF THE PLAN TO REDOMESTICATE COMPANY
AS A DELAWARE STATUTORY TRUST............................. 36
Background................................................ 36
Reasons for the Proposed Redomestication.................. 37
What the Proposed Redomestication Will Involve............ 37
The Federal Income Tax Consequences of the
Redomestication........................................ 39
Appraisal Rights.......................................... 39
The Trust Compared to Company............................. 39
The Board's Recommendation on Proposal 4.................. 40
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING............ 40
Proxy Statement/Prospectus................................ 40
Time and Place of Special Meeting......................... 40
Voting in Person.......................................... 40
Voting by Proxy........................................... 41
Voting by Telephone or the Internet....................... 41
Quorum Requirement and Adjournment........................ 41
Vote Necessary to Approve Each Proposal................... 42
Proxy Solicitation........................................ 42
Other Matters............................................. 42
Shareholder Proposals..................................... 42
Ownership of Shares....................................... 43
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 43
Fees Paid to the Auditor Related to Company............... 43
Fees Paid to the Auditor Not Related to Company........... 43
EXHIBIT A -- Classes of Shares of Your Fund and
Corresponding Classes of Shares of Buying Fund............ A-1
EXHIBIT B -- Comparison of Performance of Your Fund and
Buying Fund............................................... B-1
EXHIBIT C -- Comparison Fee Table and Expense Example....... C-1
EXHIBIT D -- Director Compensation Table.................... D-1
EXHIBIT E -- Officers of Company............................ E-1
EXHIBIT F -- Security Ownership of Management............... F-1
EXHIBIT G -- Director Ownership of Fund Shares.............. G-1
</Table>
iv
<Table>
<Caption>
PAGE
----
EXHIBIT H -- Principal Executive Officer and Directors of
A I M Advisors, Inc. ..................................... H-1
EXHIBIT I -- Compensation to INVESCO Funds Group, Inc. ..... I-1
EXHIBIT J -- Fees Paid to INVESCO Funds Group, Inc. and
Affiliates in Most Recent Fiscal Year..................... J-1
EXHIBIT K -- Advisory Fee Schedules for Other AIM Funds..... K-1
EXHIBIT L -- Proposed Compensation to A I M Advisors,
Inc. ..................................................... L-1
EXHIBIT M -- Shares Outstanding of Each Class of Your Fund
on Record Date............................................ M-1
EXHIBIT N -- Ownership of Shares of Your Fund............... N-1
EXHIBIT O -- Ownership of Shares of Buying Fund............. O-1
APPENDIX I -- Agreement and Plan of Reorganization for Your
Fund (to Effect the Reorganization)
APPENDIX II -- Prospectus of Buying Fund
APPENDIX III -- Discussion of Performance of Buying Fund
APPENDIX IV -- Form of Investment Advisory Agreement with
A I M Advisors, Inc.
APPENDIX V -- Agreement and Plan of Reorganization for Your
Fund (to Effect the Redomestication)
</Table>
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTOR, AIM LIFETIME AMERICA, AIM LINK, AIM INSTITUTIONAL FUNDS,
AIMFUNDS.COM, LA FAMILIA AIM DE FONDOS, LA FAMILIA AIM DE FONDOS AND DESIGN,
INVIERTA CON DISCIPLINA AND INVEST WITH DISCIPLINE ARE REGISTERED SERVICE MARKS
AND AIM BANK CONNECTION, AIM INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM
PRIVATE ASSET MANAGEMENT AND DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE
ASSETS AND DESIGN, AIM INVESTMENTS, AIM INVESTMENTS AND DESIGN, MYAIM.COM, THE
AIM COLLEGE SAVINGS PLAN, AIM SOLO 401(k) AND YOUR GOALS. OUR SOLUTIONS ARE
SERVICE MARKS OF A I M MANAGEMENT GROUP INC.
INVESCO, THE OPEN CIRCLE DESIGN, INVESCO FUNDS, INVESCO FUNDS GROUP,
INVESCO -- YOUR GLOBAL INVESTMENT PARTNER AND YOU SHOULD KNOW WHAT INVESCO KNOWS
ARE REGISTERED SERVICE MARKS OF AMVESCAP PLC.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
v
INTRODUCTION
Your Fund is one of 46 portfolios advised by INVESCO and Buying Fund is one
of 86 portfolios advised by AIM. Proposals 1 through 4 that you are being asked
to vote on relate to or result from an integration initiative announced on March
27, 2003, by AMVESCAP, the parent company of AIM and INVESCO, with respect to
its North American mutual fund operations. The primary components of AMVESCAP's
integration initiative are:
- Using a single distributor for all AMVESCAP mutual funds in the United
States. To that end, A I M Distributors, Inc., the distributor for the
retail mutual funds advised by AIM (the "AIM Funds"), replaced INVESCO
Distributors, Inc. as the distributor for the retail mutual funds advised
by INVESCO (the "INVESCO Funds") effective July 1, 2003.
- Integrating back office support and creating a single platform for back
office support of AMVESCAP's mutual fund operations in the United States,
including such support services as transfer agency and information
technology. One result of this integration will be that shares of the AIM
Funds and shares of the INVESCO Funds generally will be able to be
exchanged for shares of the same or a similar class of each other.
- Rationalizing and streamlining of the various AIM Funds and INVESCO
Funds. In that regard, AMVESCAP has undertaken an extensive review of
these funds and concluded that it would be appropriate to reduce the
number of smaller and less efficient funds that compete for limited
shareholder assets and to consolidate certain funds having similar
investment objectives and strategies. Reducing both the number of AIM
Funds and INVESCO Funds will allow AIM and INVESCO to concentrate on
managing their core products. The Reorganization is one of a number of
fund reorganizations proposed by AMVESCAP as a result of this review
process. AMVESCAP's belief is that the Reorganization will allow Buying
Fund the best available opportunities for investment management, growth
prospects and potential economies of scale. Proposal 1 relates to this
component of AMVESCAP's integration initiative.
- Rationalizing the contractual arrangements for the provision of
investment advisory and administrative services to the AIM Funds and the
INVESCO Funds. The objective of this component is to have AIM assume
primary responsibility for the investment advisory, administrative,
accounting and legal and compliance services for the INVESCO Funds. To
implement this component, each INVESCO Fund is seeking shareholder
approval to enter into a new investment advisory agreement with AIM.
These changes will simplify AMVESCAP's mutual fund operations in the
United States in that there will be a uniform arrangement for investment
management for both the AIM Funds and the INVESCO Funds. Proposal 3
relates to this component of AMVESCAP's integration initiative.
- Simplifying the organizational structure of the AIM Funds and the INVESCO
Funds so that they are all organized as Delaware statutory trusts, using
as few entities as practicable. To implement this component, each AIM
Fund and each INVESCO Fund that currently is organized as a Maryland
corporation is seeking shareholder approval to redomesticate as a new
Delaware statutory trust, which also should provide these Funds with
greater flexibility in conducting their business operations. In addition,
certain series portfolios of AIM Funds with few portfolios are seeking
shareholder approval to be restructured as new series portfolios of
existing AIM Funds that are organized as Delaware statutory trusts.
Proposal 4 relates to this component of AMVESCAP's integration
initiative.
In considering the integration initiative proposed by AMVESCAP, the
directors of the INVESCO Funds and the directors/trustees of the AIM Funds who
are not "interested persons" (as defined in the Investment Company Act of 1940
(the "1940 Act")) of the Funds or their advisors determined that the
shareholders of both the AIM Funds and the INVESCO Funds would benefit if one
set of directors/ trustees was responsible for overseeing the operation of both
the AIM Funds and the INVESCO Funds and the services provided by AIM, INVESCO
and their affiliates. Accordingly, these directors/trustees
1
agreed to combine the separate boards and create a unified board of
directors/trustees. Proposal 2 relates to the election of directors of your
Fund.
You are being asked to approve Proposals 2 through 4 so that, in the event
that Proposal 1 is not approved, your Fund will still be able to take advantage
of these other benefits of AMVESCAP's integration initiative. We will be unable
to determine whether a particular Proposal other than Proposal 1, if approved,
should go forward until we have determined whether Proposal 1 has been approved.
Therefore, even if you vote in favor of Proposal 1, it is still important that
you vote on each remaining Proposal. For information about the Special Meeting
and voting on Proposals 1 through 4, see "Information About the Special Meeting
and Voting." For a description of the vote necessary to approve each of
Proposals 1 through 4, see "Information About the Special Meeting and
Voting -- Vote Necessary to Approve Each Proposal."
PROPOSAL 1 --
APPROVAL OF THE AGREEMENT
TO COMBINE YOUR FUND AND BUYING FUND
SUMMARY
The Board, including the independent directors, has determined that the
Reorganization is advisable and in the best interests of your Fund and that the
interests of the shareholders of your Fund will not be diluted as a result of
the Reorganization. The Board believes that a larger combined fund should be
more viable and have greater market presence and should have greater investment
leverage in that portfolio managers should have broader investment opportunities
and lower trading costs. The Board also believes that a larger combined fund
should result in greater operating efficiencies by providing economies of scale
to the combined fund in that certain fixed costs, such as legal, accounting,
shareholder services and director/trustee expenses, will be spread over the
greater assets of the combined fund. For additional information concerning the
factors the Board considered in approving the Agreement, see "Additional
Information About the Agreement -- Board Considerations."
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Agreement. For
more complete information, please read this entire Proxy Statement/Prospectus.
THE REORGANIZATION
The Reorganization will result in the combination of your Fund with Buying
Fund. Your Fund is a series of Company, a Maryland corporation. Buying Fund is a
series of Buyer, a Delaware statutory trust.
If shareholders of your Fund approve the Agreement and other closing
conditions are satisfied, all of the assets of your Fund will be transferred to
Buying Fund and Buying Fund will assume the liabilities of your Fund, and Buyer
will issue shares of each class of Buying Fund to shareholders of the
corresponding class of shares of your Fund, as set forth on Exhibit A. For a
description of certain of the closing conditions that must be satisfied, see
"Additional Information About the Agreement -- Other Terms."
The shares of Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the net value of the assets of your Fund
transferred to Buying Fund. The value of your account with Buying Fund
immediately after the Reorganization will be the same as the value of your
account with your Fund immediately prior to the Reorganization. A copy of the
Agreement is attached as Appendix I to this Proxy Statement/Prospectus. See
"Additional Information About the Agreement."
Company and Buyer will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Reorganization will constitute a tax-free
reorganization for Federal income tax purposes. Thus, shareholders will not have
to pay additional Federal income tax as a result of the Reorganization except to
the extent your Fund disposes of securities at a net gain in anticipation of the
Reorganization, which gain
2
would be included in a taxable distribution. See "Additional Information About
the Agreement -- Federal Income Tax Consequences."
No sales charges will be imposed in connection with the Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Although the investment objectives of Buying Fund and your Fund are
somewhat different, they have substantially similar strategies. As a result, the
Reorganization is not expected to cause significant portfolio turnover or
transaction expenses from the sale of securities that are incompatible with the
investment objectives of Buying Fund.
The investment objectives or goals of your Fund are classified as
fundamental, which means that the Board cannot change them without shareholder
approval. The investment objectives of Buying Fund are not classified as
fundamental, which means that the Board of Trustees of Buyer can change them
without shareholder approval. Having the ability to change the investment
objectives without shareholder approval allows the Board of Trustees to respond
more quickly and efficiently to changing market conditions and to save Buying
Fund and its shareholders money by eliminating the need to solicit proxies to
obtain shareholder approval to change an investment objective to respond to
changing market conditions.
A description of the fundamental and non-fundamental restrictions and
policies applicable to your Fund and Buying Fund can be found in each Fund's
Statement of Additional Information. While your Fund and Buying Fund have
slightly different approaches to disclosing and characterizing these
restrictions and policies, in substance your Fund and Buying Fund operate under
the same general restrictions and are subject to the same general policies.
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and
Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of your Fund and Buying
Fund in the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
3
<Table>
<Caption>
INVESCO VALUE EQUITY FUND AIM LARGE CAP BASIC VALUE FUND
(YOUR FUND) (BUYING FUND)
------------------------------------------- -------------------------------------------
INVESTMENT OBJECTIVE
- high total return from capital - long-term growth of capital with a
appreciation and current income secondary objective of current income
INVESTMENT STRATEGIES
- invests at least 80% of its net assets in - invests at least 80% of its assets in
high-quality, larger-capitalization securities of large-capitalization
companies which are temporarily out of companies that offer potential for
favor with investors capital growth, and may offer potential
for current income
- no corresponding definition of large- - considers a company to be a
capitalization large-capitalization company if it has a
market capitalization, at the time of
purchase, no smaller than the smallest
capitalized company included in the
Russell 1000(R) Index during the most
recent 11-month period (based on
month-end data) plus the most recent data
during the current month
- seeks securities, particularly stocks, - purchases securities of companies that
that are undervalued by the have the potential for above-average
market -- companies that are performing growth in revenues and earnings and are
well, or have solid management and undervalued in relation to long-term
products, but whose stock prices do not earning power or other factors
reflect their value
- value-based process evaluates numerous
factors on a current and historical
basis, seeking undiscovered values in the
market
- invests primarily in equity securities - in complying with 80% requirement,
and equity-related instruments that invests primarily in marketable equity
INVESCO believes will rise in price securities, including convertible
faster than other securities, as well as securities, but investments may include
in options and other investments whose synthetic instruments, such as warrants,
values are based upon the values of futures, options, exchange-traded funds
equity securities and American Depositary Receipts; may
purchase debt instruments that are
consistent with its investment objectives
- may invest up to 25% of its assets in - may invest up to 25% of its total assets
securities of non-U.S. issuers in foreign securities
(securities of Canadian issuers and
American Depositary Receipts are not
subject to this 25% limitation)
- seeks to provide reasonably consistent - no corresponding strategy
returns over a variety of market cycles
- actively traded - does not normally engage in active and
frequent trading
- no corresponding strategy - for cash management purposes, may hold a
portion of its assets in cash or cash
equivalents, including shares of
affiliated money market funds
</Table>
4
COMPARISON OF PRINCIPAL SERVICE PROVIDERS
The following is a list of the current principal service providers for your
Fund and Buying Fund.
<Table>
<Caption>
SERVICE PROVIDERS
--------------------------------------------------------------
INVESCO VALUE EQUITY FUND AIM LARGE CAP BASIC VALUE FUND
SERVICE (YOUR FUND) (BUYING FUND)
- ------- ----------------------------- ------------------------------
Investment Advisor INVESCO Funds Group, Inc.* A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Distributor A I M Distributors, Inc.** A I M Distributors, Inc.
11 Greenway Plaza, Suite 100 11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 Houston, Texas 77046-1173
Administrator INVESCO Funds Group, Inc.*** A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Custodian State Street Bank and Trust State Street Bank and Trust
Company Company
Transfer Agent and Dividend INVESCO Funds Group, Inc.**** A I M Fund Services, Inc.
Disbursing Agent
Independent Auditors PricewaterhouseCoopers LLP Ernst & Young LLP
</Table>
- ---------------
* If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as investment advisor for your Fund effective
November 5, 2003.
** A I M Distributors, Inc. replaced INVESCO Distributors, Inc. as distributor
of your Fund effective July 1, 2003.
*** If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as administrator for your Fund effective
November 5, 2003.
**** A I M Fund Services, Inc. will replace INVESCO as transfer agent and
dividend disbursing agent for your Fund on or about October 1, 2003.
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31 for Investor Class shares of your Fund and Class A shares of Buying
Fund can be found at Exhibit B. Also included as part of Exhibit B is a table
showing the average annual total returns for the periods indicated for your Fund
and Buying Fund, including sales charges. For more information regarding the
total return of your Fund, see the "Financial Highlights" section of the Selling
Fund Prospectus, which has been made a part of this Proxy Statement/Prospectus
by reference. For more information regarding the total return of Buying Fund,
see "Information About Buying Fund -- Financial Highlights." Past performance
cannot guarantee comparable future results.
COMPARISON OF FEES AND EXPENSES
A comparison of shareholder fees and annual operating expenses of each
class of shares of your Fund, as of July 31, 2002, and Buying Fund, as of
October 31, 2002, expressed as a percentage of net assets ("Expense Ratio") can
be found at Exhibit C. Pro forma estimated Expense Ratios for each class of
shares of Buying Fund after giving effect to the Reorganization are also
provided as of October 31, 2002 as part of Exhibit C.
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of your Fund that are available to
investors and the corresponding share classes of Buying Fund that shareholders
of your Fund will receive in the Reorganization can be found as Exhibit A. In
addition to the share classes of Buying Fund listed on Exhibit A, Class R shares
of
5
Buying Fund are available to investors. This class is not involved in the
Reorganization. For information regarding the features of the various share
classes of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
COMPARISON OF SALES CHARGES
No initial sales charges are applicable to shares of Buying Fund received
by holders of your Fund's shares in connection with the Reorganization. No
redemption of your Fund's shares that could cause the imposition of a contingent
deferred sales charge ("CDSC") will result in connection with the
Reorganization. The holding period for purposes of determining whether to charge
a CDSC upon redemptions of shares of Buying Fund received by holders of your
Fund's shares in connection with the Reorganization will begin at the time your
Fund's shares were originally purchased.
The chart below provides a summary for comparison purposes of the initial
sales charges and CDSCs applicable to each class of shares of your Fund and
Buying Fund. The fee tables at Exhibit C include comparative information about
maximum initial sales charges on purchases of Class A shares of your Fund and
Buying Fund and the maximum CDSC on redemptions of certain classes of shares of
your Fund and Buying Fund. For more detailed information on initial sales
charges, including volume purchase breakpoints and waivers, and reductions of
CDSCs over time, see the Selling Fund Prospectus and the Buying Fund Prospectus.
<Table>
<Caption>
CLASS A CLASS B CLASS C
------- ------- -------
- - subject to an initial sales - not subject to an initial - not subject to an initial
charge* sales charge sales charge
- - may be subject to a CDSC on - subject to a CDSC on certain - subject to a CDSC on certain
redemptions made within 18 redemptions made within 6 redemptions made within 12
months from the date of years from the date of months from the date of
certain large purchases** purchase purchase***
</Table>
<Table>
<Caption>
CLASS R CLASS K
(BUYING FUND ONLY) (YOUR FUND ONLY) INVESTOR CLASS
------------------ ---------------- --------------
- - not subject to an initial - not subject to an initial - not subject to an initial
sales charge sales charge sales charge
- - may be subject to a CDSC on - may be subject to a CDSC on - not subject to a CDSC
redemptions made within 12 redemptions made within 12
months from the date of months from the date of
certain purchases certain purchases
</Table>
- ---------------
* Both your Fund and Buying Fund waive initial sales charges on Class A shares
for certain categories of investors, including certain of their affiliated
entities and certain of their employees, officers and directors/trustees and
those of their investment advisor.
** For qualified plans investing in Class A shares of your Fund, this period is
12 months rather than 18 months.
*** Prior to August 18, 2003, Class C shares of your Fund are subject to a CDSC
on certain redemptions made within 13 months from the date of purchase. This
13 month period changes to 12 months effective August 18, 2003.
The CDSC on redemptions of shares of Buying Fund is computed based on the
lower of their original purchase price or current market value. Prior to August
18, 2003, the CDSC on redemptions of shares of your Fund is computed based on
their original purchase price. This method of computation changes to conform to
Buying Fund's method of computation effective August 18, 2003.
6
COMPARISON OF DISTRIBUTION, PURCHASE AND REDEMPTION PROCEDURES AND EXCHANGE
RIGHTS
Shares of your Fund and Buying Fund are distributed by A I M Distributors,
Inc. ("AIM Distributors"), a registered broker-dealer and wholly owned
subsidiary of AIM. AIM Distributors replaced INVESCO Distributors, Inc. as
distributor of your Fund effective July 1, 2003.
Both your Fund and Buying Fund have adopted a distribution plan that allows
the payment of distribution and service fees for the sale and distribution of
the shares of each of their respective classes. Both your Fund and Buying Fund
have engaged AIM Distributors to provide such services either directly or
through third parties. The fee tables at Exhibit C include comparative
information about the distribution and service fees payable by each class of
shares of your Fund and Buying Fund. Overall, each class of shares of Buying
Fund has the same or lower aggregate distribution and service fees as the
corresponding class of shares of your Fund.
Although there are differences in the purchase, redemption and exchange
procedures of your Fund and Buying Fund as of the date of this Proxy
Statement/Prospectus, it is currently anticipated that the purchase, redemption
and exchange procedures of your Fund and/or Buying Fund will be changed so that
they are substantially the same prior to the consummation of the Reorganization.
For information regarding the current purchase, redemption and exchange
procedures of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
As of the date of this Proxy Statement/Prospectus, shares of your Fund
generally may be exchanged for shares of the same or a similar class of funds
within the INVESCO Family of Funds and shares of Buying Fund generally may be
exchanged for shares of the same or a similar class of funds within The AIM
Family of Funds(R). It is currently anticipated that, prior to the consummation
of the Reorganization, shares of The AIM Family of Funds(R) and shares of the
INVESCO Family of Funds generally will be able to be exchanged for shares of the
same or a similar class of each other. If this exchangeability feature is not
offered to shareholders prior to the consummation of the Reorganization, the
consummation of the Reorganization will be delayed until such time as it is
offered. See "Additional Information About the Agreement -- The Reorganization."
For more detailed information regarding the current exchange rights of your Fund
and Buying Fund, see the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
THE BOARD'S RECOMMENDATION ON PROPOSAL 1
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
7
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with Buying
Fund.
There is a risk that you could lose all or a portion of your investment in
Buying Fund. The value of your investment in Buying Fund will go up and down
with the prices of the securities in which Buying Fund invests. The prices of
equity securities change in response to many factors including the historical
and prospective earnings of the issuer, the value of its assets, general
economic conditions, interest rates, investor perceptions and market liquidity.
Debt securities are particularly vulnerable to credit risk and interest rate
fluctuations. When interest rates rise, bond prices fall; the longer a bond's
duration, the more sensitive it is to this risk.
The values of the convertible securities in which Buying Fund may invest
also will be affected by market interest rates, the risk that the issuer may
default on interest or principal payments and the value of the underlying common
stock into which these securities may be converted. Specifically, since these
types of convertible securities pay fixed interest and dividends, their values
may fall if market interest rates rise and rise if market interest rates fall.
Additionally, an issuer may have the right to buy back certain of the
convertible securities at a time and at a price that is unfavorable to Buying
Fund. Also, since a large percentage of Buying Fund's assets will be invested in
a limited number of securities, any change in value of those securities could
significantly affect the value of your investment in Buying Fund.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
Buying Fund may participate in the initial public offering (IPO) market in
some market cycles. Because of Buying Fund's small asset base, any investment
Buying Fund may make in IPOs may significantly affect Buying Fund's total
return. As Buying Fund's assets grow, the impact of IPO investments will
decline, which may reduce the effect of IPO investments on Buying Fund's total
return.
An investment in Buying Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
The risks associated with an investment in your Fund are similar to those
described above for Buying Fund because of the similarities in their investment
objectives and strategies. Set forth below is a discussion of certain risks that
differ between Buying Fund and your Fund. You can find more detailed
descriptions of specific risks associated with your Fund in the Selling Fund
Prospectus.
Your Fund seeks to provide reasonably consistent returns over a variety of
market cycles. Buying Fund does not employ this strategy, which may result in
returns that fluctuate to a greater degree over time. In addition, Buying Fund
seeks to invest in securities with the potential for capital growth, which may
result in greater volatility in the value of its shares.
Your Fund may engage in frequent and active trading of its portfolio
securities. Buying Fund does not normally engage in active and frequent trading
of its portfolio securities. Active trading may increase your Fund's transaction
costs, which can lower the actual return on your investment. It may also
increase short-term gains and losses, which may affect the taxes you have to
pay.
Your Fund may also focus its investments in one or more sectors, resulting
in the risk that a certain sector may underperform other sectors or the market
as a whole. If the portfolio managers allocate more of your Fund's portfolio
holdings to a particular economic sector, as compared to Buying Fund, your
Fund's overall performance will be more susceptible to the economic, business,
or other developments which generally affect that sector.
8
Buying Fund may participate in the IPO market in some market cycles, while
your Fund generally will not purchase IPOs as part of its principal investment
strategy and therefore is generally not subject to the risks associated with
IPOs.
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund are redeemable at their net asset value (subject, in
certain circumstances, to a contingent deferred sales charge) at the option of
the shareholder or at the option of Buyer in certain circumstances. Each share
of Buying Fund represents an equal proportionate interest in Buying Fund with
each other share and is entitled to such dividends and distributions out of the
income belonging to Buying Fund as are declared by the Board of Trustees of
Buying Fund. Each share of Buying Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of Buying Fund is
subject to different sales loads, conversion features, exchange privileges and
class-specific expenses. When issued, shares of Buying Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are freely
transferable. Other than the automatic conversion of Class B shares to Class A
shares, there are no conversion rights.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A discussion of the performance of Buying Fund taken from its annual report
to shareholders for the fiscal year ended October 31, 2002 is set forth in
Appendix III to this Proxy Statement/Prospectus.
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
"Financial Highlights" section of the Buying Fund Prospectus, which is attached
to this Proxy Statement/Prospectus as Appendix II.
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Appendix I to this
Proxy Statement/Prospectus.
THE REORGANIZATION
Consummation of the Reorganization (the "Closing") is expected to occur on
November 3, 2003, at 8:00 a.m., Eastern Time (the "Effective Time") on the basis
of values calculated as of the close of regular trading on the New York Stock
Exchange on October 31, 2003 (the "Valuation Date"). At the Effective Time, all
of the assets of your Fund will be delivered to Buyer's custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of the
liabilities of your Fund and delivery by Buyer directly to the holders of record
as of the Effective Time of the issued and outstanding shares of each class of
your Fund of a number of shares of each corresponding class of Buying Fund
(including, if applicable, fractional shares rounded to the nearest thousandth),
having an aggregate net asset value equal to the value of the net assets of your
Fund so transferred, assigned and delivered, all determined and adjusted as
provided in the Agreement. Upon delivery of such assets, Buying Fund will
receive good and marketable title to such assets free and clear of all liens.
In order to ensure continued qualification of your Fund for treatment as a
"regulated investment company" for tax purposes and to eliminate any tax
liability of your Fund arising by reason of
9
undistributed investment company taxable income or net capital gain, Company
will declare on or prior to the Valuation Date to the shareholders of your Fund
a dividend or dividends that, together with all previous such dividends, shall
have the effect of distributing (a) all of your Fund's investment company
taxable income (determined without regard to any deductions for dividends paid)
for the taxable year ended July 31, 2003 and for the short taxable year
beginning on August 1, 2003 and ending on the Closing and (b) all of your Fund's
net capital gain recognized in its taxable year ended July 31, 2003 and in such
short taxable year (after reduction for any capital loss carryover).
Buying Fund will proceed with the Reorganization if the shareholders of
your Fund approve the Agreement.
It is anticipated that, prior to the Closing, shares of The AIM Family of
Funds(R) and shares of the INVESCO Family of Funds generally will be able to be
exchanged for shares of the same or a similar class of each other. If this
exchangeability feature is not offered to shareholders prior to the Closing, the
Closing will be postponed until a mutually acceptable date not later than
December 31, 2003 (the "Termination Date").
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Company will redeem the outstanding
shares of your Fund from shareholders in accordance with its Charter and the
Maryland General Corporation Law.
BOARD CONSIDERATIONS
AMVESCAP initially proposed that the Board consider the Reorganization at a
telephone meeting of the Board held on May 5, 2003. Preliminary discussions of
the Reorganization took place at the May 5, 2003 telephone meeting and at an
in-person meeting of the Board held on May 13-15, 2003. A special task force of
the Board met to consider the Reorganization on June 3, 2003. The Board
determined that the Reorganization is advisable and in the best interests of
your Fund and will not dilute the interests of your Fund's shareholders, and
approved the Agreement and the Reorganization, at an in-person meeting of the
Board held on June 9, 2003.
Over the course of the three Board meetings, the Board received from AIM
and INVESCO written materials that contained information concerning your Fund
and Buying Fund, including comparative total return and fee and expense
information, a comparison of investment objectives and strategies of your Fund
and Buying Fund and pro forma expense ratios for Buying Fund. AIM and INVESCO
also provided the Board with written materials concerning the structure of the
proposed Reorganization and the Federal tax consequences of the Reorganization.
In evaluating the Reorganization, the Board considered a number of factors,
including:
- The investment objective and principal investment strategies of your Fund
and Buying Fund.
- The comparative expenses of your Fund and Buying Fund and the pro forma
expenses of Buying Fund after giving effect to the Reorganization.
- The comparative performance of your Fund and Buying Fund.
- The comparative sizes of your Fund and Buying Fund.
- The consequences of the Reorganization for Federal income tax purposes,
including the treatment of capital loss carryforwards, if any, available
to offset future capital gains of both your Fund and Buying Fund.
- Any fees and expenses that will be borne directly or indirectly by your
Fund or Buying Fund in connection with the Reorganization.
The Board noted that AMVESCAP, on behalf of INVESCO, will bear the costs
and expenses incurred in connection with the Reorganization.
10
The Board also noted that no sales charges or other charges would be
imposed on any of the shares of Buying Fund issued to the shareholders of your
Fund in connection with the Reorganization.
Based on the foregoing and the information presented at the three Board
meetings discussed above, the Board determined that the Reorganization is
advisable and in the best interests of your Fund and will not dilute the
interests of your Fund's shareholders. Therefore, the Board recommends the
approval of the Agreement by the shareholders of your Fund at the Special
Meeting.
AMVESCAP initially proposed that the Board of Trustees of Buyer consider
the Reorganization at an in-person meeting of the Board of Trustees held on May
13-14, 2003, at which preliminary discussions of the Reorganization took place.
The Board of Trustees of Buyer determined that the Reorganization is in the best
interests of Buying Fund and will not dilute the interests of Buying Fund
shareholders, and approved the Agreement and the Reorganization, at an in-person
meeting of the Board of Trustees held on June 10-11, 2003.
OTHER TERMS
If any amendment is made to the Agreement which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, the Agreement may be amended without
shareholder approval by mutual agreement of the parties.
Company and Buyer have made representations and warranties in the Agreement
that are customary in matters such as the Reorganization. The obligations of
Company and Buyer pursuant to the Agreement are subject to various conditions,
including the following mutual conditions:
- the assets of your Fund to be acquired by Buying Fund shall constitute at
least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by your Fund immediately
prior to the Reorganization;
- Buyer's Registration Statement on Form N-14 under the Securities Act of
1933 (the "1933 Act") shall have been filed with the SEC and such
Registration Statement shall have become effective, and no stop-order
suspending the effectiveness of the Registration Statement shall have
been issued, and no proceeding for that purpose shall have been initiated
or threatened by the SEC (and not withdrawn or terminated);
- the shareholders of your Fund shall have approved the Agreement; and
- Company and Buyer shall have received an opinion from Ballard Spahr
Andrews & Ingersoll, LLP that the consummation of the transactions
contemplated by the Agreement will not result in the recognition of gain
or loss for Federal income tax purposes for your Fund, Buying Fund or
their shareholders.
The Board of Directors of Company and the Board of Trustees of Buyer may
waive without shareholder approval any default by Company or Buyer or any
failure by Company or Buyer to satisfy any of the above conditions as long as
such a waiver is mutual and will not have a material adverse effect on the
benefits intended under the Agreement for the shareholders of your Fund. The
Agreement may be terminated and the Reorganization may be abandoned at any time
by mutual agreement of the parties, or by either party if the shareholders of
your Fund do not approve the Agreement or if the Closing does not occur on or
before the Termination Date.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and published judicial decisions, all of which are
subject to
11
change. The principal Federal income tax consequences that are expected to
result from the Reorganization, under currently applicable law, are as follows:
- the Reorganization will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code;
- no gain or loss will be recognized by your Fund upon the transfer of its
assets to Buying Fund solely in exchange for shares of Buying Fund and
Buying Fund's assumption of the liabilities of your Fund or on the
distribution of those shares to your Fund's shareholders; notwithstanding
the foregoing, no conclusion is expressed as to the effect of the
Reorganization on your Fund or any shareholder of your Fund with respect
to any asset as to which any unrealized gain or loss is required to be
recognized for Federal income tax purposes at the end of a taxable year
(or on the termination or transfer of a taxpayer's rights (or
obligations) with respect to such asset) under a mark-to-market system of
accounting;
- no gain or loss will be recognized by Buying Fund on its receipt of
assets of your Fund in exchange for shares of Buying Fund issued directly
to your Fund's shareholders;
- no gain or loss will be recognized by any shareholder of your Fund upon
the exchange of shares of your Fund for shares of Buying Fund;
- the tax basis of the shares of Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's tax basis
of the shares of your Fund surrendered in exchange therefor;
- the holding period of the shares of Buying Fund to be received by a
shareholder of your Fund will include the period for which such
shareholder held the shares of your Fund exchanged therefor, provided
that such shares of your Fund are capital assets in the hands of such
shareholder as of the Closing; and
- the tax year of your Fund will end on the date of the Closing, and Buying
Fund will thereafter succeed to and take into account any capital loss
carryover and certain other tax attributes of your Fund, subject to all
relevant conditions and limitations on the use of such tax benefits.
Neither Company nor Buyer has requested or will request an advance ruling
from the IRS as to the Federal tax consequences of the Reorganization. As a
condition to Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a
favorable opinion to Company and Buyer as to the foregoing Federal income tax
consequences of the Reorganization, which opinion will be conditioned upon,
among other things, the accuracy, as of the Effective Time, of certain
representations of Company and Buyer upon which Ballard Spahr Andrews &
Ingersoll, LLP will rely in rendering its opinion. The conclusions reached in
that opinion could be jeopardized if the representations of Company or Buyer are
incorrect in any material respect.
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND'S SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganization will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to Buying Fund of the assets of your Fund will
be the same as the book cost basis of such assets to your Fund.
RIGHTS OF SHAREHOLDERS
GENERAL
Company is a Maryland corporation. Buyer is a Delaware statutory trust.
There is much that is similar between Maryland corporations and Delaware
statutory trusts. For example, the responsibilities,
12
powers and fiduciary duties of the directors of Company are substantially
similar to those of the trustees of Buyer.
There are, however, certain differences between the two forms of
organization. The operations of Company, as a Maryland corporation, are governed
by its Articles of Incorporation, and any restatements, amendments and
supplements thereto (the "Articles of Incorporation"), and applicable Maryland
law. The operations of Buyer, as a Delaware statutory trust, are governed by its
Amended and Restated Agreement and Declaration of Trust, as amended (the
"Declaration of Trust"), and applicable Delaware law.
LIABILITY OF SHAREHOLDERS
Shareholders of a Maryland corporation generally do not have personal
liability for the corporation's obligations, except that a shareholder may be
liable to the extent that he or she receives any distribution which exceeds the
amount which he or she could properly receive under Maryland law or where such
liability is necessary to prevent fraud.
The Delaware Statutory Trust Act provides that shareholders of a Delaware
statutory trust shall be entitled to the same limitations of liability extended
to shareholders of private for-profit corporations. There is, however, a remote
possibility that, under certain circumstances, shareholders of a Delaware
statutory trust might be held personally liable for the trust's obligations to
the extent the courts of another state that does not recognize such limited
liability were to apply the laws of such state to a controversy involving such
obligations. The Declaration of Trust provides that shareholders of the Trust
shall not be subject to any personal liability for acts or obligations of the
Trust and that every written agreement, obligation or other undertaking made or
issued by the Trust shall contain a provision to the effect that shareholders
are not personally liable thereunder. In addition, the Declaration of Trust
provides for indemnification out of the Trust's property for any shareholder
held personally liable solely by reason of his or her being or having been a
shareholder. Therefore, the risk of any shareholder incurring financial loss
beyond his or her investment due to shareholder liability is limited to
circumstances in which the Trust itself is unable to meet its obligations and
the express disclaimer of shareholder liabilities is determined not to be
effective. Given the nature of the assets and operations of the Trust, the
possibility of the Trust being unable to meet its obligations is considered
remote, and even if a claim were brought against the Trust and a court
determined that shareholders were personally liable, it would likely not impose
a material obligation on a shareholder.
ELECTION OF DIRECTORS/TRUSTEES; TERMS
The shareholders of Company have elected a majority of the directors of
Company. Each director serves until a successor is elected, subject to his or
her earlier death, resignation or removal in the manner provided by law (see
below). In the case of a vacancy on the Board of Directors (other than a vacancy
created by removal by the shareholders), a majority of the directors may appoint
a successor to fill such vacancy. The right of the Board of Directors to appoint
directors to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
The shareholders of Buyer have elected a majority of the trustees of Buyer.
Such trustees serve for the life of Buyer, subject to their earlier death,
incapacitation, resignation, retirement or removal (see below). In the case of
any vacancy on the Board of Trustees, a majority of the trustees may appoint a
successor to fill such vacancy. The right of the Board of Trustees to appoint
trustees to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
REMOVAL OF DIRECTORS/TRUSTEES
A director of Company may be removed by the affirmative vote of a majority
of the holders of a majority of the outstanding shares of Company.
A trustee of Buyer may be removed at any time by a written instrument
signed by at least two-thirds of the trustees or by vote of two-thirds of the
outstanding shares of Buyer.
13
MEETINGS OF SHAREHOLDERS
Company is not required to hold annual meetings of shareholders and does
not intend to do so unless required by the 1940 Act. The bylaws of Company
provide that a special meeting of shareholders may be called by the president
or, in his or her absence, the vice-president or by a majority of the Board of
Directors or holders of shares entitled to cast at least 10% of the votes
entitled to be cast at the special meeting. Requests for special meetings must,
among other things, state the purpose of such meeting and the matters to be
voted upon. No special meeting need be called to consider any matter previously
voted upon at a special meeting called by the shareholders during the preceding
twelve months, unless requested by a majority of all shares entitled to vote at
such meeting.
Buyer is not required to hold annual meetings of shareholders unless
required by the 1940 Act and does not intend to do so. The bylaws of Buyer
provide that any trustee may call a special meeting of shareholders and the
trustees shall call a special meeting of the shareholders solely for the purpose
of removing one or more trustees upon written request of the holders of not less
than 10% of the outstanding shares of Buyer. Special meetings may be called for
the purpose of electing trustees or for any other action requiring shareholder
approval, or for any matter deemed by the trustees to be necessary or desirable.
LIABILITY OF DIRECTORS/TRUSTEES AND OFFICERS; INDEMNIFICATION
Maryland law permits a corporation to eliminate liability of its directors
and officers to the corporation or its stockholders, except for liability
arising from receipt of an improper benefit or profit and from active and
deliberate dishonesty. The Articles of Incorporation eliminate director and
officer liability to the fullest extent permitted under Maryland law. Under
Maryland law, indemnification of a corporation's directors and officers is
mandatory if a director or officer has been successful on the merits or
otherwise in the defense of certain proceedings. Maryland law permits
indemnification for other matters unless it is established that the act or
omission giving rise to the proceeding was committed in bad faith, a result of
active and deliberate dishonesty, or one in which a director or officer actually
received an improper benefit.
Delaware law provides that trustees of a statutory trust shall not be
liable to the statutory trust or its shareholders for acting in good faith
reliance on the provisions of its governing instrument and that the trustee's
liabilities may be expanded or restricted by such instrument. Under the
Declaration of Trust, the trustees and officers of Buyer are not liable for any
act or omission or any conduct whatsoever in their capacity as trustees, except
for liability to the trust or shareholders due to willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of trustee. Delaware law allows a statutory trust to
indemnify and hold harmless any trustee or other person against any and all
claims and demands. The Declaration of Trust provides for the indemnification of
its trustees and officers to the extent that such trustees and officers act in
good faith and reasonably believe that their conduct is in the best interests of
Buyer, except with respect to any matter in which it has been determined that
such trustee acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
DISSOLUTION AND TERMINATION
Maryland law provides that Company may be dissolved by the vote of a
majority of the Board of Directors and two-thirds of the shares entitled to vote
on the dissolution; however the Articles of Incorporation reduce the required
shareholder vote from two-thirds to a majority of the shares entitled to vote on
the dissolution.
Pursuant to the Declaration of Trust, Buyer or any series or class of
shares of beneficial interest in Buyer may be terminated by: (1) a majority
shareholder vote of Buyer or the affected series or class, respectively; or (2)
if there are fewer than 100 shareholders of record of Buyer or of such
terminating series or class, the trustees pursuant to written notice to the
shareholders of Buyer or the affected series or class.
14
VOTING RIGHTS OF SHAREHOLDERS
Shareholders of a Maryland corporation such as Company are entitled to vote
on, among other things, those matters which effect fundamental changes in the
corporate structure (such as a merger, consolidation or sale of substantially
all of the assets of the corporation) as provided by Maryland law.
The Declaration of Trust grants shareholders power to vote only with
respect to the following: (i) election of trustees, provided that a meeting of
shareholders has been called for that purpose; (ii) removal of trustees,
provided that a meeting of shareholders has been called for that purpose; (iii)
termination of Buyer or a series or class of its shares of beneficial interest,
provided that a meeting of shareholders has been called for that purpose; (iv)
sale of all or substantially all of the assets of Buyer or one of its investment
portfolios; (v) merger or consolidation of Buyer or any of its investment
portfolios, with certain exceptions; (vi) approval of any amendments to
shareholders' voting rights under the Declaration of Trust; and (vii) approval
of such additional matters as may be required by law or as the trustees, in
their sole discretion, shall determine.
DISSENTERS' RIGHTS
Under Maryland law, shareholders may not demand the fair value of their
shares from the successor company in a transaction involving the transfer of the
corporation's assets and are, therefore, bound by the terms of the transaction
if the stock is that of an open-end investment company registered with the SEC
under the 1940 Act and the value placed on the stock in the transaction is its
net asset value.
Neither Delaware law nor the Declaration of Trust confers upon shareholders
rights of appraisal or dissenters' rights.
AMENDMENTS TO ORGANIZATION DOCUMENTS
Consistent with Maryland law, Company reserves the right to amend, alter,
change or repeal any provision contained in the Articles of Incorporation in the
manner prescribed by statute, including any amendment that alters the contract
rights, as expressly set forth in the Articles of Incorporation, of any
outstanding stock, and all rights conferred on shareholders are granted subject
to this reservation. The Board of Directors of Company may approve amendments to
the Articles of Incorporation to classify or reclassify unissued shares of a
class of stock without shareholder approval. Other amendments to the Articles of
Incorporation may be adopted if approved by the affirmative vote of a majority
of all the votes entitled to be cast on the matter. The directors shall have the
power to alter, amend or repeal the bylaws of Company or adopt new bylaws at any
time.
Consistent with Delaware law, the Board of Trustees of Buyer may, without
shareholder approval, amend the Declaration of Trust at any time, except to
eliminate any voting rights pertaining to the shares of Buyer, without approval
of the majority of the shares of Buyer. The trustees shall have the power to
alter, amend or repeal the bylaws of Buyer or adopt new bylaws at any time.
15
CAPITALIZATION
The following table sets forth, as of March 31, 2003, (i) the
capitalization of each class of shares of your Fund, (ii) the capitalization of
each class of shares of Buying Fund, and (iii) the pro forma capitalization of
each class of shares of Buying Fund as adjusted to give effect to the
transactions contemplated by the Agreement.
<Table>
<Caption>
PRO FORMA
YOUR FUND YOUR FUND BUYING FUND BUYING FUND
CLASS A SHARES CLASS K SHARES(1) CLASS A SHARES CLASS A SHARES
-------------- ----------------- -------------- --------------
Net Assets.......................... $ 667,981 0 $89,860,983 $90,528,964
Shares Outstanding.................. 45,400 0 10,278,261 10,354,672
Net Asset Value Per Share........... $ 14.71 0 $ 8.74 $ 8.74
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND CLASS BUYING FUND BUYING FUND
B SHARES CLASS B SHARES CLASS B SHARES
----------------- -------------- --------------
Net Assets........................................ $ 272,301 $58,610,464 $58,882,765
Shares Outstanding................................ 18,361 6,821,509 6,853,208
Net Asset Value Per Share......................... $ 14.83 $ 8.59 $ 8.59
</Table>
<Table>
<Caption>
PRO FORMA
BUYING FUND BUYING FUND
YOUR FUND CLASS C CLASS C
CLASS C SHARES SHARES SHARES
----------------- -------------- --------------
Net Assets........................................ $ 1,151,707 $21,126,269 $22,277,976
Shares Outstanding................................ 79,122 2,459,182 2,593,293
Net Asset Value Per Share......................... $ 14.56 $ 8.59 $ 8.59
</Table>
<Table>
<Caption>
BUYING FUND PRO FORMA
YOUR FUND INVESTOR BUYING FUND
INVESTOR CLASS INVESTOR
CLASS SHARES SHARES(2) CLASS SHARES
----------------- -------------- --------------
Net Assets........................................ $89,405,387 0 $89,405,387
Shares Outstanding................................ 6,009,526 0 10,231,321
Net Asset Value Per Share......................... $ 14.88 $ 8.74 $ 8.74
</Table>
<Table>
<Caption>
PRO FORMA
BUYING FUND BUYING FUND
CLASS R CLASS R
SHARES SHARES
-------------- --------------
Net Assets.................................................. $ 87,361 $ 87,361
Shares Outstanding.......................................... 10,005 10,005
Net Asset Value Per Share................................... $ 8.73 $ 8.73
</Table>
- ---------------
(1) There were no shareholders of Class K shares of your Fund as of March 31,
2003. If there are any shareholders of Class K shares of your Fund as of the
Effective Time, they will receive Class A shares of Buying Fund in the
Reorganization.
(2) As of March 31, 2003, Investor Class shares of Buying Fund did not exist.
Investor Class shares were added to Buying Fund in connection with the
Reorganization. Investor Class shares of Buying Fund will commence
operations at the net asset value per share of Buying Fund's Class A shares.
Therefore, the Net Asset Value Per Share shown for Investor Class shares of
Buying Fund in the table above is that of Buying Fund's Class A shares.
INTERESTS OF CERTAIN PERSONS
If the Reorganization is consummated, AIM, as the investment advisor of
Buying Fund, will gain approximately $91 million in additional assets under
management (based on your Fund's net assets as of
16
March 31, 2003), upon which AIM will receive advisory fees Exhibit C sets forth
AIM's advisory fees applicable to Buying Fund.
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the Reorganization
will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market
Street, Philadelphia, PA 19103-7599.
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND
For more information with respect to Buying Fund concerning the following
topics, please refer to the following sections of the Buying Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference and
which is attached to this Proxy Statement/Prospectus as Appendix II: (i) see
"Performance Information" for more information about the performance of Buying
Fund; (ii) see "Fund Management" for more information about the management of
Buying Fund; (iii) see "Other Information" for more information about Buying
Fund's policy with respect to dividends and distributions; and (iv) see "Other
Information" and "Shareholder Information" for more information about sales
charges, including contingent deferred sales charges, applicable to shares of
Buying Fund, the pricing, purchase, redemption and repurchase of shares of
Buying Fund, tax consequences to shareholders of various transactions in shares
of Buying Fund, distribution arrangements and the multiple class structure of
Buying Fund.
For more information with respect to your Fund concerning the following
topics, please refer to the following sections of the Selling Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference: (i)
see "Fund Performance" for more information about the performance of your Fund;
(ii) see "Fund Management" and "Portfolio Managers" for more information about
the management of your Fund; (iii) see "Share Price" for more information about
the pricing of shares of your Fund; (iv) see "Taxes" for more information about
tax consequences to shareholders of various transactions in shares of your Fund;
(v) see "Dividends And Capital Gain Distributions" for more information about
your Fund's policy with respect to dividends and distributions; and (vi) see
"How To Buy Shares", "How To Sell Shares" and "Your Account Services" for more
information about sales charges, including contingent deferred sales charges,
applicable to shares of your Fund, the purchase, redemption and repurchase of
shares of your Fund, distribution arrangements and the multiple class structure
of your Fund.
INFORMATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual reports which Company
and Buyer have filed with the SEC pursuant to the requirements of the 1933 Act
and the 1940 Act, to which reference is hereby made. The SEC file number of
Company's registration statement containing the Selling Fund Prospectus and
related Statement of Additional Information is Registration No. 811-1474. Such
Selling Fund Prospectus is incorporated herein by reference. The SEC file number
for Buyer's registration statement containing the Buying Fund Prospectus and
related Statement of Additional Information is Registration No. 811-1424. Such
Buying Fund Prospectus is incorporated herein by reference.
Company and Buyer are subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
file reports and other information with the SEC. Reports, proxy material,
registration statements and other information filed by Company and Buyer
(including the Registration Statement of Buyer relating to Buying Fund on Form
N-14 of which this Proxy Statement/Prospectus is a part) may be inspected
without charge and copied at the public reference facilities maintained by the
SEC at Room 1014, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549,
and at the following regional office of the SEC: 500 West Madison Street, Suite
1400,
17
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC
20549, at the prescribed rates. The SEC maintains a website at www.sec.gov that
contains information regarding Company and Buyer and other registrants that file
electronically with the SEC.
PROPOSAL 2 --
ELECTION OF DIRECTORS
BACKGROUND
In considering the integration initiative proposed by AMVESCAP, the
independent directors of the INVESCO Funds and the independent
directors/trustees of the AIM Funds determined that the shareholders of all the
AIM Funds and the INVESCO Funds would benefit if a unified board of
directors/trustees was responsible for overseeing the operation of both the AIM
Funds and the INVESCO Funds and the services provided by AIM, INVESCO and their
affiliates. Accordingly, the Boards of Directors of the INVESCO Funds and the
Boards of Directors/Trustees of the AIM Funds agreed to combine the separate
boards and create a unified board of directors/trustees.
You are being asked to approve Proposal 2 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from having
a combined board of directors.
STRUCTURE OF THE BOARD OF DIRECTORS
The Board currently consists of the following 10 persons: Bob R. Baker,
Sueann Ambron, Victor L. Andrews, Lawrence H. Budner, James T. Bunch, Raymond R.
Cunningham, Gerald L. Lewis, John W. McIntyre, Larry Soll, Ph.D. and Mark H.
Williamson. Eight of the current directors are "independent," meaning they are
not "interested persons" of Company within the meaning of the 1940 Act. Two of
the current directors are "interested persons" because of their business and
financial relationships with Company and INVESCO, its investment advisor, and/or
INVESCO's parent, AMVESCAP. Five of the current directors have declined to stand
for re-election as directors of Company. Therefore, their terms as directors of
Company will end upon the election and qualification of their successor
directors at the Special Meeting.
NOMINEES FOR DIRECTORS
Company's nominating committee (which consists solely of independent
directors) has approved the nomination of five of the 10 current directors, as
set forth below, each to serve as director until his successor is elected and
qualified. In addition, the nominating committee has approved the nomination of
11 new nominees, as set forth below, each to serve as director until his or her
successor is elected and qualified. These 11 new nominees were nominated to
effect the proposed combination of the Boards of Directors/Trustees of the AIM
Funds and the Boards of Directors of the INVESCO Funds.
Each nominee who is a current director serves as a director of the ten
registered investment companies comprising the INVESCO Funds. Each nominee who
is a current director oversees 46 portfolios which comprise the INVESCO Funds.
The business address of each nominee who is a current director is 4350 South
Monaco Street, Denver, Colorado 80237.
Each new nominee serves as a director or trustee of the 17 registered
investment companies comprising the AIM Funds. Each new nominee currently
oversees 86 portfolios which comprise the AIM Funds. The business address of
each new nominee is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
If elected, each nominee would oversee a total of 27 registered investment
companies currently comprising 132 portfolios.
18
NOMINEES WHO CURRENTLY ARE INDEPENDENT DIRECTORS
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- ----------------------- --------------------------
Bob R. Baker -- 1936........ 1983 Consultant (2000-present); None
formerly, President and Chief
Executive Officer (1988-2000) of
AMC Cancer Research Center,
Denver, Colorado; until
mid-December 1988, Vice Chairman
of the Board of First Columbia
Financial Corporation, Englewood,
Colorado; formerly, Chairman of
the Board and Chief Executive
Officer of First Columbia
Financial Corporation.
James T. Bunch -- 1942...... 2000 Co-President and Founder of None
Green, Manning & Bunch Ltd.,
Denver, Colorado (1988-present)
(investment banking firm);
Director and Vice President of
Western Golf Association and
Evans Scholars Foundation;
Executive Committee, United
States Golf Association;
formerly, General Counsel and
Director of Boettcher & Co.,
Denver, Colorado; and formerly,
Chairman and Managing Partner,
law firm of Davis, Graham &
Stubbs, Denver, Colorado.
Gerald J. Lewis -- 1933..... 2000 Chairman of Lawsuit Resolution General Chemical Group,
Services, San Diego, California Inc., Hampdon, New
(1987-present); formerly, Hampshire (1996-present),
Associate Justice of the Wheelabrator Technologies,
California Court of Appeals; and Inc. (waste management
Of Counsel, law firm of Latham & company), Fisher
Watkins, San Diego, California Scientific, Inc.
(1987-1997). (laboratory supplies),
Henley Manufacturing,
Inc., and California
Coastal Properties, Inc.
Larry Soll, Ph.D. -- 1942... 1997 Retired; formerly, Chairman of Synergen Inc. (since
the Board (1987-1994), Chief incorporation in 1982) and
Executive Officer (1982-1989 and Isis Pharmaceuticals, Inc.
1993-1994) and President
(1982-1989) of Synergen Inc.
(biotechnology company); and
formerly, trustee of INVESCO
Global Health Sciences Fund.
</Table>
19
NOMINEE WHO CURRENTLY IS AN INTERESTED PERSONS
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- ----------------------- --------------------------
Mark H.
Williamson(1) -- 1951..... 1998 Director, President and Chief Director/trustee of each
Executive Officer, A I M of the 17 AIM Funds
Management Group Inc.; Director,
Chairman and President, A I M
Advisors, Inc. (registered
investment advisor); Director,
A I M Distributors, Inc.
(registered broker dealer); and
Chief Executive Officer of the
AIM Division of AMVESCAP PLC
(2003-present); formerly, Chief
Executive Officer, Managed
Products Division, AMVESCAP PLC
(2001-2002); Chairman of the
Board (1998-2002), President
(1998-2002) and Chief Executive
Officer (1998-2002) of INVESCO
Funds Group, Inc. (registered
investment advisor) and INVESCO
Distributors, Inc. (registered
broker dealer); Chief Operating
Officer and Chairman of the Board
of INVESCO Global Health Sciences
Fund; Chairman and Chief
Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
</Table>
- ---------------
(1) Mr. Williamson is considered an interested person of Company because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, Company.
NEW NOMINEES WHO WILL BE INDEPENDENT DIRECTORS
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ----------------------- --------------------------
Frank S. Bayley -- 1939..... Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
(registered investment
company)
Bruce L. Crockett -- 1944... Chairman, Crockett Technology Associates ACE Limited (insurance
(technology consulting company) and company); Captaris, Inc.
Captaris, Inc. (unified messaging (unified messaging
provider) provider)
Albert R. Dowden -- 1941.... Director of a number of public and Cortland Trust, Inc.
private business corporations, including (Chairman) (registered
the Boss Group, Ltd. (private investment investment company);
and management) and Magellan Insurance Annuity and Life Re
Company); formerly, President, Chief (Holdings), Ltd.
Executive Officer and Director, Volvo (insurance company)
Group North America, Inc.; Senior Vice
President, AB Volvo and director of
various affiliated Volvo Group companies
</Table>
20
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ----------------------- --------------------------
Edward K. Dunn,
Jr. -- 1935............... Formerly, Chairman, Mercantile Mortgage None
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares
Corp.
Jack M. Fields -- 1952...... Chief Executive Officer, Twenty First Administaff
Century Group, Inc. (government affairs
company) and Texana Timber LP
Carl Frischling -- 1937..... Partner, law firm of Kramer Levin Cortland Trust, Inc.
Naftalis & Frankel LLP (registered investment
company)
Prema
Mathai-Davis -- 1950...... Formerly, Chief Executive Officer, YWCA None
of the USA
Lewis F. Pennock -- 1942.... Partner, law firm of Pennock & Cooper None
Ruth H. Quigley -- 1935..... Retired None
Louis S. Sklar -- 1939...... Executive Vice President, Development and None
Operations, Hines Interests Limited
Partnership (real estate development
company)
</Table>
NEW NOMINEE WHO WILL BE AN INTERESTED PERSON
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ----------------------- --------------------------
Robert H. Director and Chairman, A I M Management None
Graham(1) -- 1946......... Group Inc. (financial services holding
company); and Director and Vice Chairman,
AMVESCAP PLC (parent of AIM and a global
investment management firm) and Chairman,
AMVESCAP PLC -- AIM Division; 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), A I M Fund
Services, Inc. (registered transfer
agent), and Fund Management Company
(registered broker dealer); and Chief
Executive Officer, AMVESCAP
PLC -- Managed Products
</Table>
- ---------------
(1) Mr. Graham will be considered an interested person of Company because he is
a director of AMVESCAP PLC, parent of the advisor to, and principal
underwriter of, Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 2
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" these 16 nominees.
21
CURRENT COMMITTEES OF THE BOARD
The Board currently has nine standing committees: an audit committee, an
investments and management liaison committee, a brokerage committee, a
derivatives committee, a valuation committee, a legal committee, a compensation
committee, a retirement plan committee and a nominating committee.
AUDIT COMMITTEE
Company has an audit committee established for the purpose of overseeing
the accounting and financial reporting process of Company and audits of the
financial statements of Company. The audit committee is comprised entirely of
independent directors. The committee meets quarterly with Company's independent
accountants and officers to review accounting principles used by Company, the
adequacy of internal controls, the responsibilities and fees of the independent
accountants, and other matters. The current members of the audit committee are
Messrs. Baker, Budner, Lewis and McIntyre.
EXECUTIVE COMMITTEE
Company has an executive committee. On occasion, the committee acts upon
the current and ordinary business of Company between the meetings of the Board.
Except for certain powers which, under applicable law, may only be exercised by
the full Board, the committee may exercise all powers and authority of the Board
in the management of the business of Company. All decisions are subsequently
submitted for ratification by the Board. The current members of the executive
committee are Messrs. Baker, Bunch, McIntyre and Williamson.
INVESTMENTS AND MANAGEMENT LIAISON COMMITTEE
Company has an investments and management liaison committee which meets
quarterly with various management personnel of INVESCO in order to facilitate
better understanding of management and operations of Company, and to review
investment, legal and operational matters which have been assigned to the
committee by the Board, in furtherance of the Board's overall duty of
supervision. The current members of the investments and management liaison
committee are Messrs. Andrews, Baker, Bunch, Soll and Dr. Ambron.
BROKERAGE COMMITTEE
Company has a brokerage committee. The committee meets periodically to
review soft dollar and other brokerage transactions by your Fund and to review
policies and procedures of INVESCO with respect to brokerage transactions. It
reports on these matters to the Board. The current members of the brokerage
committee are Messrs. Budner, Bunch and McIntyre.
DERIVATIVES COMMITTEE
Company has a derivatives committee. The committee meets periodically to
review derivatives investments made by your Fund. It monitors the use of
derivatives by your Fund and the procedures utilized by INVESCO to ensure that
the use of such instruments follows the policies adopted by the Board. The
committee reports on these matters to the Board. The current members of the
derivatives committee are Messrs. Andrews, Lewis and Soll.
NOMINATING COMMITTEE
Company has a nominating committee. The committee meets periodically to
review and nominate candidates for positions as independent directors to fill
vacancies on the board of directors. The nominating committee will consider
nominees recommended by shareholders. If a shareholder desires to nominate a
candidate, the shareholder must submit a request in writing to the Chairman of
the nominating committee. The current members of the nominating committee are
Messrs. Baker, Bunch, Lewis and Soll.
22
LEGAL COMMITTEE
Company has a legal committee. The committee meets periodically to review
compensation arrangements with counsel to Company and to its independent
directors. The committee reports on these matters to the Board. The current
members of the legal committee are Messrs. Bunch, Lewis and McIntyre.
COMPENSATION COMMITTEE
Company has a compensation committee. The committee meets periodically to
review compensation arrangements of Company's independent directors. The
committee reports on these matters to the Board. The current members of the
compensation committee are Messrs. Andrews, Baker, Budner and Soll.
VALUATION COMMITTEE
Company has a valuation committee. The committee meets periodically to
review valuation issues regarding investments made by your Fund. The committee
reports on these matters to the Board. The current members of the valuation
committee are Messrs. Baker, Bunch, Cunningham and McIntyre.
RETIREMENT PLAN COMMITTEE
Company has a retirement plan committee. The committee meets periodically
to review Company's retirement arrangements for its independent directors. The
committee reports on these matters to the Board. The current members of the
retirement plan committee are Messrs. Andrews, Baker, Budner, Cunningham and
Soll.
BOARD AND COMMITTEE MEETING ATTENDANCE
During the fiscal year ended July 31, 2003, the Board met eight times, the
audit committee met four times, the executive committee did not meet, the
investments and management liaison committee met four times, the brokerage
committee met four times, the derivatives committee met four times, the
nominating committee met four times, the legal committee met three times, the
compensation committee met two times, and the valuation and retirement plan
committees did not meet. All of the current directors then serving attended at
least 75% of the meetings of the Board or applicable committee during the most
recent fiscal year.
FUTURE COMMITTEE STRUCTURE
As a result of the combination of the Boards of Directors of the INVESCO
Funds and the Boards of Directors/Trustees of the AIM Funds, it is expected that
the Board will adopt a committee structure that is the same as that which is in
effect for the AIM Funds, so that the Board will have four committees: an Audit
Committee, a Committee on Directors/Trustees, an Investments Committee and a
Valuation Committee. These committees are described below.
AUDIT COMMITTEE
The Audit Committee will be comprised entirely of independent directors.
The Audit Committee will be responsible for: (i) the appointment, compensation
and oversight of any independent auditors employed by your Fund (including
resolution of disagreements between your Fund's management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work; (ii) overseeing the financial reporting process of your
Fund; (iii) monitoring the process and the resulting financial statements
prepared by management to promote accuracy of financial reporting and asset
valuation; and (iv) pre-approving permissible non-audit services that are
provided to your Fund by its independent auditors.
23
COMMITTEE ON DIRECTORS/TRUSTEES
The Committee on Directors/Trustees will be comprised entirely of
independent directors. It will be responsible for: (i) nominating persons who
are not interested persons of Company for election or appointment: (a) as
additions to the Board, (b) to fill vacancies which, from time to time, may
occur in the Board and (c) for election by shareholders of Company at meetings
called for the election of directors; (ii) nominating persons who are not
interested persons of Company for selection as members of each committee of the
Board, including, without limitation, the audit committee, the committee on
directors, the investments committee and the valuation committee, and to
nominate persons for selection as chair and vice chair of each such committee;
(iii) reviewing from time to time the compensation payable to the independent
directors and making recommendations to the Board regarding compensation; (iv)
reviewing and evaluating from time to time the functioning of the Board and the
various committees of the Board; (v) selecting independent legal counsel to the
independent trustees and approving the compensation paid to independent legal
counsel; and (vi) approving the compensation paid to independent counsel and
other advisers, if any, to the Audit Committee of Company.
INVESTMENTS COMMITTEE
The Investments Committee will be responsible for: (i) overseeing the
advisor's investment-related compliance systems and procedures to ensure their
continued adequacy; and (ii) considering and acting, on an interim basis between
meetings of the full Board, on investment-related matters requiring Board
consideration, including dividends and distributions, brokerage policies and
pricing matters.
VALUATION COMMITTEE
The Valuation Committee will be responsible for: (i) periodically reviewing
the advisor's procedures for valuing securities ("Procedures"), and making any
recommendations to the advisor with respect thereto; (ii) reviewing proposed
changes to the Procedures recommended by the advisor from time to time; (iii)
periodically reviewing information provided by the advisor regarding industry
developments in connection with valuation; (iv) periodically reviewing
information from the advisor regarding fair value and liquidity determinations
made pursuant to the Procedures, and making recommendations to the full Board in
connection therewith (whether such information is provided only to the committee
or to the committee and the full Board simultaneously); and (v) if requested by
the advisor, assisting the advisor's internal valuation committee and/or the
full Board in resolving particular valuation anomalies.
DIRECTOR'S COMPENSATION
Each director who is independent is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director of other INVESCO Funds. Each such director receives a fee,
allocated among the INVESCO Funds for which he or she serves as a director,
which consists of an annual retainer component and a meeting fee component.
Information regarding compensation paid or accrued for each continuing
director of Company who was not affiliated with INVESCO during the year ended
December 31, 2002 is found in Exhibit D.
CURRENT RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds have adopted a Retirement Plan
(the "Retirement Plan") and a Deferred Retirement Plan Account Agreement (the
"Account Agreement"). Certain of the independent directors of Company
participate either in the Retirement Plan or in the Account Agreement. Under the
Retirement Plan and the Account Agreement, each participating director who is
not an interested person of the INVESCO Funds and who has served for at least
five years (a "Participating Qualified Director") is entitled to receive a
benefit upon retirement.
Commencing with attainment of age 72 by a Participating Qualified Director
who has elected to participate in the Retirement Plan and who voluntarily
retires prior to reaching age 72, and commencing
24
with the date of retirement of a Participating Qualified Director who retires
upon reaching age 72 or at any time subsequent to age 72 up to the mandatory
retirement age of 75, a Participating Qualified Director shall receive quarterly
payments at an annual rate of $34,000 (the "Annual Benefit"). Directors who
became Participating Qualified Directors on or before January 1, 2001 who retire
upon reaching age 72 (or at age 73 or 74, if the director extends his retirement
date for one to two years, but less than three years) are entitled to payment
for one year of twice the Annual Benefit. Payment of the Annual Benefit will
continue for the remainder of the Participating Qualified Director's life or ten
years, whichever is longer. If a Participating Qualified Director becomes
disabled before the date upon which his or her Annual Benefit payments would
normally commence, such benefit payments will begin. If a Participating
Qualified Director dies prior to the receipt of the Annual Benefit for ten
years, the Annual Benefit will be paid to his/her beneficiary or estate until an
aggregate of ten years of payments has been received. A Participating Qualified
Director who has elected to participate in the Retirement Plan receives no
benefits from the Account Agreement. The cost of the Retirement Plan will be
allocated among the INVESCO Funds in a manner determined to be fair and
equitable by the committee administering the Retirement Plan.
A Participating Qualified Director who has elected to participate in the
Account Agreement receives no benefits from the Retirement Plan. Pursuant to the
terms of the Account Agreement, a deferred retirement account is established for
a Qualified Participating Director (the "Account"). The dollar amount credited
to the Account is in an amount which, based upon an assumed account appreciation
rate per annum (currently 5.75%), will provide the Participating Qualified
Director with an account value of $340,000 upon reaching age 72. Once the
initial dollar amount of the Account is established, Account proceeds are
invested in shares of one or more of the INVESCO Funds. The value of the Account
fluctuates with the appreciation or depreciation in the shares of the INVESCO
Funds owned by the Account and Account shares are increased by the amount of any
dividends and capital gains distributions paid with respect to the shares. Upon
retirement, a Participating Qualified Director is entitled to receive the value
in the Account either in a lump sum payment or in payments over a stipulated
number of months. The Account value continues to fluctuate as long as monthly
payments are made. If a Participating Qualified Director becomes disabled or
dies prior to his or her retirement and if, at the time of disability or death,
the value of a Participating Qualified Director's Account is less than $340,000,
the Director or the Director's beneficiary or estate will not be paid the value
in the Account but will receive $34,000 per annum for ten years. If, at the time
of the Participating Qualified Director's death or disability prior to
retirement, the value in the director's Account is $340,000 or more, the
Participating Qualified Director or his or her estate or beneficiary will
receive the value in the Account either in a lump sum or in quarterly
installments. The cost of providing the initial dollar amount to be allocated to
a Participating Qualified Director's Account and the cost of payment of any
death or disability benefit that aggregates more than the Account value will be
allocated among the INVESCO Funds in a manner determined to be fair and
equitable by a committee appointed to administer the Account Agreement.
Company has no stock options, pension, or retirement plans for affiliated
directors of the INVESCO Funds or for management or other personnel, and pays no
salary or compensation to any of its officers.
CURRENT DEFERRED COMPENSATION PLAN
The independent directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds.
Certain of the deferred amounts have been invested in the shares of all INVESCO
Funds except INVESCO Funds offered by INVESCO Variable Investment Funds, Inc.,
in which the directors are legally precluded from investing. Each independent
director may, therefore, be deemed to have an indirect interest in shares of
each such INVESCO Fund, in addition to any INVESCO Fund shares the independent
director may own either directly or beneficially. Each of the independent
directors has agreed to invest a minimum of $100,000 of his or her own resources
in shares of the INVESCO Funds.
25
Compensation contributed to a deferred compensation plan may constitute all or a
portion of this $100,000 commitment.
NEW RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds intend to adopt a new
retirement plan (the "New Retirement Plan") for the directors of Company who are
not affiliated with INVESCO, which will be effective as of the date of the
Special Meeting. The New Retirement Plan also will be adopted by the Boards of
Directors/Trustees of the AIM Funds. The reason for adoption of the New
Retirement Plan is to provide for consistency in the retirement plans for the
Boards of Directors of the INVESCO Funds and the Boards of Directors/Trustees of
the AIM Funds. The retirement plan will include a retirement policy as well as
retirement benefits for independent directors.
The retirement policy will permit each independent director to serve until
December 31 of the year in which the director turns 72. A majority of the
directors will be able to extend from time to time the retirement date of a
director.
Annual retirement benefits will be available to each independent director
of Company and/or the other INVESCO Funds and AIM Funds (each, a "Covered Fund")
who has at least five years of credited service as a director (including service
to a predecessor fund) for a Covered Fund. The retirement benefits will equal
75% of the director's annual retainer paid or accrued by any Covered Fund to
such director during the twelve-month period prior to retirement, including the
amount of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the director. The annual retirement benefits will
be payable in quarterly installments for a number of years equal to the lesser
of (i) ten or (ii) the number of such director's credited years of service. A
death benefit will also be available under the New Retirement Plan that will
provide a surviving spouse with a quarterly installment of 50% of a deceased
director's retirement benefits for the same length of time that the director
would have received the benefits based on his or her service. A director must
have attained the age of 65 (55 in the event of death or disability) to receive
any retirement benefit. Payment of benefits under the New Retirement Plan will
not be secured or funded by Company.
Upon the effectiveness of the New Retirement Plan, the independent
directors will cease to accrue benefits under the Retirement Plan and the
Account Agreement. Messrs. Baker and Soll will not receive any additional
benefits under the Retirement Plan or the Account Agreement, but will be
entitled to amounts which have been previously funded under the Retirement Plan
or the Account Agreement for their benefit. An affiliate of INVESCO will
reimburse Company for any amounts funded by Company for Messrs. Baker and Soll
under the Retirement Plan and the Account Agreement.
NEW DEFERRED COMPENSATION AGREEMENTS
The Boards of Directors of the INVESCO Funds intend to adopt new deferred
compensation agreements which are consistent with the deferred compensation
agreements adopted by the Boards of Directors/Trustees of the AIM Funds.
Pursuant to the new deferred compensation agreements ("New Compensation
Agreements"), a director will have the option to elect to defer receipt of up to
100% of his or her compensation payable by Company, and such amounts are placed
into a deferral account. The deferring directors will have the option to select
various INVESCO Funds in which all or part of their deferral account will be
deemed to be invested. The list of funds may change from time to time and may
include AIM Funds in addition to INVESCO Funds. Distributions from the deferring
directors' deferral accounts will be paid in cash, generally in equal quarterly
installments over a period of up to ten years (depending on the New Compensation
Agreement) beginning on the date selected under the New Compensation Agreement.
The Board, in its sole discretion, will be able to accelerate or extend the
distribution of such deferral accounts after the deferring directors' retirement
benefits commence under the New Retirement Plan. The Board, in its sole
discretion, also will be able to accelerate or extend the distribution of such
deferral accounts after the deferring directors' termination of service as a
director of Company. If a deferring
26
director dies prior to the distribution of amounts in his or her deferral
account, the balance of the deferral account will be distributed to his or her
designated beneficiary. The New Compensation Agreements will not be funded and,
with respect to the payments of amounts held in the deferral accounts, the
deferring directors will have the status of unsecured creditors of Company and
of each other INVESCO Fund or AIM Fund from which they will be deferring
compensation.
OFFICERS OF COMPANY
Information regarding the current officers of Company can be found in
Exhibit E.
SECURITY OWNERSHIP OF MANAGEMENT
Information regarding the ownership of each class of your Fund's shares by
the directors, nominees and current executive officers of Company can be found
in Exhibit F.
DIRECTOR OWNERSHIP OF YOUR FUND'S SHARES
The dollar range of equity securities beneficially owned by each continuing
director and nominee as of December 31, 2002 (i) in your Fund and (ii) on an
aggregate basis, in all registered investment companies overseen by the director
within the INVESCO Funds complex can be found in Exhibit G.
PROPOSAL 3 --
APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT
BACKGROUND
INVESCO currently serves as the investment advisor to your Fund. AMVESCAP
has recommended restructuring the advisory and administrative servicing
arrangements so that AIM is the advisor and administrator for all INVESCO Funds
and AIM Funds. Your Board has approved a new advisory agreement under which AIM
will serve as the investment advisor for your Fund. The portfolio management
team for your Fund will not change as a result of this restructuring.
You are being asked to approve Proposal 3 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from a new
investment advisory agreement between AIM and Company.
The Board recommends that you approve the new advisory agreement between
AIM and Company for your Fund. The Board is asking you to vote on this new
agreement because Company may enter into a new advisory agreement for your Fund
only with shareholder approval. If approved, this new agreement would replace
the current advisory agreement between INVESCO and Company for your Fund. The
form of Company's proposed Master Investment Advisory Agreement with AIM is at
Appendix IV.
Under the new arrangements, the advisory fees paid by your Fund will not
change. If shareholders of your Fund approve Proposal 3, Company will also enter
into a new Master Administrative Services Agreement with AIM that will replace
the current Administrative Services Agreement between Company and INVESCO, and
move the provision of certain administrative services currently provided by
INVESCO pursuant to the current advisory agreement between Company and INVESCO
to the Master Administrative Services Agreement with AIM. If the proposed
advisory agreement is approved and these new arrangements are implemented, the
aggregate fees paid by your Fund for advisory and administrative services will
not increase.
Any voluntary or contractual expense limitations and fee waivers that have
been agreed to by INVESCO and Company with respect to your Fund will not be
terminated if the proposed new advisory agreement with AIM is approved. Instead,
AIM will assume INVESCO's obligations with respect to these voluntary and
contractual expense limitations and fee waivers, on the same terms and
conditions.
If INVESCO and Company have entered into voluntary or contractual expense
limitations or fee waivers with respect to your Fund, INVESCO currently is
entitled to reimbursement from a share class of
27
your Fund that has fees and expenses absorbed pursuant to this arrangement if
such reimbursement does not cause such share class to exceed the expense
limitation and the reimbursement is made within three years after INVESCO
incurred the expense. If the proposed new advisory agreement with AIM is
approved, INVESCO will assign to AIM its right to be reimbursed with respect to
fees and expenses absorbed by it. Other than substituting AIM for INVESCO as the
party having the right to be reimbursed, this assignment will not alter in any
way the rights or obligations of your Fund or its shareholders.
A description of how the proposed advisory agreement differs from the
current advisory agreement is set forth below under "Terms of the Proposed
Advisory Agreement." At an in-person meeting of the Board held on August 12-13,
2003, the Board, including a majority of the independent directors, voted to
recommend that shareholders approve a proposal to adopt the proposed advisory
agreement for your Fund.
YOUR FUND'S CURRENT INVESTMENT ADVISOR
INVESCO, the current investment advisor for your Fund, became the
investment advisor for your Fund under the current advisory agreement on July
15, 1999. Your Fund's initial shareholder initially approved the agreement and
your Fund's public shareholders have not subsequently voted on the agreement.
The Board, including a majority of the independent directors, last approved the
current advisory agreement on May 15, 2003.
THE PROPOSED NEW INVESTMENT ADVISOR FOR YOUR FUND
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), a holding company with its principal offices at 11 Greenway Plaza,
Suite 100, Houston, Texas 77046-1173. AIM Management is an indirect wholly owned
subsidiary of AMVESCAP, 30 Finsbury Square, London EC2A1AG, United Kingdom.
AMVESCAP and its subsidiaries are an independent investment management group. A
list of the names, addresses and principal occupations of the principal
executive officer and directors of AIM is in Exhibit H.
POSITIONS WITH AIM HELD BY COMPANY'S DIRECTORS OR EXECUTIVE OFFICERS
Mark H. Williamson, who is a director and/or executive officer of Company,
also is a director and/or officer of AIM. He also beneficially owns shares of
AMVESCAP and/or options to purchase shares of AMVESCAP.
TERMS OF THE CURRENT ADVISORY AGREEMENT
Under the terms of the current advisory agreement with INVESCO for your
Fund, INVESCO acts as investment manager and administrator for your Fund. As
investment manager, INVESCO provides a continuous investment program for your
Fund, including investment research and management, with respect to all
securities, investments and cash equivalents of your Fund. INVESCO also makes
recommendations as to the manner in which voting rights, rights to consent to
actions of your Fund and any other rights pertaining to your Fund's securities
shall be exercised, and calculates the net asset value of your Fund, subject to
such procedures established by the Board and based upon information provided by
your Fund, the custodian of your Fund or other source as designated by the
Board. INVESCO provides sub-accounting, recordkeeping and administrative
services to your Fund under an administrative services agreement. Under the
advisory agreement, as administrator, INVESCO also provides, at its expense and
at the request of your Fund, executive, statistical, administrative, internal
accounting and clerical services and office space, equipment and facilities.
Under the terms of the current advisory agreement, INVESCO has no liability
to Company, your Fund or to your Fund's shareholders or creditors, for any error
of judgment, mistake of law, or for any loss arising out of any investment, nor
for any other act or omission, in the performance of its obligations to Company
or your Fund unless such act or omission involves willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties
under the current advisory agreement.
28
The current advisory agreement for your Fund continues in effect from year
to year only if such continuance is specifically approved at least annually by
(i) the Board or the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of your Fund, and (ii) the vote of a majority of the
directors of Company who are not interested persons of INVESCO or Company by
votes cast in person at a meeting called for such purpose. The current advisory
agreement provides that the Board, a majority of the outstanding voting
securities of your Fund or INVESCO may terminate the agreement with respect to
your Fund on 60 days' written notice without penalty. The agreement terminates
automatically in the event of its assignment, unless an order is issued by the
SEC conditionally or unconditionally exempting such assignment from the
applicable provisions of the 1940 Act.
The current advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of its expenses not assumed by INVESCO, including
without limitation:
- brokerage commissions, issue and transfer taxes and other costs related
to securities transactions;
- fees, charges and expenses related to accounting, custodian, depository,
dividend disbursing agent, dividend reinvestment agent, transfer agent,
registrar, independent pricing services and legal services performed for
your Fund;
- interest on indebtedness incurred by Company or your Fund;
- taxes;
- fees for maintaining the registration and qualification of your Fund or
its shares under federal and state law;
- compensation and expenses of the Board;
- costs of printing and distributing reports, notices of shareholders'
meetings, proxy statements, dividend notices, prospectuses, statements of
additional information and other communications to your Fund's
shareholders, including expenses relating to Board and shareholder
meetings;
- costs, fees and other expenses arising in connection with the
organization and filing of Company's Articles of Incorporation,
determinations of tax status of your Fund, initial registration and
qualification of your Fund's securities under federal and state
securities laws and approval of Company's operations by any other federal
or state authority;
- expenses of repurchasing and redeeming shares of your Fund;
- insurance premiums;
- costs of designing, printing and issuing certificates representing shares
of your Fund;
- extraordinary expenses, including fees and disbursements of Company's
counsel, in connection with litigation by or against Company or your
Fund;
- premiums for the fidelity bond maintained by your Fund pursuant to the
1940 Act (except those premiums that may be allocated to INVESCO as an
insured);
- association and institute dues;
- expenses, if any, of distributing shares of your Fund pursuant to a 12b-1
plan of distribution; and
- all other costs and expenses of your Fund's operations and organization
unless otherwise explicitly provided.
The current advisory agreement requires INVESCO to reimburse your Fund
monthly for any salaries paid by your Fund to officers, directors and full-time
employees of your Fund who are also officers, general partners or employees of
INVESCO or its affiliates. Although INVESCO has this obligation under the
current advisory agreement, your Fund does not pay salaries to its officers,
non-independent directors or employees for services rendered to your Fund.
29
If, in any given year, the sum of your Fund's expenses exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
promptly reimburse such excess expenses to your Fund pursuant to the current
advisory agreement. Interest, taxes, extraordinary expenses and expenses which
are capitalized are not deemed expenses for purposes of this reimbursement
obligation.
The annual rates at which INVESCO receives fees from your Fund under the
current advisory agreement, the total net assets of your Fund, the dollar
amounts of advisory fees paid to INVESCO by your Fund net of any expense
limitations and the reimbursement, if any, made by INVESCO to your Fund for the
most recent fiscal year are in Exhibit I.
ADDITIONAL SERVICES PROVIDED BY INVESCO AND ITS AFFILIATES
INVESCO and its affiliates also provide additional services to Company and
your Fund. INVESCO currently provides or arranges for others to provide
accounting and administrative services to your Fund. INVESCO currently serves as
your Fund's transfer agent. Prior to July 1, 2003, INVESCO Distributors, Inc.
served as the principal underwriter for your Fund. This company is an indirect
wholly owned subsidiary of AMVESCAP, the parent company of INVESCO. Information
concerning fees paid to INVESCO and its affiliates for these services is in
Exhibit J.
ADVISORY FEES CHARGED BY AIM FOR SIMILAR FUNDS IT MANAGES
The advisory fee schedules for other funds advised by AIM with similar
investment objectives as your Fund are in Exhibit K.
TERMS OF THE PROPOSED ADVISORY AGREEMENT
Under the terms of the proposed advisory agreement, AIM would act as
investment manager and administrator for your Fund. As investment manager, AIM
would provide a continuous investment program for your Fund, including
supervision of all aspects of your Funds' operations, including the investment
and reinvestment of cash, securities or other properties comprising your Funds'
assets and investment research and management, subject at all times to the
policies and control of the Board. AIM would also provide administrative
services pursuant to a Master Administrative Services Agreement.
The proposed advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties under the agreement on the part of AIM or any of its officers,
directors, or employees, AIM would not be subject to liability to Company or
your Fund or to any shareholders of your Fund for any act or omission in the
course of, or connected with, rendering services under the agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.
The proposed advisory agreement for your Fund would continue in effect from
year to year only if such continuance is specifically approved at least annually
by (i) the Board or the vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of your Fund, and (ii) the affirmative vote of a
majority of the directors of Company who are not interested persons of AIM or
Company by votes cast in person at a meeting called for such purpose. The
proposed advisory agreement provides that the Board, a majority of the
outstanding voting securities of your Fund or AIM may terminate the agreement
with respect to your Fund on 60 days' written notice without penalty. The
proposed agreement terminates automatically in the event of its "assignment" (as
defined in the 1940 Act).
The proposed advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of the ordinary business expenses incurred in the
operations of your Fund and the offering of its shares. These expenses borne by
your Fund would include, without limitation, brokerage commissions, taxes,
legal, accounting, auditing, or governmental fees, the cost of preparing share
certificates, custodian, transfer and shareholder service agent costs, expenses
of issue, sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, expenses relating to trustees and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by
30
Company on behalf of your Fund in connection with membership in investment
company organizations and the cost of printing copies of prospectuses and
statements of additional information distributed to your Fund's shareholders.
The compensation to be paid to AIM under the proposed advisory agreement
would be calculated by applying annual rates to the average daily net assets of
your Fund for each calendar year. The annual rates at which AIM will receive
advisory fees from your Fund under the proposed advisory agreement are in
Exhibit L.
If Proposal 3 is approved, Company will be able to take advantage of an
exemptive order obtained from the SEC by AIM and certain of the AIM Funds. This
exemptive order will allow your Fund and each other series portfolio of Company
(each, an "Investing Fund") to invest their uninvested cash in money market
funds that have AIM or an affiliate of AIM as an investment advisor (the
"Affiliated Money Market Funds"), provided that investments in Affiliated Money
Market Funds do not exceed 25% of the total assets of the Investing Fund. AIM
will receive advisory fees from the Affiliated Money Market Fund to the extent
an Investing Fund invests uninvested cash in such Affiliated Money Market Fund.
If the Board approves AIM's use of the exemptive order for Company, AIM intends
to waive a portion of the advisory fees payable by each Investing Fund in an
amount equal to 25% of the advisory fee AIM receives from the Affiliated Money
Market Fund as a result of such Investing Fund's investment of uninvested cash
in such Affiliated Money Market Fund.
The primary differences between the current advisory agreement with INVESCO
and the proposed advisory agreement with AIM that the Board approved are to:
- replace INVESCO with AIM as the investment advisor for your Fund;
- move certain administrative services to an administrative services
agreement with AIM;
- expand provisions regarding broker-dealer relationships that are set
forth in the current advisory agreement to make them consistent with
similar provisions in other AIM advisory agreements;
- add provisions relating to certain functions to be performed by AIM in
connection with your Fund's securities lending program;
- change certain obligations regarding payment of expenses of your Fund;
- simplify certain rights applicable to your Fund's right to terminate
advisory services or amend the proposed advisory agreement;
- revise non-exclusivity provisions that are set forth in the current
advisory agreement;
- amend delegation provisions that are set forth in the current advisory
agreement;
- add to the limitation of liability provisions that are set forth in the
current advisory agreement to, among other things, specifically state the
limitation of liability of Company's shareholders; and
- change the governing state law set forth in the current advisory
agreement.
Although certain terms and provisions in the current advisory agreement
with INVESCO and the proposed advisory agreement with AIM are described slightly
differently, there are few substantive differences between these agreements. The
substantive differences are discussed below.
ADMINISTRATIVE SERVICES
For your Fund, the Board, in approving the proposed advisory agreement with
AIM, has approved removing the provision of certain administrative services that
are covered under the current advisory agreement with INVESCO, and consolidating
those administrative services with your Fund's accounting and recordkeeping
services in a new Master Administrative Services Agreement with AIM. The primary
reason for this change is to make your Fund's agreements consistent with similar
agreements for the AIM Funds. If shareholders approve the proposed advisory
agreement, your Fund will continue to receive
31
substantially the same accounting and administrative services it currently
receives and at the same or lower costs pursuant to the new Master
Administrative Services Agreement. As a result, there would be no loss of
services nor would there by any increase in costs borne by your Fund as a result
of the transfer of administrative duties from the advisory agreement to the
Master Administrative Services Agreement.
BROKER-DEALER RELATIONSHIPS AND AFFILIATED BROKERAGE
The current advisory agreement requires INVESCO, when selecting brokers or
dealers, to first obtain the most favorable execution and price for your Fund;
after fulfilling this primary requirement INVESCO may consider, as secondary
factors whether such firms provide statistical research and other information to
INVESCO. The proposed advisory agreement specifies that AIM's primary
consideration in effecting a security transaction will be to obtain the best
execution. In selecting broker-dealers to execute particular transactions, AIM
will consider the best net price available, the reliability, integrity and
financial condition of the broker-dealer, the size of and difficulty in
executing the order and the value of the expected contribution of the
broker-dealer to the investment performance of Company's portfolio funds on a
continuing basis. Accordingly, the price to your Fund in any transaction may be
less favorable than that available from another broker-dealer if the difference
is reasonably justified by other aspects of the fund execution services offered
by the broker-dealer. The broker-dealer relationship provisions of the current
advisory agreement with INVESCO for your Fund do not specify these factors.
Although AIM does not currently execute trades through brokers or dealers
that are affiliated with AIM, the proposed advisory agreement includes a new
provision that would permit such trades, subject to compliance with applicable
federal securities laws, rules, interpretations and exemptions.
SECURITIES LENDING
If your Fund engages in securities lending, AIM will provide it with
investment advisory services and related administrative services. The proposed
advisory agreement includes a new provision that specifies the administrative
services to be rendered by AIM if your Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Administrative services to be provided include: (a) overseeing
participation in the securities lending program to ensure compliance with all
applicable regulatory and investment guidelines; (b) assisting the securities
lending agent or principal (the "agent") in determining which specific
securities are available for loans; (c) monitoring the agent to ensure that
securities loans are effected in accordance with AIM's instructions and with
procedures adopted by the Board; (d) preparing appropriate periodic reports for,
and seeking appropriate approvals from, the Board with respect to securities
lending activities; (e) responding to agent inquiries; and (f) performing such
other duties as may be necessary.
In accordance with an exemptive order issued by the SEC, before your Fund
may participate in a securities lending program, the Board must approve such
participation. In addition, the Board must evaluate the securities lending
arrangements annually, and must determine that it is in the best interests of
the shareholders of your Fund to invest in AIM-advised money market funds any
cash collateral your Fund receives as security for the borrower's obligation to
return the loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees from
these money market funds, because the invested cash collateral will increase the
assets of these funds and AIM receives advisory fees based upon the assets of
these funds.
AIM does not receive any additional compensation for advisory services
rendered in connection with securities lending activities. As compensation for
the related administrative services AIM will provide, your Fund will pay AIM a
fee equal to 25% of the net monthly interest or fee income retained or paid to
your Fund from such activities. AIM intends to waive this fee, and has agreed to
seek Board approval prior to its receipt of all or a portion of such fee.
32
PAYMENT OF EXPENSES AND RESTRICTIONS ON FEES RECEIVED
Under the current advisory agreement with INVESCO, INVESCO has the
obligation to reimburse your Fund for any salaries paid by your Fund to
officers, non-independent directors and employees of your Fund. Your Fund does
not currently pay any such salaries. Such provision is not included in the
proposed advisory agreement with AIM.
The current advisory agreement provides that if annual fees exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
reimburse any such excess to your Fund. Such state-imposed limitations are no
longer applicable because the National Securities Market Improvements Act of
1996 (NSMIA) preempted state laws under which mutual funds such as your Fund
previously were regulated. Accordingly, under the proposed advisory agreement,
such annual expense limitation has been removed. Removing this state-imposed
annual expense limitation will not result in an increase in fees paid by your
Fund.
TERMINATION/AMENDMENT RIGHTS
The current advisory agreement with INVESCO provides that Company can
terminate the agreement with INVESCO or amend the terms of the agreement upon
receipt of the affirmative vote of a majority of the outstanding securities (as
defined in the 1940 Act) of all series portfolios of Company. Under the 1940 Act
and the regulations thereunder, as interpreted by the SEC, advisory services
provided to your Fund cannot be terminated or amended without the approval by a
majority of the outstanding securities of your Fund, unless, in the case of an
amendment, the Board may approve the changes. The proposed advisory agreement
simplifies the language regarding termination and amendment of the agreement to
be consistent with the 1940 Act and the regulations thereunder, as interpreted
by the SEC.
NON-EXCLUSIVITY PROVISIONS
The current advisory agreement with INVESCO provides that the services
furnished by INVESCO are not deemed to be exclusive and that INVESCO shall be
entitled to furnish similar services to others, including other investment
companies with similar objectives, and that INVESCO may aggregate orders for its
other customers together with any securities of the same type to be sold or
purchased for your Fund in order to obtain best execution and lower brokerage
commissions. In such event, INVESCO must allocate the securities purchased or
sold and the expenses incurred in the transaction in a manner it considers most
equitable.
AIM has proposed and the Board has agreed that the non-exclusivity
provisions in the proposed advisory agreement with AIM should be divided into
two separate provisions: one dealing with services provided by AIM to other
investment accounts and the other dealing with employees of AIM. Under the new
provisions, AIM will act as investment manager or advisor to fiduciary and other
managed accounts and to other investment companies and accounts, including
off-shore entities or accounts. The proposed advisory agreement states that
whenever your Fund and one or more other investment companies or accounts
advised by AIM have moneys available for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed to
be equitable to your Fund and such other companies and accounts. Such allocation
procedure may adversely affect the size of the positions obtainable and the
prices realized by your Fund. The non-exclusivity provisions of the proposed
advisory agreement also explicitly recognize that officers and directors of AIM
may serve as officers or directors of Company, and that officers and directors
of Company may serve as officers or directors of AIM to the extent permitted by
law; and that officers and directors of AIM do not owe an exclusive duty to
Company. As described above, unlike the current advisory agreement, the proposed
advisory agreement does not require AIM to reimburse Company for any salaries
paid by Company to officers, directors and full-time employees of Company who
are also officers, directors or employees of AIM or its affiliates. Your Fund
does not currently pay any such salaries.
33
DELEGATION
The current advisory agreement provides that INVESCO may, in compliance
with applicable law and with the prior written approval of your Fund, make use
of affiliated companies and their employees in connection with rendering of the
services required of INVESCO. INVESCO must supervise all such services and
remain fully responsible for the services provided.
The proposed advisory agreement expands the extent to which AIM can
delegate its rights, duties and obligations by expressly providing that AIM may
delegate any or all of its rights, duties or obligations under the agreement to
one or more sub-advisors rather than solely certain specified advisory services.
The proposed advisory agreement also provides that AIM may replace sub-advisors
from time to time, in accordance with applicable federal securities laws, rules
and regulations in effect or interpreted from time to time by the SEC or with
exemptive orders or other similar relief. Any such delegation shall require
approval by the applicable Board and the shareholders unless, in accordance with
applicable federal securities laws, rules, interpretations and exemptions, AIM
is not required to seek shareholder approval of the appointment of a
sub-advisor.
LIMITATION OF LIABILITY OF AIM, COMPANY AND SHAREHOLDERS
As described above under the descriptions of the terms of the current
advisory agreement and the proposed advisory agreement, respectively, both
agreements provide limitation of liability for the advisor. The limitation of
liability provisions of the 1940 Act also apply to both INVESCO and AIM in their
capacity as advisor. In addition, the proposed advisory agreement states that no
series of Company shall be liable for the obligations of other series of Company
and the liability of AIM to one series of Company shall not automatically render
AIM liable to any other series of Company. Consistent with applicable law, the
proposed advisory agreement would also include a provision stating that AIM's
obligations under the agreement are not binding on any shareholders of Company
individually and that shareholders are entitled to the same limitation on
personal liability as shareholders of private corporations for profit. The
primary reason for this change is to make your Fund's agreement consistent with
similar agreements for the AIM Funds.
STATE LAW GOVERNING THE AGREEMENT
Questions of state law under the current advisory agreement with INVESCO
are governed by the laws of Colorado. Under the proposed advisory agreement with
AIM, Texas law would apply. The Board determined that, because the services
under the proposed advisory agreement with AIM will primarily be provided in
Texas, it was more appropriate to apply Texas law to the proposed advisory
agreement.
FACTORS THE DIRECTORS CONSIDERED IN APPROVING THE ADVISORY AGREEMENT
At the request of AIM, the Board discussed the approval of the proposed
advisory agreement at an in-person meeting held on August 12-13, 2003. The
independent directors also discussed the approval of the proposed advisory
agreement with independent counsel prior to that meeting. In evaluating the
proposed advisory agreement, the Board requested and received information from
AIM to assist in its deliberations.
The Board considered the following factors in determining reasonableness
and fairness of the proposed changes between the current advisory agreement with
INVESCO and the proposed advisory agreement with AIM:
- The qualifications of AIM to provide investment advisory services. The
Board reviewed the credentials and experience of the officers and
employees of AIM who will provide investment advisory services to your
Fund, and noted that the persons providing portfolio management services
to your Fund would not change if Proposal 3 is approved by shareholders.
- The range of advisory services provided by AIM. The Board reviewed the
services to be provided by AIM under the proposed advisory agreement, and
noted that no material changes in the level or
34
type of services provided under the current advisory agreement with
INVESCO would occur if the proposed advisory agreement is approved by the
shareholders, other than the provision by AIM of certain administrative
services if your Fund engages in securities lending.
- Qualifications of AIM to provide a range of management and administrative
services. The Board reviewed the general nature of the non-investment
advisory services performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the Board also considered the
organizational structure employed by AIM and its affiliates to provide
those services. The Board reviewed the proposed elimination from the
proposed advisory agreement of the provision of administrative services
to your Fund. The Board also reviewed the proposed form of Master
Administrative Services Agreement, noted that the overall services to be
provided under the existing arrangements and under the proposed Master
Administrative Services Agreements are the same, and concluded that the
overall accounting and administrative services to be provided by AIM
would not change under the combination of the proposed advisory agreement
and the Master Administrative Services Agreement.
- The performance record of your Fund. The Board reviewed your Fund's
performance record and determined that AIM has developed the expertise
and resources for managing funds with an investment objective and
strategies similar to those of your Fund and is able, therefore, to
provide advisory and administrative services to your Fund.
- Advisory fees and expenses. The Board examined the expense ratio and the
level of advisory fees for your Fund under the current advisory agreement
and compared them with the advisory fees expected to be incurred under
the proposed advisory agreement. The Board concluded that your Fund's
projected expense ratio and advisory fees under the proposed advisory
agreement were fair and reasonable in comparison with those of other
similar funds (including similar funds advised by AIM) and in light of
the investment management services to be provided by AIM under the
proposed advisory agreement. The advisory fees that are being proposed
under the proposed advisory agreement are the same as the advisory fees
paid to INVESCO under the current advisory agreement, other than the
removal of the reimbursement obligation related to services provided to
both your Fund and AIM by officers and directors which is not currently
applicable, and the provisions that permit AIM's receipt of fees for
providing administrative services in connection with securities lending
activities. Such fees would be paid only to the extent that your Fund
engages in securities lending. The Board noted that AIM intends to waive
its right to receive any fees under the proposed investment advisory
agreement for the administrative services it provides in connection with
securities lending activities. The Board also noted that AIM has agreed
to seek the Board's approval prior to its receipt of all or a portion of
such fees.
- The profitability of AIM. The Board reviewed information concerning the
profitability of AIM's (and its affiliates') investment advisory and
other activities and its financial condition. The Board noted that,
except as described above, no changes to the advisory fees were being
proposed, other than to permit AIM's receipt of fees for providing
services in connection with securities lending, and further noted that
AIM intends to waive its right to receive any such fees and has agreed to
seek the Board's approval prior to its receipt of all or a portion of
such fees. The Board also noted that, in accordance with an exemptive
order issued by the SEC, before your Fund may participate in a securities
lending program, the Board must approve such participation. In addition,
the Board must evaluate the securities lending arrangements annually and
determine that it is in the best interests of the shareholders of your
Fund to invest in AIM-advised money market funds any cash collateral your
Fund receives as security for the borrower's obligation to return the
loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees
from these money market funds, because the invested cash collateral will
increase the assets of these funds and AIM receives advisory fees based
upon the assets of these funds. The Board noted that the cash collateral
relates to assets of your Fund that have already been invested, and the
investment of the cash collateral is intended to benefit your Fund by
35
providing it with additional income. The Board also noted that an
investment of the cash collateral in an AIM-advised money market fund
would have a positive effect on the profitability of AIM.
- The terms of the proposed advisory agreement. The Board reviewed the
terms of the proposed advisory agreement, including changes being made to
clarify or expand non-exclusivity, delegation and liability provisions,
to separate administrative services from advisory services and to have
AIM assist your Fund if it engages in securities lending. The Board
determined that these changes reflect the current environment in which
your Fund operates, and that AIM should have the flexibility to operate
in that environment.
After considering the above factors, the Board concluded that it is in the
best interests of your Fund and its shareholders to approve the proposed
advisory agreement between Company and AIM for your Fund.
The Board reached this conclusion after careful discussion and analysis.
The Board believes that it has carefully and thoroughly examined the pertinent
issues and alternatives. In recommending that you approve the proposed advisory
agreement, the independent directors have taken the action which they believe to
be in your best interests. In so doing, they were advised by independent
counsel, retained by the independent directors and paid for by Company, as to
the nature of the matters to be considered and the standards to be used in
reaching their decision.
If approved, the proposed advisory agreement will become effective on
November 5, 2003, and will expire, unless renewed, on or before June 30, 2005.
If shareholders of your Fund do not approve Proposal 3, the current advisory
agreement with INVESCO will continue in effect for your Fund.
THE BOARD'S RECOMMENDATION ON PROPOSAL 3
The Board, including the independent directors, unanimously recommends that
you vote "FOR" this Proposal.
PROPOSAL 4 --
APPROVAL OF THE PLAN TO REDOMESTICATE COMPANY
AS A DELAWARE STATUTORY TRUST
BACKGROUND
Company currently is organized as a Maryland corporation. AMVESCAP has
identified each series portfolio of Company as appropriate to be redomesticated
as a new series portfolio of a newly created open-end management investment
company organized as a statutory trust under the Delaware Statutory Trust Act
(the "Trust").
If Proposal 1 is approved by the shareholders of your Fund, your Fund will
be combined with Buying Fund and will not be redomesticated as a new series
portfolio of the Trust. You are being asked to approve Proposal 4 so that, in
the event that Proposal 1 is not approved, your Fund will still be able to
benefit from redomesticating as a new series portfolio of the Trust.
The Board has approved the Plan, which provides for a series of
transactions to convert your Fund and each other series portfolio of Company
(each, a "Current Fund") to a corresponding series (a "New Fund") of the Trust.
Under the Plan, each Current Fund will transfer all its assets to a
corresponding New Fund in exchange solely for voting shares of beneficial
interest in the New Fund and the New Fund's assumption of all the Current Fund's
liabilities (collectively, the "Redomestication"). A form of the Plan relating
to the proposed Redomestication is set forth in Appendix V.
Approval of the Plan requires the affirmative vote of a majority of the
issued and outstanding shares of Company. The Board is soliciting the proxies of
the shareholders of your Fund to vote on the Plan with this Proxy
Statement/Prospectus. The Board is soliciting the proxies of the shareholders of
Company's other series portfolios to vote on the Plan with a separate proxy
statement.
36
The Redomestication is being proposed primarily to provide Company with
greater flexibility in conducting its business operations. The operations of
each New Fund following the Redomestication will be substantially similar to
those of its predecessor Current Fund. As described below, the Trust's
Declaration of Trust differs from Company's Articles of Incorporation in certain
respects that are expected to improve Company's and each Current Fund's
operations. The Trust, like Company, will operate as an open-end management
investment company registered with the SEC under the 1940 Act.
REASONS FOR THE PROPOSED REDOMESTICATION
The Redomestication is being proposed because, as noted above, INVESCO and
the Board believe that the Delaware statutory trust organizational form offers a
number of advantages over the Maryland corporate organizational form. As a
result of these advantages, the Delaware statutory trust organizational form has
been increasingly used by mutual funds, including the majority of the AIM Funds.
The Delaware statutory trust organizational form offers greater flexibility
than the Maryland corporate form. A Maryland corporation is governed by the
detailed requirements imposed by Maryland corporate law and by the terms of its
Articles of Incorporation. A Delaware statutory trust is subject to fewer
statutory requirements. The Trust will be governed primarily by the terms of its
Declaration of Trust. In particular, the Trust will have greater flexibility to
conduct business without the necessity of engaging in expensive proxy
solicitations to shareholders. For example, under Maryland corporate law,
amendments to Company's Articles of Incorporation would typically require
shareholder approval. Under Delaware law, unless the Declaration of Trust of a
Delaware statutory trust provides otherwise, amendments to it may be made
without first obtaining shareholder approval. In addition, unlike Maryland
corporate law, which restricts the delegation of a board of directors'
functions, Delaware law permits the board of trustees of a Delaware statutory
trust to delegate certain of its responsibilities. For example, the board of
trustees of a Delaware statutory trust may delegate the responsibility of
declaring dividends to duly empowered committees of the board or to appropriate
officers. Finally, Delaware law permits the trustees to adapt a Delaware
statutory trust to future contingencies. For example, the trustees may, without
a shareholder vote, change a Delaware statutory trust's domicile or
organizational form. In contrast, under Maryland corporate law, a company's
board of directors would be required to obtain shareholder approval prior to
changing domicile or organizational form.
The Redomestication will also have certain other effects on Company, its
shareholders and management, which are described below under the heading "The
Trust Compared to Company."
WHAT THE PROPOSED REDOMESTICATION WILL INVOLVE
To accomplish the Redomestication, the Trust has been formed as a Delaware
statutory trust pursuant to its Declaration of Trust, and each New Fund has been
established as a series portfolio of the Trust. On the closing date, each
Current Fund will transfer all of its assets to the corresponding classes of the
corresponding New Fund in exchange solely for a number of full and fractional
classes of shares of the New Fund equal to the number of full and fractional
shares of common stock of the corresponding classes of the Current Fund then
outstanding and the New Fund's assumption of the Current Fund's liabilities.
Immediately thereafter, each Current Fund will distribute those New Fund shares
to its shareholders in complete liquidation of such Current Fund. Upon
completion of the Redomestication, each shareholder of each Current Fund will be
the owner of full and fractional shares of the corresponding New Fund equal in
number and aggregate net asset value to the shares he or she held in the Current
Fund. As soon as practicable after the consummation of the Redomestication, each
Current Fund will be terminated and Company will be dissolved as a Maryland
corporation.
The obligations of Company and the Trust under the Plan are subject to
various conditions stated therein. To provide against unforeseen events, the
Plan may be terminated or amended at any time prior to the closing of the
Redomestication by action of the Board, notwithstanding the approval of the Plan
by the shareholders of any Current Fund. However, no amendments may be made that
would materially adversely affect the interests of shareholders of any Current
Fund. Company and the Trust may at any time waive
37
compliance with any condition contained in the Plan, provided that the waiver
does not materially adversely affect the interests of shareholders of any
Current Fund.
The Plan authorizes Company to acquire one share of each class of each New
Fund and, as the sole shareholder of the Trust prior to the Redomestication, to
do each of the following:
- Approve with respect to each New Fund a new investment advisory agreement
with AIM with an effective date of November 5, 2003 that will be
substantially identical to that described in Proposal 3 and a new
investment advisory agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing investment
advisory agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. Information on
the new advisory agreement, including a description of the differences
between it and Company's current advisory agreement, is set forth above
under Proposal 3. If Proposal 3 is not approved by shareholders of a
Current Fund, Company will approve for the corresponding New Fund an
investment advisory agreement with INVESCO that is substantially
identical to such Current Fund's existing investment advisory agreement
with INVESCO.
- Assuming that Proposal 3 is approved by shareholders, approve with
respect to each New Fund a new administrative services agreement with AIM
with an effective date of November 5, 2003 that will be substantially
identical to the new administrative services agreement with AIM that will
be entered into by Company if shareholders approve Proposal 3 and a new
administrative services agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing administrative
services agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. If Proposal 3
is not approved by shareholders of a Current Fund, Company will approve
for the corresponding New Fund an administrative services agreement with
AIM that is substantially identical to such Current Fund's existing
administrative services agreement with INVESCO.
- Approve with respect to each New Fund a distribution agreement with AIM
Distributors. The proposed distribution agreement will provide for
substantially identical distribution services as currently provided to
each corresponding Current Fund by AIM Distributors.
- Approve a distribution plan pursuant to Rule 12b-1 under the 1940 Act
with respect to each class of each New Fund that will be substantially
identical to the corresponding Current Fund's existing distribution plan
for that class.
- Approve with respect to each New Fund a custodian agreement with State
Street Bank and Trust Company and a transfer agency and servicing
agreement with A I M Fund Services, Inc., each of which currently
provides such services to the corresponding Current Fund, and a multiple
class plan pursuant to Rule 18f-3 of the 1940 Act which will be
substantially identical to the multiple class plan that has been approved
by the Board for the corresponding Current Fund and which is expected to
become effective prior to the consummation of the Redomestication.
- Elect the directors of Company as the trustees of the Trust to serve
without limit in time, except as they may resign or be removed by action
of the Trust's trustees or shareholders, and except as they retire in
accordance with the Trust's retirement policy for trustees. The Trust's
retirement policy for trustees will replace Company's retirement policy
for directors.
- Ratify the selection of PricewaterhouseCoopers LLP, the accountants for
each Current Fund, as the independent public accountants for each New
Fund.
- Approve such other agreements and plans as are necessary for each New
Fund's operation as a series of an open-end management investment
company.
The Trust's transfer agent will establish for each shareholder an account
containing the appropriate number of shares of each class of each New Fund. Such
accounts will be identical in all respects to the accounts currently maintained
by Company's transfer agent for each shareholder of the Current Funds. Shares
held in the Current Fund accounts will automatically be designated as shares of
the New Funds.
38
Certificates for Current Fund shares issued before the Redomestication will
represent shares of the corresponding New Fund after the Redomestication.
Shareholders of the New Funds will not have the right to demand or require the
Trust to issue share certificates. Any account options or privileges on accounts
of shareholders under the Current Funds will be replicated on the New Fund
account. No sales charges will be imposed in connection with the
Redomestication.
Assuming your approval of Proposal 4, Company currently contemplates that
the Redomestication will be consummated on November 4, 2003.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE REDOMESTICATION
Company and the Trust will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Redomestication will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. Accordingly,
the Current Funds, the New Funds and the shareholders of the New Funds will
recognize no gain or loss for Federal income tax purposes as a result of the
Redomestication. Shareholders of the Current Funds should consult their tax
advisers regarding the effect, if any, of the Redomestication in light of their
individual circumstances and as to state and local consequences, if any, of the
Redomestication.
APPRAISAL RIGHTS
Appraisal rights are not available to shareholders. However, shareholders
retain the right to redeem their shares of the Current Funds or the New Funds,
as the case may be, at any time before or after the Redomestication.
THE TRUST COMPARED TO COMPANY
STRUCTURE OF THE TRUST
The Trust has been established under the laws of the State of Delaware by
the filing of a certificate of trust in the office of the Secretary of State of
Delaware. The Trust has established series corresponding to and having identical
designations as the series portfolios of Company. The Trust has also established
classes with respect to each New Fund corresponding to and having identical
designations as the classes of each Current Fund. Each New Fund will have the
same investment objectives, policies, and restrictions as its predecessor
Current Fund. The Trust's fiscal year is the same as that of Company. The Trust
will not have any operations prior to the Redomestication. Initially, Company
will be the sole shareholder of the Trust.
As a Delaware statutory trust, the Trust's operations are governed by its
Declaration of Trust and Amended and Restated Bylaws and applicable Delaware law
rather than by Company's Articles of Incorporation and Amended and Restated
Bylaws and applicable Maryland law. Certain differences between the two
domiciles and organizational forms are summarized below. The operations of the
Trust will continue to be subject to the provisions of the 1940 Act and the
rules and regulations thereunder.
TRUSTEES OF THE TRUST
Subject to the provisions of the Declaration of Trust, the business of the
Trust will be managed by its trustees, who have all powers necessary or
convenient to carry out their responsibilities. The responsibilities, powers,
and fiduciary duties of the trustees of the Trust are substantially the same as
those of the directors of Company.
The trustees of the Trust would be those persons elected at this Special
Meeting to serve as directors of Company. Information concerning the nominees
for election as directors of Company is set forth above under Proposal 2.
39
SHARES OF THE TRUST
The beneficial interests in the New Funds will be represented by
transferable shares, par value $0.01 per share. Shareholders do not have the
right to demand or require the Trust to issue share certificates. The trustees
have the power under the Declaration of Trust to establish new series and
classes of shares; Company's directors currently have a similar right. The
Declaration of Trust permits the trustees to issue an unlimited number of shares
of each class and series. Company is authorized to issue only the number of
shares specified in the Articles of Incorporation and may issue additional
shares only with Board approval and after payment of a fee to the State of
Maryland on any additional shares authorized.
Your Fund currently has the classes of shares set forth in Exhibit A. The
Trust has established for each New Fund the classes that currently exist for its
predecessor Current Fund. Except as discussed in this Proxy
Statement/Prospectus, shares of each class of each New Fund will have rights,
privileges, and terms substantially similar to those of the corresponding class
of the Current Fund.
For a discussion of certain differences between and among Company's
Articles of Incorporation and Amended and Restated Bylaws and Maryland law and
the Trust's Declaration of Trust and Amended and Restated Bylaws and Delaware
law, see "Rights of Shareholders" in Proposal 1 above. The foregoing discussion
and the discussion under the caption "Rights of Shareholders" in Proposal 1
above is only a summary of certain differences and is not a complete description
of all the differences. Shareholders should refer to the provisions of the
governing documents of Company and Trust and state law directly for a more
thorough comparison. Copies of the Articles of Incorporation and Amended and
Restated Bylaws of Company and of the Declaration of Trust and the Trust's
Amended and Restated Bylaws are available to shareholders without charge upon
written request to Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 4
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed proxy
card because the Board is soliciting your proxy to vote at the Special Meeting
and at any adjournments of the Special Meeting. This Proxy Statement/Prospectus
gives you information about the business to be conducted at the Special Meeting.
However, you do not need to attend the Special Meeting to vote your shares.
Instead, you may simply complete, sign and return the enclosed proxy card or
vote by telephone or through a website established for that purpose.
Company intends to mail this Proxy Statement/Prospectus, the enclosed
Notice of Special Meeting of Shareholders and the enclosed proxy card on or
about August 25, 2003 to all shareholders entitled to vote. Shareholders of
record as of the close of business on July 25, 2003 (the "Record Date") are
entitled to vote at the Special Meeting. The number of shares outstanding of
each class of shares of your Fund on the Record Date can be found at Exhibit M.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETING
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas, 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
VOTING IN PERSON
If you do attend the Special Meeting and wish to vote in person, we will
provide you with a ballot prior to the vote. However, if your shares are held in
the name of your broker, bank or other nominee, you
40
must bring a letter from the nominee indicating that you are the beneficial
owner of the shares on the Record Date and authorizing you to vote. Please call
Company at (800) 952-3502 if you plan to attend the Special Meeting.
VOTING BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote. If you properly fill in and sign your proxy card
and send it to us in time to vote at the Special Meeting, your "proxy" (the
individual named on your proxy card) will vote your shares as you have directed.
If you sign your proxy card but do not make specific choices, your proxy will
vote your shares as recommended by the Board as follows and in accordance with
management's recommendation on other matters:
- FOR the proposal to approve the Agreement.
- FOR the election of all 16 nominees for director.
- FOR the proposal to approve a new investment advisory agreement with AIM
for your Fund.
- FOR the proposal to approve the Plan.
Your proxy will have the authority to vote and act on your behalf at any
adjournment of the Special Meeting.
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of Company in writing to the address of Company set forth on the cover
page of this Proxy Statement/Prospectus before the Special Meeting that you have
revoked your proxy. In addition, although merely attending the Special Meeting
will not revoke your proxy, if you are present at the Special Meeting you may
withdraw your proxy and vote in person. Shareholders may also transact any other
business not currently contemplated that may properly come before the Special
Meeting in the discretion of the proxies or their substitutes.
VOTING BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established for
that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist for Proposals 1 and 3 if shareholders entitled to vote one-third of
the issued and outstanding shares of your Fund on the Record Date are present at
the Special Meeting in person or by proxy. A quorum will exist for Proposals 2
and 4 if shareholders entitled to vote one-third of the issued and outstanding
shares of Company on the Record Date are present at the Special Meeting in
person or by proxy.
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a broker
has not received voting instructions from a shareholder and is barred from
voting the shares without shareholder instructions because the proposal is
non-routine.
Abstentions and broker non-votes will count as shares present at the
Special Meeting for purposes of establishing a quorum.
If a quorum is not present at the Special Meeting or a quorum is present
but sufficient votes to approve a Proposal are not received, the persons named
as proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote FOR a Proposal in
41
favor of such an adjournment and will vote those proxies required to be voted
AGAINST such Proposal against such adjournment. A shareholder vote may be taken
on a Proposal in this Proxy Statement/ Prospectus prior to any such adjournment
if sufficient votes have been received and it is otherwise appropriate.
VOTE NECESSARY TO APPROVE EACH PROPOSAL
Proposals 1 and 3. Approval of Proposals 1 and 3 requires the lesser of
(a) the affirmative vote of 67% or more of the voting securities of your Fund
present or represented by proxy at the Special Meeting, if the holders of more
than 50% of the outstanding voting securities of your Fund are present or
represented by proxy, or (b) the affirmative vote of more than 50% of the
outstanding voting securities of your Fund. Abstentions and broker non-votes are
counted as present but are not considered votes cast at the Special Meeting. As
a result, they have the same effect as a vote against Proposals 1 and 3 because
approval of Proposals 1 and 3 requires the affirmative vote of a percentage of
the voting securities present or represented by proxy or a percentage of the
outstanding voting securities.
Proposal 2. The affirmative vote of a plurality of votes cast at the
Special Meeting is necessary to elect directors, meaning that the director
nominee with the most affirmative votes for a particular slot is elected for
that slot. In an uncontested election for directors, the plurality requirement
is not a factor. Abstentions will not count as votes cast and will have no
effect on the outcome of this proposal. We expect that brokers will be entitled
to vote on this proposal, but any broker non-vote will have no effect on the
outcome of this proposal.
Proposal 4. Approval of Proposal 4 requires the affirmative vote of a
majority of the issued and outstanding shares of Company. Abstentions and broker
non-votes are counted as present but are not considered votes cast at the
Special Meeting. As a result, they have the same effect as a vote against the
Plan because approval of the Plan requires the affirmative vote of a percentage
of the outstanding voting securities.
PROXY SOLICITATION
Company has engaged the services of Georgeson Shareholder Communications
Inc. ("Solicitor") to assist in the solicitation of proxies for the Special
Meeting. Solicitor's costs are estimated to be approximately $8,400. Company
expects to solicit proxies principally by mail, but Company or Solicitor may
also solicit proxies by telephone, facsimile or personal interview. Company's
officers will not receive any additional or special compensation for any such
solicitation. AMVESCAP, on behalf of INVESCO, will bear the costs and expenses
incurred in connection with the Reorganization, including Solicitor's costs.
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
SHAREHOLDER PROPOSALS
As a general matter, your Fund does not hold regular meetings of
shareholders. If you wish to submit a proposal for consideration at a meeting of
shareholders of your Fund, you should send such proposal to Company at the
address set forth on the first page of this Proxy Statement/Prospectus. To be
considered for presentation at a meeting of shareholders, Company must receive
proposals a reasonable time before proxy materials are prepared for the meeting.
Your proposal also must comply with applicable law.
For a discussion of how to propose an individual for nomination as a
director, please refer to the section of this Proxy Statement/Prospectus
entitled "Proposal 2 -- Current Committees of the Board -- Nominating
Committee."
42
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Company owned 5% or more of any class of the
outstanding shares of your Fund can be found at Exhibit N.
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Buyer owned 5% or more of any class of the
outstanding shares of Buying Fund can be found at Exhibit O.
INDEPENDENT PUBLIC ACCOUNTANTS
The audit committee of the Board has appointed PricewaterhouseCoopers LLP
(the "Auditor") as Company's independent public accountants for the fiscal year
ending July 31, 2004. A representative of the Auditor is expected to be
available at the Special Meeting and to have the opportunity to make a statement
and respond to appropriate questions from the shareholders. The audit committee
of the Board has considered whether the provision of the services below is
compatible with maintaining the Auditor's independence.
FEES PAID TO THE AUDITOR RELATED TO COMPANY
The Auditor billed Company (consisting of eight separate series portfolios)
aggregate fees for professional services rendered for the 2003 fiscal year as
follows:
<Table>
Audit Fees.................................................. $165,650
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees*............................................. $ 32,713
--------
Total Fees.................................................. $198,363
</Table>
- ---------------
* All Other Fees includes fees billed for all other non-audit services,
including fees for tax-related services rendered to Company.
FEES PAID TO THE AUDITOR NOT RELATED TO COMPANY
The Auditor billed INVESCO aggregate fees for professional services
rendered for the 2003 fiscal year to INVESCO, or any affiliate that provided
services to Company, as follows:
<Table>
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees**............................................ $402,571
--------
Total Fees.................................................. $402,571
</Table>
- ---------------
** As required by SEC rules, All Other Fees includes amounts paid to the Auditor
by your Fund's advisor and other related entities that provide support for
the operations of Company. All Other Fees include services relating to tax
services, controls review on the transfer agency, research on accounting
consultations, a CRM project and other agreed upon procedures. The services
performed for your Fund's advisor and related entities benefit many legal
entities of INVESCO, including many sister funds within the investment
company complex.
43
EXHIBIT A
<Table>
<Caption>
CLASSES OF SHARES OF YOUR FUND CORRESPONDING CLASSES OF SHARES OF BUYING FUND
- ------------------------------ ----------------------------------------------
Class A shares Class A shares
Class B shares Class B shares
Class C shares Class C shares
Class K shares Class A shares
Investor Class shares Investor Class shares
</Table>
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF YOUR FUND AND BUYING FUND
INVESCO VALUE EQUITY FUND (YOUR FUND)
Performance information in the bar chart below is that of the Fund's
Investor Class shares which has the longest operating history of the Fund's
classes.
The bar chart below shows the Fund's Investor Class actual yearly
performance (commonly known as its "total return") for the years ended December
31 over the past decade or since inception. The table below shows the pre-tax
and after-tax average annual total returns of Investor Class for various periods
ended December 31, 2001 compared to the S&P 500 Index.
After-tax returns are provided on a pre-redemption and post-redemption
basis. Pre-redemption return assumes you continue to hold your shares and pay
taxes on Fund distributions (i.e., dividends and capital gains) but do not
reflect taxes that may be incurred upon selling or exchanging shares.
Post-redemption return assumes payment of taxes on fund distributions and also
that you close your account and pay remaining federal taxes. After-tax returns
are calculated using the highest individual federal income tax rate in effect at
the time the distribution is paid. State and local taxes are not considered.
Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. For investors holding their shares in tax-deferred
arrangements such as 401(k) plans or individual retirement accounts, the
after-tax return shown is not relevant.
The information in the chart and table illustrates the variability of the
Fund's total return and how its performance compared to a broad measure of
market performance. Remember, past performance (before and after taxes) does not
indicate how the Fund will perform in the future.
VALUE EQUITY FUND -- INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1)(2)
<Table>
'92......................................................... 4.98%
'93......................................................... 10.43%
'94......................................................... 4.04%
'95......................................................... 30.60%
'96......................................................... 18.48%
'97......................................................... 28.00%
'98......................................................... 15.05%
'99......................................................... 1.12%
'00......................................................... (5.43%)
'01......................................................... (5.00%)
</Table>
Best Calendar Qtr 12/98 16.66%
Worst Calendar Qtr 9/01 (12.71%)
B-1
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN
AS OF 12/31/01
------------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- ---------------
Value Equity Fund(1)(2)
Return Before Taxes................... (5.00)% 5.99% 9.58%
Return After Taxes on Distributions... (5.84)% 3.81% 7.50%
Return After Taxes on Distributions
and Sale of Fund Shares............ (2.46)% 4.67% 7.44%
S&P 500 Index(3) (reflects no
deduction for fees, expenses, or
taxes)............................. (11.88)% 10.70% 12.93%
</Table>
- ---------------
(1) Total return figures include reinvested dividends and capital gain
distributions and the effect of each class' expenses.
(2) Returns before taxes for Investor Class shares of Value Equity Fund
year-to-date as of the calendar quarter ended September 30, 2002 was
(25.24%).
(3) The S&P 500 Index is an unmanaged index considered representative of the
performance of the broad U.S. stock market. Please keep in mind that the
index does not pay brokerage, management, administrative or distribution
expenses, all of which are paid by the class and are reflected in its annual
returns. The index return also does not include sales charges or CDSCs that
may be paid by the shareholder.
AIM LARGE CAP BASIC VALUE FUND (BUYING FUND)
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
ANNUAL TOTAL RETURNS(1)
The following bar chart shows changes in the performance of the fund's
Class A shares from year to year. The bar chart does not reflect sales loads. If
it did, the annual total returns shown would be lower.
<Table>
<Caption>
ANNUAL
YEARS ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
2000................................................................... 21.74%
2001................................................................... 1.25%
2002................................................................... -23.20%
</Table>
The Class A shares' year-to-date total return as of June 30, 2003 was
12.38%.
During the periods shown in the bar chart, the highest quarterly return was
12.03% (quarter ended December 31, 2001) and the lowest quarterly return was
- -20.22% (quarter ended September 30, 2002).
B-2
PERFORMANCE TABLE(1)
The following performance table compares the fund's performance to that of
a broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices do not reflect payment of fees, expenses or taxes.
Average Annual Total Returns (for the periods ended December 31, 2002)
<Table>
<Caption>
SINCE INCEPTION
1 YEAR INCEPTION DATE
------ --------- ---------
Class A...................................... 06/30/99
Return Before Taxes........................ (27.42)% (2.41)%
Return After Taxes on Distributions........ (27.42)% (2.80)%
Return After Taxes on Distributions and
Sales of Fund Shares.................... (16.84)% (2.10)%
Russell 1000--Registered Trademark--
Index(2)................................... (21.65)% (10.22)%(3) 06/30/99(3)
The S&P 500 Index(4)......................... (22.09)% (10.73)%(3) 06/30/99(3)
The Russell 1000 Value Index(5).............. (15.52)% (5.79)%(3) 06/30/99(3)
Lipper Large Cap Value Fund Index(6)......... (19.68)% (8.04)%(3) 06/30/99(3)
</Table>
- ---------------
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts.
(1) A significant portion of the fund's returns during certain periods prior to
2001 was attributable to its investments in IPOs. These investments had a
magnified impact when the fund's asset base was relatively small. As the
fund's assets grow, the impact of IPO investments will decline, which may
reduce the effect of IPO investments on the fund's total return. For
additional information regarding the impact of IPO investments on the fund's
performance, please see the "Financial Highlights" section of this
prospectus.
(2) The Russell 1000--Registered Trademark-- Index is a widely recognized,
unmanaged index of common stocks that measures the performance of the 1,000
largest companies in Russell 3000--Registered Trademark-- Index, which
measures the performance of the 3,000 largest U.S. companies based on total
market capitalization.
(3) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
(4) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance.
(5) The Russell 1000--Registered Trademark-- Value Index measures the
performance of those Russell 1000--Registered Trademark-- Index companies
with lower price-to-book ratios and lower forecasted growth values.
(6) The Lipper Large Cap Value Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Large Cap Value category. These funds
typically invest in stocks with market capitalizations greater than $5
billion at the time of purchase and have a below-average price-to-earnings
ratio, price-to-book ratio and a three year sales-per-share growth value
compared to the S&P 500 Index.
B-3
EXHIBIT C
COMPARISON FEE TABLE AND EXPENSE EXAMPLE
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C, Investor Class, and Class K shares of INVESCO Value Equity Fund
("Selling Fund"), and of Class A, Class B, Class C, and Class R shares of AIM
Large Cap Basic Value Fund ("Buying Fund"). Pro Forma Combined Expense Ratios of
Buying Fund giving effect to the reorganization of Selling Fund into Buying Fund
are also provided.
<Table>
<Caption>
SELLING FUND
(AS OF 7/31/02) BUYING FUND
---------------------------------------------------- (AS OF 10/31/02)
INVESTOR ---------------------------------------
CLASS A CLASS B CLASS C CLASS K CLASS CLASS A CLASS B CLASS C CLASS R
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------- ------- ------- ------- -------
SHAREHOLDER FEES (fees
paid directly from
your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of offering
price)................ 5.50% None None None None 5.50% None None None
Maximum Deferred Sales
Charge (Load)(1)...... None(2)(3) 5.00% 1.00% None(4) None None(2)(5) 5.00% 1.00% None(6)
ANNUAL FUND OPERATING
EXPENSES(7) (expenses
that are deducted from
fund assets)
Management Fees......... 0.75% 0.75% 0.75% 0.75% 0.75% 0.60% 0.60% 0.60% 0.60%
Distribution and/or
Service (12b-1)
Fees(8)............... 0.35% 1.00% 1.00% 0.45% 0.25% 0.35% 1.00% 1.00% 0.50%
Other Expenses(9)....... 0.39% 0.39% 1.04% 0.39% 0.64% 0.43% 0.43% 0.43% 0.43%
Total Annual Fund
Operating
Expenses(10).......... 1.49% 2.14% 2.79% 1.59% 1.64% 1.38% 2.03% 2.03% 1.53%
Fee Waiver.............. None None 0.04% None None None None None None
Net Expenses............ 1.49% 2.14% 2.75% 1.59% 1.64% 1.38% 2.03% 2.03% 1.53%
<Caption>
BUYING FUND
PRO FORMA COMBINED
(AS OF 10/31/02)
----------------------------------------------------
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS
SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- --------
SHAREHOLDER FEES (fees
paid directly from
your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of offering
price)................ 5.50% None None None None
Maximum Deferred Sales
Charge (Load)(1)...... None(2)(5) 5.00% 1.00% None(6) None
ANNUAL FUND OPERATING
EXPENSES(7) (expenses
that are deducted from
fund assets)
Management Fees......... 0.60% 0.60% 0.60% 0.60% 0.60%
Distribution and/or
Service (12b-1)
Fees(8)............... 0.35% 1.00% 1.00% 0.50% 0.25%
Other Expenses(9)....... 0.42% 0.42% 0.42% 0.42% 0.42%
Total Annual Fund
Operating
Expenses(10).......... 1.37% 2.02% 2.02% 1.52% 1.27%
Fee Waiver.............. None None None None None
Net Expenses............ 1.37% 2.02% 2.02% 1.52% 1.27%
</Table>
- ---------------
(1) For Selling Fund, calculated as a percentage of original purchase price.
For Buying Fund and Buying Fund Pro Forma Combined, calculated as a
percentage of original purchase price or redemption proceeds, whichever is
less.
(2) If you buy $1,000,000 or more of Class A shares and redeem those shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(3) For qualified plans investing in Class A shares, you may pay a CDSC of 1%
on your Class A shares if the plan is redeemed within 12 months from
initial deposit in the plan's INVESCO account.
C-1
(4) For qualified plans investing in Class K shares, you may pay a CDSC of
0.70% on your Class K shares if the plan is redeemed within 12 months from
the initial deposit in the plan's INVESCO account.
(5) Effective November 1, 2002, if you are a retirement plan participant and
you bought $1,000,000 or more of Class A shares, you may pay a 1% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(6) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total
redemption of the retirement plan assets occurs within 12 months from the
date of the retirement plan's initial purchase.
(7) There is no guarantee that actual expenses will be the same as those shown
in the table.
(8) Because each class pays a 12b-1 distribution and service fee which is based
upon such class' assets, if you own shares for a long period of time, you
may pay more than the economic equivalent of the maximum front-end sales
charge permitted for mutual funds by the National Association of Securities
Dealers, Inc.
(9) Other Expenses for Class A and Class B shares of Selling Fund and for Class
R shares of Buying Fund are based on estimated expenses for the current
fiscal year.
(10) INVESCO has contractually agreed to waive fees and bear any expenses on
Selling Fund through April 30, 2004 to limit Total Annual Operating
Expenses (excluding interest, taxes, brokerage commissions, extraordinary
expenses and increases in expenses due to expense offset arrangements, if
any) to 2.10%, 2.75% and 2.75% on Class A, Class B and Class C shares,
respectively. INVESCO has also voluntarily agreed to limit Total Annual
Operating Expenses (excluding interest, taxes, brokerage commissions,
extraordinary expenses and increases in expenses due to expense offset
arrangements, if any) to 1.40%, 2.05%, 2.05% and 1.30% on Class A, Class B,
Class C and Investor Class shares, respectively. The voluntary expense
limitations cannot be revoked by INVESCO prior to May 2004. Effective June
1, 2002, INVESCO is entitled to reimbursement from the classes for fees and
expenses absorbed pursuant to voluntary and contractual expense limitation
commitments between INVESCO and Selling Fund if such reimbursements do not
cause a class to exceed expense limitations and the reimbursement is made
within three years after INVESCO incurred the expenses.
C-2
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of Selling Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the reorganization of Selling Fund into Buying
Fund are also provided. All costs are based upon the information set forth in
the Fee Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay both if you redeem all of your shares
at the end of those periods and if you do not redeem your shares. The Example
also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
SELLING FUND
Class A shares(1)
Assuming complete redemption at end of period....... $693 $995 $1,318 $2,232
Assuming no redemption.............................. $693 $995 $1,318 $2,232
Class B shares
Assuming complete redemption at end of
period(2)(3)..................................... $717 $970 $1,349 $2,307
Assuming no redemption(3)........................... $217 $670 $1,149 $2,307
Class C shares
Assuming complete redemption at end of period(2).... $378 $857 $1,467 $3,113
Assuming no redemption.............................. $278 $857 $1,467 $3,113
Class K shares
Assuming complete redemption at end of period....... $162 $502 $ 866 $1,889
Assuming no redemption.............................. $162 $502 $ 866 $1,889
Investor Class shares
Assuming complete redemption at end of period....... $167 $517 $ 892 $1,944
Assuming no redemption.............................. $167 $517 $ 892 $1,944
BUYING FUND
Class A shares(1)
Assuming complete redemption at end of period....... $683 $963 $1,264 $2,116
Assuming no redemption.............................. $683 $963 $1,264 $2,116
Class B shares
Assuming complete redemption at end of
period(2)(3)..................................... $706 $937 $1,293 $2,192
Assuming no redemption(3)........................... $206 $637 $1,093 $2,192
Class C shares
Assuming complete redemption at end of period(2).... $306 $637 $1,093 $2,358
Assuming no redemption.............................. $206 $637 $1,093 $2,358
Class R shares
Assuming complete redemption at end of period....... $156 $483 $ 834 $1,824
Assuming no redemption.............................. $156 $483 $ 834 $1,824
</Table>
C-3
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
BUYING FUND -- PRO FORMA COMBINED
Class A shares(1)
Assuming complete redemption at end of period....... $682 $960 $1,259 $2,106
Assuming no redemption.............................. $682 $960 $1,259 $2,106
Class B shares
Assuming complete redemption at end of
period(2)(3)..................................... $705 $934 $1,288 $2,181
Assuming no redemption(3)........................... $205 $634 $1,088 $2,181
Class C shares
Assuming complete redemption at end of period(2).... $305 $634 $1,088 $2,348
Assuming no redemption.............................. $205 $634 $1,088 $2,348
Class R shares
Assuming complete redemption at end of period....... $155 $480 $ 829 $1,813
Assuming no redemption.............................. $155 $480 $ 829 $1,813
Investor Class shares
Assuming complete redemption at end of period....... $129 $403 $ 697 $1,534
Assuming no redemption.............................. $129 $403 $ 697 $1,534
</Table>
- ---------------
(1) Assumes payment of maximum sales charge by the investor.
(2) Assumes payment of the applicable CDSC.
(3) Assumes conversion of Class B shares to Class A shares at the end of the
eighth year.
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. SELLING FUND'S
AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT SELLING FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL
PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL DEPEND
UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT TO
WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-4
EXHIBIT D
DIRECTOR COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for
each continuing director of Company who was not affiliated with INVESCO during
the year ended December 31, 2002.
<Table>
<Caption>
TOTAL
COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM ALL
COMPENSATION ACCRUED BY BENEFITS UPON INVESCO
NAME OF DIRECTOR FROM COMPANY(1) COMPANY(2) RETIREMENT(3) FUNDS(4)
- ---------------- --------------- ------------------- ---------------- ------------
Bob R. Baker............ $29,095 $5,233 $34,000 $138,000
James T. Bunch.......... $25,150 0 0 $124,625
Gerald J. Lewis......... $25,612 0 0 $116,500
Larry Soll, Ph.D. ...... $26,476 0 0 $126,000
</Table>
- ---------------
(1) The vice chairman of the Board, the chairs of certain of your Fund's
committees who are independent directors, and the members of your Fund's
committees who are independent directors each receive compensation for
serving in such capacities in addition to the compensation paid to all
independent directors. Amounts shown are for the fiscal year ended July 31,
2002.
(2) Represents estimated benefits accrued with respect to the current Retirement
Plan and Deferred Retirement Plan Account Agreement, and not compensation
deferred at the election of the directors. Amounts shown are for the fiscal
year ended July 31, 2002.
(3) These amounts represent the estimated annual benefits payable by the ten
INVESCO Funds upon the directors' retirement under the current Retirement
Plan and Deferred Retirement Plan Account Agreement, calculated using the
current method of allocating director compensation among the INVESCO Funds.
These estimated benefits assume retirement at age 72. With the exception of
Messrs. Bunch and Lewis, each of these directors has served as a director of
one or more of the INVESCO Funds for the minimum five-year period required
to be eligible to participate in the current Retirement Plan.
(4) All continuing directors currently serve as directors of ten registered
investment companies advised by INVESCO.
D-1
EXHIBIT E
OFFICERS OF COMPANY
The following table provides information with respect to the current
officers of Company. Each officer is elected by the Board and serves until his
or her successor is chosen and qualified or until his or her resignation or
removal by the Board. The business address of all officers of Company is 4350
South Monaco Street, Denver, Colorado 80237.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND OFFICER
POSITION(S) HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------- ------- -------------------------------------------
Mark H. Williamson -- 1951........... 1998 Director, President and Chief Executive Officer,
Chairman of the Board A I M Management Group Inc.; Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Distributors,
Inc. (registered broker dealer); and Chief Executive
Officer of the AIM Division of AMVESCAP PLC
(2003-present); formerly, Chief Executive Officer,
Managed Products Division, AMVESCAP PLC (2001-2002);
Chairman of the Board (1998-2002), President
(1998-2002) and Chief Executive Officer (1998-2002)
of INVESCO Funds Group, Inc. (registered investment
advisor) and INVESCO Distributors, Inc. (registered
broker dealer); Chief Operating Officer and Chairman
of the Board of INVESCO Global Health Sciences Fund;
Chairman and Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
Raymond R. Cunningham -- 1951........ 2001 President (2001-present) and Chief Executive Officer
President and Chief Executive (2003- present) of INVESCO Funds Group, Inc.;
Officer Chairman of the Board (2003-present) and President
(2003-present) of INVESCO Distributors, Inc.;
formerly, Chief Operating Officer (2001-2003) and
Senior Vice President (1999-2002) of INVESCO Funds
Group, Inc. and INVESCO Distributors, Inc.; and
Senior Vice President of GT Global -- North America
(1992-1998).
Glen A. Payne -- 1947................ 1989 Senior Vice President, General Counsel and Secretary
Secretary of INVESCO Funds Group, Inc.; Senior Vice President,
Secretary and General Counsel of INVESCO
Distributors, Inc.; formerly, Secretary of INVESCO
Global Health Sciences Fund; General Counsel of
INVESCO Trust Company (1989-1998); and employee of
the Securities and Exchange Commission, Washington,
DC (1973-1989).
Ronald L. Grooms -- 1946............. 1988 Senior Vice President and Treasurer of INVESCO Funds
Chief Accounting Officer, Chief Group, Inc.; and Senior Vice President and Treasurer
Financial Officer and Treasurer of INVESCO Distributors, Inc.; formerly, Treasurer
and Principal Financial and Accounting Officer of
INVESCO Global Health Sciences Fund; and Senior Vice
President and Treasurer of INVESCO Trust Company
(1988-1998).
William J. Galvin, Jr. -- 1956....... 1992 Senior Vice President and Assistant Secretary INVESCO
Assistant Secretary Funds Group, Inc.; and Senior Vice President and
Assistant Secretary of INVESCO Distributors, Inc.;
formerly, Trust Officer of INVESCO Trust Company
(1995-1998).
</Table>
E-1
<Table>
<Caption>
NAME, YEAR OF BIRTH AND OFFICER
POSITION(S) HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------- ------- -------------------------------------------
Pamela J. Piro -- 1960............... 1999 Vice President and Assistant Treasurer of INVESCO
Assistant Treasurer Funds Group, Inc.; and Assistant Treasurer of INVESCO
Distributors, Inc.; formerly, Assistant Vice
President (1996-1997).
Tane T. Tyler -- 1965................ 2002 Vice President and Assistant General Counsel of
Assistant Secretary INVESCO Funds Group, Inc.
</Table>
E-2
EXHIBIT F
SECURITY OWNERSHIP OF MANAGEMENT
To the best knowledge of Company, the following table sets forth certain
information regarding the ownership as of July 25, 2003 of the shares of common
stock of each class of each series portfolio of Company by the directors,
nominees, and current executive officers of Company:
<Table>
<Caption>
NUMBER OF SHARES
OWNED BENEFICIALLY AND
SERIES AND CLASS PERCENTAGE OF CLASS*
---------------- ------------------------
Bob R. Baker..............................................
Sueann Ambron.............................................
Victor L. Andrews.........................................
Lawrence H. Budner........................................
James T. Bunch............................................
Raymond R. Cunningham.....................................
Richard W. Healey.........................................
Gerald J. Lewis...........................................
John W. McIntyre..........................................
Larry Soll, Ph.D. ........................................
Mark H. Williamson........................................
Frank S. Bayley...........................................
Bruce L. Crockett.........................................
Albert R. Dowden..........................................
Edward K. Dunn, Jr. ......................................
Jack M. Fields............................................
Carl Frischling...........................................
Robert H. Graham..........................................
Prema Mathai-Davis........................................
Lewis F. Pennock..........................................
Ruth H. Quigley...........................................
Louis S. Sklar............................................
Glen A. Payne.............................................
Ronald L. Grooms..........................................
William J. Galvin, Jr. ...................................
Pamela J. Piro............................................
Tane T. Tyler.............................................
</Table>
- ---------------
* To the best knowledge of Company, the ownership of shares of each series
portfolio of Company by current directors, nominees, and current executive
officers of Company as a group constituted less than 1% of each class of each
series portfolio of Company as of July 25, 2003.
F-1
EXHIBIT G
DIRECTOR OWNERSHIP OF FUND SHARES
Set forth below is the dollar range of equity securities beneficially owned
by each continuing director and nominee as of December 31, 2002 (i) in your Fund
and (ii) on an aggregate basis, in all registered investment companies overseen
by the director within the INVESCO Funds complex:
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF EQUITY
DOLLAR RANGE OF SECURITIES IN ALL REGISTERED INVESTMENT
EQUITY SECURITIES COMPANIES OVERSEEN BY DIRECTOR IN THE
NAME OF DIRECTOR IN YOUR FUND INVESCO FUNDS COMPLEX
- ---------------- ----------------- ---------------------------------------
INDEPENDENT DIRECTORS
Bob R. Baker.................................... $1-$10,000 $ 10,001-$50,000
James T. Bunch.................................. $1-$10,000 $50,001-$100,000
Gerald J. Lewis................................. $1-$10,000 $50,001-$100,000
Larry Soll, Ph.D................................ $1-$10,000 Over $100,000
INTERESTED DIRECTOR
Mark H. Williamson.............................. None Over $100,000
INDEPENDENT NOMINEES
Frank S. Bayley................................. None None
Bruce L. Crockett............................... None None
Albert R. Dowden................................ None None
Edward K. Dunn.................................. None None
Jack M. Fields.................................. None None
Carl Frischling................................. None None
Prema Mathai-Davis.............................. None None
Lewis F. Pennock................................ None None
Ruth H. Quigley................................. None None
Louis S. Sklar.................................. None None
NOMINEE WHO WILL BE INTERESTED
Robert H. Graham................................ None None
</Table>
G-1
EXHIBIT H
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF
A I M ADVISORS, INC.
The following table provides information with respect to the principal
executive officer and the directors of A I M Advisors, Inc. ("AIM"). The
business address of the principal executive officer and the directors of AIM is
11 Greenway Plaza, Suite 100, Houston, Texas 77046.
<Table>
<Caption>
NAME POSITION WITH AIM PRINCIPAL OCCUPATION
---- ----------------- --------------------
Mark H. Williamson............. Director, Chairman and President Director, President and Chief
Executive Officer, A I M
Management Group Inc.; Director,
Chairman and President, A I M
Advisors, Inc. (registered
investment advisor); Director,
A I M Distributors, Inc.
(registered broker dealer); and
Chief Executive Officer of the
AIM Division of AMVESCAP PLC
Kevin M. Carome................ Director, Senior Vice President, Director, Senior Vice President,
General Counsel and Secretary Secretary and General Counsel, A
I M Management Group Inc.; Vice
President, A I M Capital
Management Inc., A I M
Distributors, Inc. and A I M
Fund Services, Inc., and
Director, Vice President and
General Counsel, Fund Management
Company
Gary T. Crum................... Director and Senior Vice Chairman, Director and Director
President of Investments, A I M Capital
Management, Inc.; Director and
Executive Vice President, A I M
Management Group Inc.; Director,
A I M Distributors, Inc. and
AMVESCAP PLC
Dawn M. Hawley................. Director, Senior Vice President Director, Senior Vice President
and Chief Financial Officer and Chief Financial Officer,
A I M Management Group Inc.;
Vice President and Treasurer,
A I M Capital Management, Inc.
and A I M Distributors, Inc.;
Director, Vice President and
Chief Financial Officer, A I M
Fund Services, Inc.; and Vice
President and Chief Financial
Officer, Fund Management Company
</Table>
H-1
EXHIBIT I
COMPENSATION TO INVESCO FUNDS GROUP, INC.
Company pays INVESCO Funds Group, Inc., out of the assets of your Fund, as
full compensation for all services rendered, an advisory fee for your Fund set
forth below. Such fee shall be calculated by applying the following annual rate
to the average daily net assets of your Fund for the calendar year, computed in
the manner used for the determination of the net asset value of shares of your
Fund.
<Table>
<Caption>
NET FEES PAID TO FEE WAIVERS
INVESCO FUNDS OR EXPENSE
TOTAL NET ASSETS FOR GROUP, INC. FOR THE REIMBURSEMENTS FOR
THE MOST RECENTLY MOST RECENTLY THE MOST RECENTLY
COMPLETED FISCAL COMPLETED FISCAL COMPLETED FISCAL
ANNUAL RATE (BASED ON AVERAGE DAILY NET ASSETS) PERIOD OR YEAR PERIOD OR YEAR PERIOD OR YEAR
- ----------------------------------------------- -------------------- ------------------- ------------------
0.75% of the first $500 million; 0.65% of the
next $500 million; 0.50% from $1 billion; 0.45%
from $2 billion; 0.40% from $4 billion; 0.375%
from $6 billion; 0.35% from $8 billion....... $127,401,414 $704,447 $603,576
</Table>
I-1
EXHIBIT J
FEES PAID TO INVESCO FUNDS GROUP, INC. AND AFFILIATES IN MOST RECENT FISCAL YEAR
The following chart sets forth the non-advisory fees paid by your Fund
during its most recently completed fiscal year to INVESCO Funds Group, Inc. and
to affiliates of INVESCO Funds Group, Inc.
<Table>
<Caption>
INVESCO
(ADMINISTRATIVE INVESCO INVESCO
NAME OF FUND SERVICES)* DISTRIBUTORS, INC.** (TRANSFER AGENCY)
- ------------ --------------- -------------------- -----------------
INVESCO Value Equity........................... $88,482 $195,862 $802,516
</Table>
- ---------------
* Fees paid to INVESCO for administrative services for the prior fiscal year
were paid pursuant to an agreement other than the advisory agreement.
** Net amount received from Rule 12b-1 fees. Excluded are amounts reallowed to
broker-dealers, agents and other service providers.
J-1
EXHIBIT K
ADVISORY FEE SCHEDULES FOR OTHER AIM FUNDS
The following table provides information with respect to the annual
advisory fee rates paid to AIM Advisors, Inc. by certain funds that have a
similar investment objective as your Fund.
<Table>
<Caption>
TOTAL NET
ASSETS FOR THE
MOST
RECENTLY FEE WAIVER, EXPENSE LIMITATIONS
COMPLETED AND/OR EXPENSE REIMBURSEMENTS
ANNUAL RATE FISCAL PERIOD FOR THE MOST RECENTLY COMPLETED
NAME OF FUND (BASED ON AVERAGE DAILY NET ASSETS) OR YEAR FISCAL PERIOD OR YEAR
- ------------ ----------------------------------- -------------- -------------------------------
AIM Global Utilities Fund... 0.60% of the first $200 million; $157,083,619 Waive 0.02% of advisory fee on
0.50% of the next $300 million; average net assets
0.40% of the next $500 million;
0.30% of the excess over $1 billion
AIM International Core 1.00% $ 90,235,884 N/A
Equity Fund...............
AIM Real Estate Fund........ 0.90% $193,700,806 N/A
AIM V.I. Global Utilities 0.65% of the first $250 million; $ 21,034,499 Waive advisory fees to extent
Fund...................... 0.60% of the excess over $250 necessary to limit expenses
million (excluding Rule 12b-1 plan
fees, if any, interest, taxes,
dividend expense on short
sales, extraordinary items and
increases in expenses due to
expense offset arrangements, if
any) of each Series to 1.30%
</Table>
K-1
EXHIBIT L
PROPOSED COMPENSATION TO A I M ADVISORS, INC.
The following table provides information with respect to the annual
advisory fee rates proposed to be paid to A I M Advisors, Inc. by your Fund
under the proposed advisory agreement.
<Table>
<Caption>
ANNUAL RATE
NET ASSETS (BASED ON AVERAGE DAILY NET ASSETS)
- ---------- -----------------------------------
First $500 Million...................................... 0.75%
Next $500 Million....................................... 0.65%
From $1 Billion......................................... 0.55%
From $2 Billion......................................... 0.45%
From $4 Billion......................................... 0.40%
From $6 Billion......................................... 0.375%
From $8 Billion......................................... 0.35%
</Table>
L-1
EXHIBIT M
SHARES OUTSTANDING OF EACH CLASS OF YOUR FUND ON RECORD DATE
As of July 25, 2003, there were the following number of shares outstanding
of each class of your Fund:
Class A shares
19,784.58
Class B shares
13,576.81
Class C shares
76,122.89
Investor Class shares
5,709,109.10
M-1
EXHIBIT N
OWNERSHIP OF SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Company owned 5% or more of any
class of the outstanding shares of your Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of your Fund is presumed
to "control" your Fund as defined in the 1940 Act. Such control may affect the
voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES OWNED RECORD*
- ---------------- --------------- ---------------- ----------------
Putnam Fiduciary Cust. ........................ Class A 5,252.64 26.55%
H Betti Industries Inc. Savings Plan
Attn: DC Plan Admin MS C-10-C
1 Investors Way
Norwood, MA 02062-1584
Merrill Lynch.................................. Class A 3,994.23 20.19%
Security #97MN6
4800 Deer Lake Drive East
Jacksonville, FL 32246-6486
Charles Schwab & Co. Inc. ..................... Class A 2,499.52 12.63%
Special Custody Acct. for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Pershing LLC................................... Class A 2,148.68 10.86%
P.O. Box 2052
Jersey City, NJ 07303-2052
NFSC FEBO #OJR-602213.......................... Class A 1,544.40 7.81
NFS/FMTC IRA
FBO Marilynn N. Templeton
4212 14th Ave. E
Bradenton, FL 34208-5814
Pershing LLC................................... Class A 1,074.34 5.43%
P.O. Box 2052
Jersey City, NJ 07303-2052
Citigroup Global Markets Inc. ................. Class B 2,543.15 18.73%
333 West 34th St. -- 3rd Floor
New York, NY 10001-2402
Citigroup Global Markets Inc. ................. Class B 2,527.90 18.62%
333 West 34th St. -- 3rd Floor
New York, NY 10001-2402
UBS Financial Services Inc. ................... Class B 1,513.77 11.15%
UBS PaineWebber CDN FBO
Johnny J. Grier
P.O. Box 3321
Weehawken, NJ 07086-8154
LPL Financial Services......................... Class B 1,071.40 7.89%
A/C 2757-0203
9785 Towne Centre Dr.
San Diego, CA 92121-1968
</Table>
N-1
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES OWNED RECORD*
- ---------------- --------------- ---------------- ----------------
LPL Financial Services......................... Class B 892.90 6.58%
A/C 5075-5786
9785 Towne Centre Dr.
San Diego, CA 92121-1968
Merrill Lynch.................................. Class B 735.73 5.42%
4800 Deer Lake Drive East
Jacksonville, FL 32246-6486
UBS Financial Services Inc. ................... Class C 4,027.47 5.29%
Kenneth Axelrod TTEE
Kenneth Axelrod Profit Sharing
Plan DTD 1/1/95
17 W. Main St.
Smithtown, NY 11787-2602
Charles Schwab & Co. Inc. ..................... Investor Class 669,702.57 11.73%
Special Custody Acct. for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Invesco Trust Company TTEE..................... Investor Class 620,170.72 10.86%
Magellan Health Services
Retirement Savings Plan & Trust 401K
P.O. Box 105779
Atlanta, GA 30348-5779
AMVESCAP Natl TC Cust.......................... Investor Class 349,216.09 6.12%
AP Technoglass Co.
Belletech Retirement Plan
1465 W. Sandusky Ave.
Bellefontaine, OH 43311-1082
AMVESCAP Natl Trust Company TTEE............... Investor Class 291,631.48 5.11%
AFG Industries Employees Savings
& Investment Plan
P.O. Box 105779
Atlanta, GA 30348-5779
</Table>
- ---------------
* Company has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
N-2
EXHIBIT O
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Buyer owned 5% or more of any
class of the outstanding shares of Buying Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of Buying Fund is
presumed to "control" Buying Fund as defined in the 1940 Act. Such control may
affect the voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES OWNED RECORD*
- ---------------- --------------- ---------------- ----------------
</Table>
- ---------------
* Buyer has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
O-1
APPENDIX I
AGREEMENT
AND
PLAN OF REORGANIZATION
FOR
INVESCO VALUE EQUITY FUND,
A SEPARATE PORTFOLIO OF
INVESCO STOCK FUNDS, INC.
AUGUST 13, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE 1 DEFINITIONS........................................................ I-1
SECTION 1.1. Definitions................................................. I-1
ARTICLE 2 TRANSFER OF ASSETS................................................. I-4
SECTION 2.1. Reorganization of Selling Fund.............................. I-4
SECTION 2.2. Computation of Net Asset Value.............................. I-4
SECTION 2.3. Valuation Date.............................................. I-4
SECTION 2.4. Delivery.................................................... I-5
SECTION 2.5. Termination of Series and Redemption of Selling Fund
Shares...................................................... I-5
SECTION 2.6. Issuance of Buying Fund Shares.............................. I-5
SECTION 2.7. Investment Securities....................................... I-5
SECTION 2.8. Liabilities................................................. I-6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER........................... I-6
SECTION 3.1. Organization; Authority..................................... I-6
SECTION 3.2. Registration and Regulation of Seller....................... I-6
SECTION 3.3. Financial Statements........................................ I-6
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities......... I-6
SECTION 3.5. Selling Fund Shares; Business Operations.................... I-6
SECTION 3.6. Accountants................................................. I-7
SECTION 3.7. Binding Obligation.......................................... I-7
SECTION 3.8. No Breaches or Defaults..................................... I-7
SECTION 3.9. Authorizations or Consents.................................. I-7
SECTION 3.10. Permits..................................................... I-8
SECTION 3.11. No Actions, Suits or Proceedings............................ I-8
SECTION 3.12. Contracts................................................... I-8
SECTION 3.13. Properties and Assets....................................... I-8
SECTION 3.14. Taxes....................................................... I-8
SECTION 3.15. Benefit and Employment Obligations.......................... I-9
SECTION 3.16. Brokers..................................................... I-9
SECTION 3.17. Voting Requirements......................................... I-9
SECTION 3.18. State Takeover Statutes..................................... I-9
SECTION 3.19. Books and Records........................................... I-9
SECTION 3.20. Prospectus and Statement of Additional Information.......... I-9
SECTION 3.21. No Distribution............................................. I-9
SECTION 3.22. Liabilities of Selling Fund................................. I-9
SECTION 3.23. Value of Shares............................................. I-10
SECTION 3.24. Shareholder Expenses........................................ I-10
SECTION 3.25. Intercompany Indebtedness; Consideration.................... I-10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER............................ I-10
SECTION 4.1. Organization; Authority..................................... I-10
SECTION 4.2. Registration and Regulation of Buyer........................ I-10
SECTION 4.3. Financial Statements........................................ I-10
</Table>
I-i
<Table>
<Caption>
PAGE
----
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities......... I-10
SECTION 4.5. Registration of Buying Fund Shares.......................... I-11
SECTION 4.6. Accountants................................................. I-11
SECTION 4.7. Binding Obligation.......................................... I-11
SECTION 4.8. No Breaches or Defaults..................................... I-11
SECTION 4.9. Authorizations or Consents.................................. I-12
SECTION 4.10. Permits..................................................... I-12
SECTION 4.11. No Actions, Suits or Proceedings............................ I-12
SECTION 4.12. Taxes....................................................... I-12
SECTION 4.13. Brokers..................................................... I-13
SECTION 4.14. Representations Concerning the Reorganization............... I-13
SECTION 4.15. Prospectus and Statement of Additional Information.......... I-13
SECTION 4.16. Value of Shares............................................. I-13
SECTION 4.17. Intercompany Indebtedness; Consideration.................... I-13
ARTICLE 5 COVENANTS.......................................................... I-14
SECTION 5.1. Conduct of Business......................................... I-14
SECTION 5.2. Announcements............................................... I-14
SECTION 5.3. Expenses.................................................... I-14
SECTION 5.4. Further Assurances.......................................... I-14
SECTION 5.5. Notice of Events............................................ I-14
SECTION 5.6. Access to Information....................................... I-15
SECTION 5.7. Consents, Approvals and Filings............................. I-15
SECTION 5.8. Submission of Agreement to Shareholders..................... I-15
SECTION 5.9. Delay of Consummation of Reorganization..................... I-15
ARTICLE 6 CONDITIONS PRECEDENT TO THE REORGANIZATION......................... I-15
SECTION 6.1. Conditions Precedent of Buyer............................... I-15
SECTION 6.2. Mutual Conditions........................................... I-16
SECTION 6.3. Conditions Precedent of Seller.............................. I-17
ARTICLE 7 TERMINATION OF AGREEMENT........................................... I-17
SECTION 7.1. Termination................................................. I-17
SECTION 7.2. Survival After Termination.................................. I-17
ARTICLE 8 MISCELLANEOUS...................................................... I-18
SECTION 8.1. Survival of Representations, Warranties and Covenants....... I-18
SECTION 8.2. Governing Law............................................... I-18
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment........... I-18
SECTION 8.4. Obligations of Buyer and Seller............................. I-18
SECTION 8.5. Amendments.................................................. I-18
SECTION 8.6. Enforcement................................................. I-18
SECTION 8.7. Interpretation.............................................. I-18
SECTION 8.8. Counterparts................................................ I-19
SECTION 8.9. Entire Agreement; Exhibits and Schedules.................... I-19
SECTION 8.10. Notices..................................................... I-19
</Table>
I-ii
<Table>
<Caption>
PAGE
----
SECTION 8.11. Representations by Seller Investment Adviser................ I-19
SECTION 8.12. Representations by Buyer Investment Adviser................. I-19
SECTION 8.13. Successors and Assigns; Assignment.......................... I-20
Exhibit A Excluded Liabilities of Selling Fund
Schedule 2.1 Classes of Shares of Selling Fund and Corresponding Classes
of Shares of Buying Fund
Schedule 3.4 Certain Contingent Liabilities of Selling Fund
Schedule 3.5(d) Permitted Restructurings and Redomestications of Funds
Schedule 4.4 Certain Contingent Liabilities of Buying Fund
Schedule 4.5(a) Portfolios of Buyer
Schedule 4.5(b) Classes of Shares of Buying Fund and Number of Shares of
Each Class Buyer is Authorized to Issue
Schedule 5.1 Permitted Combinations of Funds
Schedule 6.2(f) Tax Opinions
</Table>
I-iii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of August 13, 2003 (this
"Agreement"), by and among INVESCO Stock Funds, Inc., a Maryland corporation
("Seller"), acting on behalf of INVESCO Value Equity Fund ("Selling Fund"), a
separate series of Seller, AIM Equity Funds, a Delaware statutory trust
("Buyer"), acting on behalf of AIM Large Cap Basic Value Fund ("Buying Fund"), a
separate series of Buyer, A I M Advisors, Inc., a Delaware corporation, and
INVESCO Funds Group, Inc., a Delaware corporation.
WITNESSETH
WHEREAS, Seller is a management investment company registered with the SEC
(as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund, for sale to the public; and
WHEREAS, Buyer is a management investment company registered with the SEC
under the Investment Company Act that offers separate series of its shares
representing interests in investment portfolios, including Buying Fund, for sale
to the public; and
WHEREAS, Buyer Investment Adviser (as defined below) provides investment
advisory services to Buyer; and
WHEREAS, Seller Investment Adviser (as defined below) provides investment
advisory services to Seller; and
WHEREAS, Selling Fund desires to provide for its reorganization through the
transfer of all of its assets to Buying Fund in exchange for the assumption by
Buying Fund of all of the Liabilities (as defined below) of Selling Fund and the
issuance by Buyer of shares of Buying Fund in the manner set forth in this
Agreement; and
WHEREAS, this Agreement is intended to be and is adopted by the parties
hereto as a Plan of Reorganization within the meaning of the regulations under
Section 368(a) of the Code (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and undertakings contained in this Agreement, Seller, Buyer, Buyer
Investment Adviser and Seller Investment Adviser agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization, together with
all exhibits and schedules attached hereto and all amendments hereto and
thereof.
"Applicable Law" means the applicable laws of the state in which each of
Buyer and Seller has been organized and shall include, as applicable, the
Maryland General Corporation Law and the Delaware Statutory Trust Act.
I-1
"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Seller on behalf of Selling
Fund, or otherwise providing benefits to any current or former employee, officer
or director/trustee of Seller.
"Buyer" means AIM Equity Funds, a Delaware statutory trust.
"Buyer Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
"Buyer Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Buying Fund.
"Buyer Investment Adviser" means A I M Advisors, Inc..
"Buyer Registration Statement" means the registration statement on Form
N-1A of Buyer, as amended, 1940 Act Registration No. 811-1424.
"Buying Fund" means AIM Large Cap Basic Value Fund, a separate series of
Buyer.
"Buying Fund Auditors" means Ernst & Young LLP.
"Buying Fund Financial Statements" means the audited financial statements
of Buying Fund for the fiscal year ended October 31, 2002 and the unaudited
financial statements of Buying Fund for the period ended April 30, 2003.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Agreement.
"Closing" means the transfer of the assets of Selling Fund to Buying Fund,
the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Agreement.
"Closing Date" means November 3, 2003, or such other date as the parties
may mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations adopted pursuant thereto.
"corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations adopted pursuant thereto.
"Exchangeability Date" means the first date on which Buyer Investment
Adviser determines that shares of retail mutual funds advised by Buyer
Investment Adviser and shares of retail mutual funds advised by Seller
Investment Adviser generally may be exchanged for shares of the same or a
similar class of each other.
"Governing Documents" means the organic documents which govern the business
and operations of each of Buyer and Seller and shall include, as applicable, the
Charter, Amended and Restated Agreement and Declaration of Trust, Amended and
Restated Bylaws and Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading
I-2
Commission, the National Futures Association, the Investment Management
Regulatory Organization Limited and the Office of Fair Trading).
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in the
condition (financial or otherwise), properties, assets or prospects of an entity
having an adverse monetary effect in an amount equal to or greater than $50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.10 of this
Agreement.
"Person" means an individual or a corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Buyer of Buying Fund Shares
directly to Selling Fund Shareholders as described in this Agreement, and the
termination of Selling Fund's status as a designated series of shares of Seller.
"Required Shareholder Vote" means the lesser of (a) the affirmative vote of
67% or more of the voting securities of Selling Fund present or represented by
proxy at the Shareholders Meeting, if the holders of more than 50% of the
outstanding voting securities of Selling Fund are present or represented by
proxy, or (b) the affirmative vote of more than 50% of the outstanding voting
securities of Selling Fund.
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Seller" means INVESCO Stock Funds, Inc., a Maryland corporation.
"Seller Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Selling Fund.
"Seller Investment Adviser" means INVESCO Funds Group, Inc..
"Seller Registration Statement" means the registration statement on Form
N-1A of Seller, as amended, 1940 Act Registration No. 811-1474.
"Selling Fund" means INVESCO Value Equity Fund, a separate series of
Seller.
"Selling Fund Auditors" means PricewaterhouseCoopers LLP.
"Selling Fund Financial Statements" means the audited financial statements
of Selling Fund for the fiscal year ended July 31, 2002 and the unaudited
financial statements of Selling Fund for the period ended January 31, 2003.
"Selling Fund Shareholders" means the holders of record of the outstanding
shares of each class of Selling Fund as of the close of regular trading on the
NYSE on the Valuation Date.
I-3
"Selling Fund Shares" means the outstanding shares of each class of Selling
Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling Fund
convened in accordance with Applicable Law and the Governing Documents of Seller
to consider and vote upon the approval of this Agreement.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means December 31, 2003, or such later date as the
parties may mutually agree upon.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Valuation Date" shall have the meaning set forth in Section 2.2 of this
Agreement.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all
of the assets of Selling Fund shall be delivered to Buyer Custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of all of
the Liabilities of Selling Fund and delivery by Buyer directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund Shares, and
the value of the assets and the amount of the Liabilities of Selling Fund,
shall, in each case, be determined as of the close of regular trading on the
NYSE on the business day next preceding the Closing Date (the "Valuation Date").
(b) The net asset value per share of each class of Buying Fund Shares shall
be computed in accordance with the policies and procedures of Buying Fund as
described in the Buyer Registration Statement.
(c) The value of the assets and the amount of the Liabilities of Selling
Fund to be transferred to Buying Fund pursuant to this Agreement shall be
computed in accordance with the policies and procedures of Selling Fund as
described in the Seller Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of value
regarding the assets and Liabilities of Selling Fund and the net asset value per
share of each class of Buying Fund Shares to be issued pursuant to this
Agreement shall be made by agreement of Seller and Buyer. The parties agree to
use commercially reasonable efforts to resolve any material pricing differences
between the prices of portfolio securities determined in accordance with their
respective pricing policies and procedures.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund
will be permanently closed as of the close of business on the Valuation Date and
only requests for the redemption of shares of Selling Fund received in proper
form prior to the close of regular trading on the NYSE on the Valuation Date
shall be accepted by Selling Fund. Redemption requests thereafter received by
Selling Fund shall be
I-4
deemed to be redemption requests for Buying Fund Shares of the corresponding
class (assuming that the transactions contemplated by this Agreement have been
consummated), to be distributed to Selling Fund Shareholders under this
Agreement.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing Date,
Seller shall instruct Seller Custodian to transfer all assets held by Selling
Fund to the account of Buying Fund maintained at Buyer Custodian. Such assets
shall be delivered by Seller to Buyer Custodian on the Closing Date. The assets
so delivered shall be duly endorsed in proper form for transfer in such
condition as to constitute a good delivery thereof, in accordance with the
custom of brokers, and shall be accompanied by all necessary state stock
transfer stamps, if any, or a check for the appropriate purchase price thereof.
Cash held by Selling Fund shall be delivered on the Closing Date and shall be in
the form of currency or wire transfer in Federal funds, payable to the order of
the account of Buying Fund at Buyer Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make delivery in the
manner contemplated by Section 2.4(a) of securities held by Selling Fund for the
reason that any of such securities purchased prior to the Closing Date have not
yet been delivered to Selling Fund or its broker, then Buyer shall waive the
delivery requirements of Section 2.4(a) with respect to said undelivered
securities if Selling Fund has delivered to Buyer Custodian by or on the Closing
Date, and with respect to said undelivered securities, executed copies of an
agreement of assignment and escrow and due bills executed on behalf of said
broker or brokers, together with such other documents as may be required by
Buyer or Buyer Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series and Redemption of Selling Fund
Shares. Following receipt of the Required Shareholder Vote and as soon as
reasonably practicable after the Closing Date, the status of Selling Fund as a
designated series of Seller shall be terminated and Seller shall redeem the
outstanding shares of Selling Fund from Selling Fund Shareholders in accordance
with its Charter and the Maryland General Corporation Law; provided, however,
that the termination of Selling Fund as a designated series of Seller and the
redemption of the outstanding shares of Selling Fund shall not be required if
the Reorganization shall not have been consummated.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date. All issued and outstanding shares of Selling Fund shall thereupon be
canceled on the books of Seller. Seller shall provide instructions to the
transfer agent of Buyer with respect to the shares of each class of Buying Fund
to be issued to Selling Fund Shareholders. Buyer shall have no obligation to
inquire as to the validity, propriety or correctness of any such instruction,
but shall, in each case, assume that such instruction is valid, proper and
correct. Buyer shall record on its books the ownership of the shares of each
class of Buying Fund by Selling Fund Shareholders and shall forward a
confirmation of such ownership to Selling Fund Shareholders. No redemption or
repurchase of such shares credited to former Selling Fund Shareholders in
respect of Selling Fund Shares represented by unsurrendered share certificates
shall be permitted until such certificates have been surrendered to Buyer for
cancellation, or if such certificates are lost or misplaced, until lost
certificate affidavits have been executed and delivered to Buyer.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Seller shall deliver a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases thereof and holding
periods therefor. Seller shall provide to Buyer on or before the Valuation Date
detailed tax basis accounting records for each security to be transferred to it
pursuant to this Agreement. Such records shall be prepared in accordance with
the requirements for specific identification tax lot accounting and clearly
reflect the bases used for determination of gain and loss realized on the sale
of any security transferred to Buying Fund hereunder. Such records shall be made
available by Seller prior to the Valuation Date for inspection by the Treasurer
(or his or her designee) or the auditors of Buyer upon reasonable request.
I-5
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best efforts
to discharge all of its known liabilities, so far as may be possible, prior to
the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, on behalf of Selling Fund, represents and warrants to Buyer as
follows:
SECTION 3.1. Organization; Authority. Seller is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 3.2. Registration and Regulation of Seller. Seller is duly
registered with the SEC as an investment company under the Investment Company
Act and all Selling Fund Shares which have been or are being offered for sale
have been duly registered under the Securities Act and have been duly
registered, qualified or are exempt from registration or qualification under the
securities laws of each state or other jurisdiction in which such shares have
been or are being offered for sale, and no action has been taken by Seller to
revoke or rescind any such registration or qualification. Selling Fund is in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Selling Fund is in compliance in all material respects with the investment
policies and restrictions applicable to it set forth in the Seller Registration
Statement. The value of the net assets of Selling Fund is determined using
portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Selling Fund and
all purchases and redemptions of Selling Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 3.3. Financial Statements. The books of account and related
records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Selling Fund Financial
Statements previously delivered to Buyer present fairly in all material respects
the financial position of Selling Fund as of the date(s) indicated and the
results of operations and changes in net assets for the period(s) then ended in
accordance with generally accepted accounting principles applied on a consistent
basis for the period(s) then ended.
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Selling Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Selling
Fund or the status of Selling Fund as a regulated investment company under the
Code, other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Selling Fund or occurring in the ordinary course of business of Selling Fund or
Seller. Except as set forth on Schedule 3.4, there are no contingent liabilities
of Selling Fund not disclosed in the Selling Fund Financial Statements and no
contingent liabilities of Selling Fund have arisen since the date of the most
recent financial statements included in the Selling Fund Financial Statements.
SECTION 3.5. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly issued and
are fully paid and non-assessable.
(b) During the five-year period ending on the date of the Reorganization,
neither Selling Fund nor any person related to Selling Fund (as defined in
Section 1.368-1(e)(3) of the Treasury Regulations without regard to Section
1.368-1(e)(3)(i)(A)) will have directly or through any transaction, agreement,
or arrangement with any other person, (i) acquired shares of Selling Fund for
consideration other than shares of Selling Fund, except for shares redeemed in
the ordinary course of Selling Fund's business as an open-end investment company
as required by the Investment Company Act, or (ii) made distributions with
respect to Selling Fund's shares, except for (a) distributions necessary to
satisfy the requirements of
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Sections 852 and 4982 of the Code for qualification as a regulated investment
company and avoidance of excise tax liability and (b) additional distributions,
to the extent such additional distributions do not exceed 50 percent of the
value (without giving effect to such distributions) of the proprietary interest
in Selling Fund on the Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Selling Fund Shares, except for
the right of investors to acquire Selling Fund Shares at net asset value in the
normal course of its business as a series of an open-end management investment
company operating under the Investment Company Act.
(d) From the date it commenced operations and ending on the Closing Date,
Selling Fund will have conducted its historic business within the meaning of
Section 1.368-1(d)(2) of the Treasury Regulations in a substantially unchanged
manner. In anticipation of its Reorganization, Selling Fund will not dispose of
assets that, in the aggregate, will result in less than fifty percent (50%) of
its historic business assets (within the meaning of Section 1.368-1(d)(3) of the
Treasury Regulations) being transferred to Buying Fund; provided, however, that
this Section 3.5(d) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(e) Seller does not have, and has not had during the six (6) months prior
to the date of this Agreement, any employees, and shall not hire any employees
from and after the date of this Agreement through the Closing Date.
SECTION 3.6. Accountants. Selling Fund Auditors, which have reported upon
the Selling Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Selling Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 3.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Seller on behalf of Selling Fund and, assuming this
Agreement has been duly executed and delivered by Buyer and approved by the
shareholders of Selling Fund, constitutes the legal, valid and binding
obligation of Seller enforceable against Seller in accordance with its terms
from and with respect to the revenues and assets of Selling Fund, except as the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization
or similar laws relating to or affecting creditors rights generally, or by
general equity principles (whether applied in a court of law or a court of
equity and including limitations on the availability of specific performance or
other equitable remedies).
SECTION 3.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Seller on behalf of Selling Fund and performance by Seller of its
obligations hereunder has been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Seller, other than approval by the
shareholders of Selling Fund, and (i) do not, and on the Closing Date will not,
result in any violation of the Governing Documents of Seller and (ii) do not,
and on the Closing Date will not, result in a breach of any of the terms or
provisions of, or constitute (with or without the giving of notice or the lapse
of time or both) a default under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation or imposition of any Lien upon any
property or assets of Selling Fund (except for such breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect) under (A) any indenture, mortgage or loan
agreement or any other material agreement or instrument to which Seller is a
party or by which it may be bound and which relates to the assets of Selling
Fund or to which any property of Selling Fund may be subject; (B) any Permit (as
defined below); or (C) any existing applicable law, rule, regulation, judgment,
order or decree of any Governmental Authority having jurisdiction over Seller or
any property of Selling Fund. Seller is not under the jurisdiction of a court in
a proceeding under Title 11 of the United States Code or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
SECTION 3.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date and those that must
be made after the Closing Date to comply with
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Section 2.5 of this Agreement, no authorization or approval or other action by,
and no notice to or filing with, any Governmental Authority will be required to
be obtained or made by Seller in connection with the due execution and delivery
by Seller of this Agreement and the consummation by Seller of the transactions
contemplated hereby.
SECTION 3.10. Permits. Seller has in full force and effect all approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights of Governmental Authorities (collectively, "Permits")
necessary for it to conduct its business as presently conducted as it relates to
Selling Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Seller there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Seller, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Seller before any Governmental Authority which
questions the validity or legality of this Agreement or of the actions
contemplated hereby or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Seller, threatened in
writing or, if probable of assertion, orally, against Seller affecting any
property, asset, interest or right of Selling Fund, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Selling Fund. There are not in existence on the date hereof any
plea agreements, judgments, injunctions, consents, decrees, exceptions or orders
that were entered by, filed with or issued by any Governmental Authority
relating to Seller's conduct of the business of Selling Fund affecting in any
significant respect the conduct of such business. Seller is not, and has not
been, to the knowledge of Seller, the target of any investigation by the SEC or
any state securities administrator with respect to its conduct of the business
of Selling Fund.
SECTION 3.12. Contracts. Seller is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party and which involves or affects the assets of Selling Fund,
by which the assets, business, or operations of Selling Fund may be bound or
affected, or under which it or the assets, business or operations of Selling
Fund receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of Seller there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
SECTION 3.13. Properties and Assets. Selling Fund has good and marketable
title to all properties and assets reflected in the Selling Fund Financial
Statements as owned by it, free and clear of all Liens, except as described in
the Selling Fund Financial Statements.
SECTION 3.14. Taxes.
(a) Selling Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Selling Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will have satisfied the requirements of Part
I of Subchapter M of the Code to maintain such qualification for the period
beginning on the first day of its current taxable year and ending on the Closing
Date. Selling Fund has no earnings and profits accumulated in any taxable year
in which the provisions of Subchapter M of the Code did not apply to it. In
order to (i) ensure continued qualification of Selling Fund for treatment as a
"regulated investment company" for tax purposes and (ii) eliminate any tax
liability of Selling Fund arising by reason of undistributed investment company
taxable income or net capital gain, Seller will declare on or prior to the
Valuation Date to the shareholders of Selling Fund a dividend or dividends that,
together with all previous such dividends, shall have the
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effect of distributing (A) all of Selling Fund's investment company taxable
income (determined without regard to any deductions for dividends paid) for the
taxable year ended July 31, 2003 and for the short taxable year beginning on
August 1, 2003 and ending on the Closing Date and (B) all of Selling Fund's net
capital gain recognized in its taxable year ended July 31, 2003 and in such
short taxable year (after reduction for any capital loss carryover).
(b) Selling Fund has timely filed all Returns required to be filed by it
and all Taxes with respect thereto have been paid, except where the failure so
to file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Selling Fund Financial Statements for all Taxes in respect of all periods
ended on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Selling Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Selling Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 3.15. Benefit and Employment Obligations. As of the Closing Date,
Selling Fund will have no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to under any
Benefit Plan, and will have no obligation to provide unfunded deferred
compensation or other unfunded or self-funded benefits to any Person.
SECTION 3.16. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Seller in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Seller or any action taken by it.
SECTION 3.17. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Agreement.
SECTION 3.18. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Agreement or
any of the transactions contemplated by this Agreement.
SECTION 3.19. Books and Records. The books and records of Seller relating
to Selling Fund, reflecting, among other things, the purchase and sale of
Selling Fund Shares, the number of issued and outstanding shares owned by each
Selling Fund Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
SECTION 3.20. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.21. No Distribution. Buying Fund Shares are not being acquired
for the purpose of any distribution thereof, other than in accordance with the
terms of this Agreement.
SECTION 3.22. Liabilities of Selling Fund. The Liabilities of Selling
Fund that are to be assumed by Buying Fund in connection with the
Reorganization, or to which the assets of Selling Fund to be transferred in the
Reorganization are subject, were incurred by Selling Fund in the ordinary course
of its business. The fair market value of the assets of Selling Fund to be
transferred to Buying Fund in the Reorganization will equal or exceed the sum of
the Liabilities to be assumed by Buying Fund, plus the amount of liabilities, if
any, to which such transferred assets will be subject. The total adjusted basis
of the assets of Selling Fund to be transferred to Buying Fund in the
Reorganization will equal or exceed the
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sum of the Liabilities to be assumed by Buying Fund, plus the amount of
liabilities, if any, to which such transferred assets will be subject.
SECTION 3.23. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 3.24. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
SECTION 3.25. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, on behalf of Buying Fund, represents and warrants to Seller as
follows:
SECTION 4.1. Organization; Authority. Buyer is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 4.2. Registration and Regulation of Buyer. Buyer is duly
registered with the SEC as an investment company under the Investment Company
Act. Buying Fund is in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, the Investment
Company Act, the Securities Act, the Exchange Act and all applicable state
securities laws. Buying Fund is in compliance in all material respects with the
applicable investment policies and restrictions set forth in the Buyer
Registration Statement. The value of the net assets of Buying Fund is determined
using portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Buying Fund and
all purchases and redemptions of Buying Fund Shares have been effected at the
net asset value per share calculated in such manner.
Section 4.3. Financial Statements. The books of account and related
records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Buying Fund Financial
Statements previously delivered to Seller present fairly in all material
respects the financial position of Buying Fund as of the date(s) indicated and
the results of operations and changes in net assets for the period(s) then ended
in accordance with generally accepted accounting principles applied on a
consistent basis for the period(s) then ended.
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Buying Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Buying Fund
or the status of Buying Fund as a regulated investment company under the Code,
other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Buying Fund or occurring in the ordinary course of business of Buying Fund or
Buyer. There are no contingent liabilities of Buying Fund not disclosed in the
Buying Fund Financial Statements which are required to be disclosed in
accordance with generally accepted accounting principles. Except as set forth on
Schedule 4.4, no contingent liabilities of Buying Fund have arisen since the
date of the most recent financial statements included in the Buying Fund
Financial Statements which are required to be disclosed in accordance with
generally accepted accounting principles.
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SECTION 4.5. Registration of Buying Fund Shares.
(a) The shares of Buyer are divided into those portfolios, including Buying
Fund, that are set forth on Schedule 4.5(a).
(b) Buying Fund currently has those classes of shares that are set forth on
Schedule 4.5(b). Under its Governing Documents, Buyer is authorized to issue the
number of shares of each such class that is set forth on Schedule 4.5(b).
(c) Buying Fund Shares to be issued pursuant to Section 2.6 shall on the
Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of Buyer then in effect.
(d) Buying Fund Shares to be issued pursuant to Section 2.6 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(e) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of Buyer's Registration Statement on
Form N-14, shall be furnished to the shareholders of Selling Fund entitled to
vote at the Shareholders Meeting. The Combined Proxy Statement/Prospectus and
related Statement of Additional Information of Buying Fund, when they become
effective, shall conform to the applicable requirements of the Securities Act
and the Investment Company Act and shall not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading, provided, however, that no
representation or warranty is made with respect to written information provided
by Seller for inclusion in the Combined Proxy Statement/Prospectus.
(f) The shares of Buying Fund which have been or are being offered for sale
(other than the Buying Fund Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the Buyer
Registration Statement and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Buyer to revoke or rescind any such registration
or qualification.
SECTION 4.6. Accountants. Buying Fund Auditors, which have reported upon
the Buying Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Buying Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 4.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Buyer on behalf of Buying Fund and, assuming this
Agreement has been duly executed and delivered by Seller, constitutes the legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms from and with respect to the revenues and assets of Buying Fund,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors' rights
generally, or by general equity principles (whether applied in a court or law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 4.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Buyer on behalf of Buying Fund and performance by Buyer of its
obligations hereunder have been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Buyer and (i) do not, and on the
Closing Date will not, result in any violation of the Governing Documents of
Buyer and (ii) do not, and on the Closing Date will not, result in a breach of
any of the terms or provisions of, or constitute (with or
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without the giving of notice or the lapse of time or both) a default under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
or imposition of any Lien upon any property or assets of Buying Fund (except for
such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Buyer is a party or by which it may be bound and which
relates to the assets of Buying Fund or to which any properties of Buying Fund
may be subject; (B) any Permit; or (C) any existing applicable law, rule,
regulation, judgment, order or decree of any Governmental Authority having
jurisdiction over Buyer or any property of Buying Fund. Buyer is not under the
jurisdiction of a court in a proceeding under Title 11 of the United States Code
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
SECTION 4.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date, no authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority will be required to be obtained or made by Buyer in connection with
the due execution and delivery by Buyer of this Agreement and the consummation
by Buyer of the transactions contemplated hereby.
SECTION 4.10. Permits. Buyer has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Buying Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Buyer there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 4.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Buyer, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Buyer before any Governmental Authority which
questions the validity or legality of this Agreement or of the transactions
contemplated hereby, or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Buyer, threatened in
writing or, if probable of assertion, orally, against Buyer, affecting any
property, asset, interest or right of Buying Fund, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Buying Fund. There are not in existence on the date hereof any
plea agreements, judgments, injunctions, consents, decrees, exceptions or orders
that were entered by, filed with or issued by any Governmental Authority
relating to Buyer's conduct of the business of Buying Fund affecting in any
significant respect the conduct of such business. Buyer is not, and has not
been, to the knowledge of Buyer, the target of any investigation by the SEC or
any state securities administrator with respect to its conduct of the business
of Buying Fund.
SECTION 4.12. Taxes.
(a) Buying Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Buying Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will satisfy the requirements of Part I of
Subchapter M of the Code to maintain such qualification for its current taxable
year. Buying Fund has no earnings or profits accumulated in any taxable year in
which the provisions of Subchapter M of the Code did not apply to it.
(b) Buying Fund has timely filed all Returns required to be filed by it and
all Taxes with respect thereto have been paid, except where the failure so to
file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Buying Fund Financial Statements for all Taxes in respect of all periods
ending on or before the date
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of such financial statements, except where the failure to make such provisions
would not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect. No deficiencies for any Taxes have been proposed,
assessed or asserted in writing by any taxing authority against Buying Fund, and
no deficiency has been proposed, assessed or asserted, in writing, where such
deficiency would reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect. No waivers of the time to assess any such Taxes
are outstanding nor are any written requests for such waivers pending and no
Return of Buying Fund is currently being or has been audited with respect to
income taxes or other Taxes by any Federal, state, local or foreign Tax
authority.
SECTION 4.13. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Buyer in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Buyer or any action taken by it.
SECTION 4.14. Representations Concerning the Reorganization.
(a) Buyer has no plan or intention to reacquire any Buying Fund Shares
issued in the Reorganization, except to the extent that Buying Fund is required
by the Investment Company Act to redeem any of its shares presented for
redemption at net asset value in the ordinary course of its business as an
open-end, management investment company.
(b) Buying Fund has no plan or intention to sell or otherwise dispose of
any of the assets of Selling Fund acquired in the Reorganization, other than in
the ordinary course of its business and to the extent necessary to maintain its
status as a "regulated investment company" under the Code; provided, however,
that this Section 4.14(b) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(c) Following the Reorganization, Buying Fund will continue an "historic
business" of Selling Fund or use a significant portion of Selling Fund's
"historic business assets" in a business. For purposes of this representation,
the terms "historic business" and "historic business assets" shall have the
meanings ascribed to them in Section 1.368-1(d) of the Treasury Regulations;
provided, however, that this Section 4.14(c) shall not preclude any of the
restructurings or redomestications of funds set forth on Schedule 3.5(d).
(d) Prior to or in the Reorganization, neither Buying Fund nor any person
related to Buying Fund (for purposes of this paragraph as defined in Section
1.368-1(e)(3) of the Treasury Regulations) will have acquired directly or
through any transaction, agreement or arrangement with any other person, shares
of Selling Fund with consideration other than shares of Buying Fund. There is no
plan or intention by Buying Fund or any person related to Buying Fund to acquire
or redeem any of the Buying Fund Shares issued in the Reorganization either
directly or through any transaction, agreement, or arrangement with any other
person, other than redemptions in the ordinary course of Buying Fund's business
as an open-end investment company as required by the Investment Company Act.
SECTION 4.15. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 4.16. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 4.17. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration
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other than Buying Fund Shares (and Buying Fund's assumption of Selling Fund's
Liabilities, including for this purpose any liabilities to which the assets of
Selling Fund are subject) will be given in exchange for the assets of Selling
Fund acquired by Buying Fund in connection with the Reorganization. The fair
market value of the assets of Selling Fund transferred to Buying Fund in the
Reorganization will equal or exceed the sum of the Liabilities assumed by Buying
Fund, plus the amount of liabilities, if any, to which such transferred assets
are subject.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Seller shall conduct the business of Selling Fund only in the
ordinary course and substantially in accordance with past practices, and shall
use its reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Selling Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(a) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
(b) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Buyer shall conduct the business of Buying Fund only in the ordinary
course and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Buying Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(b) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
SECTION 5.2 Announcements. Seller and Buyer shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement and the transactions contemplated by this Agreement,
and neither Seller nor Buyer shall issue any such press release or make any
public statement without the prior written approval of the other party to this
Agreement, such approval not to be unreasonably withheld, except as may be
required by law.
SECTION 5.3. Expenses. AMVESCAP PLC, on behalf of either Buyer Investment
Adviser or Seller Investment Adviser, shall bear the costs and expenses incurred
in connection with this Agreement and the Reorganization and other transactions
contemplated hereby; provided that any such expenses incurred by or on behalf of
Buying Fund or Selling Fund shall not be reimbursed or paid for by another
Person unless those expenses are solely and directly related to the
Reorganization.
SECTION 5.4. Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
SECTION 5.5. Notice of Events. Buyer shall give prompt notice to Seller,
and Seller shall give prompt notice to Buyer, of (a) the occurrence or
non-occurrence of any event which to the knowledge of Buyer or to the knowledge
of Seller, the occurrence or non-occurrence of which would be likely to result
in any of the conditions specified in (i) in the case of Seller, Sections 6.1
and 6.2 or (ii) in the case of Buyer, Sections 6.2 and 6.3, not being satisfied
so as to permit the consummation of the Reorganization and (b) any material
failure on its part, or on the part of the other party hereto of which it has
knowledge,
I-14
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.5 shall not limit or otherwise affect the
remedies available hereunder to any party.
SECTION 5.6. Access to Information.
(a) Seller will, during regular business hours and on reasonable prior
notice, allow Buyer and its authorized representatives reasonable access to the
books and records of Seller pertaining to the assets of Selling Fund and to
officers of Seller knowledgeable thereof; provided, however, that any such
access shall not significantly interfere with the business or operations of
Seller.
(b) Buyer will, during regular business hours and on reasonable prior
notice, allow Seller and its authorized representatives reasonable access to the
books and records of Buyer pertaining to the assets of Buying Fund and to
officers of Buyer knowledgeable thereof; provided, however, that any such access
shall not significantly interfere with the business or operations of Buyer.
SECTION 5.7. Consents, Approvals and Filings. Each of Seller and Buyer
shall make all necessary filings, as soon as reasonably practicable, including,
without limitation, those required under the Maryland General Corporation Law,
the Securities Act, the Exchange Act, the Investment Company Act and the
Advisers Act, in order to facilitate prompt consummation of the Reorganization
and the other transactions contemplated by this Agreement. In addition, each of
Seller and Buyer shall use its reasonable best efforts, and shall cooperate
fully with each other (i) to comply as promptly as reasonably practicable with
all requirements of Governmental Authorities applicable to the Reorganization
and the other transactions contemplated herein and (ii) to obtain as promptly as
reasonably practicable all necessary permits, orders or other consents of
Governmental Authorities and consents of all third parties necessary for the
consummation of the Reorganization and the other transactions contemplated
herein. Each of Seller and Buyer shall use reasonable efforts to provide such
information and communications to Governmental Authorities as such Governmental
Authorities may request.
SECTION 5.8. Submission of Agreement to Shareholders. Seller shall take
all action necessary in accordance with applicable law and its Governing
Documents to convene the Shareholders Meeting. Seller shall, through its Board
of Directors/Trustees, recommend to the shareholders of Selling Fund approval of
this Agreement. Seller shall use its reasonable best efforts to hold a
Shareholders Meeting as soon as practicable after the date hereof.
SECTION 5.9. Delay of Consummation of Reorganization. The parties
acknowledge and agree that if the Exchangeability Date has not occurred prior to
the Closing Date, consummation of the Reorganization shall not occur on the
Closing Date but instead shall be postponed until a mutually acceptable date
occurring subsequent to the Exchangeability Date; provided, however, that in no
event shall the consummation of the Reorganization occur on a date subsequent to
the Termination Date. In the case of such postponement of the consummation of
the Reorganization, the parties agree that the term "Closing Date" in this
Agreement shall mean in each instance such mutually acceptable date subsequent
to the Exchangeability Date as the parties may choose to consummate the
Reorganization.
ARTICLE 6
CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Conditions Precedent of Buyer. The obligation of Buyer to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Buyer.
(a) The representations and warranties of Seller on behalf of Selling Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
I-15
(b) Seller shall have complied with and satisfied in all material respects
all agreements and conditions relating to Selling Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Buyer shall have received at the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Seller, in such individual's capacity
as an officer of Seller and not as an individual, to the effect that the
conditions specified in Sections 6.1(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Seller certifying as to the accuracy and completeness of the
attached Governing Documents of Seller, and resolutions, consents and
authorizations of or regarding Seller with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
(d) The dividend or dividends described in the last sentence of Section
3.14(a) shall have been declared.
(e) Buyer shall have received from Seller confirmations or other adequate
evidence as to the tax costs and holding periods of the assets and property of
Selling Fund transferred to Buying Fund in accordance with the terms of this
Agreement.
(f) To the extent applicable, Seller Investment Adviser shall have
terminated or waived, in either case in writing, any rights to reimbursement
from Selling Fund to which it is entitled for fees and expenses absorbed by
Seller Investment Adviser pursuant to voluntary and contractual fee waiver or
expense limitation commitments between Seller Investment Adviser and Selling
Fund.
SECTION 6.2. Mutual Conditions. The obligations of Seller and Buyer to
consummate the Reorganization are subject to the satisfaction, at or prior to
the Closing Date, of all of the following further conditions, any one or more of
which may be waived in writing by Seller and Buyer, but only if and to the
extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing Date with, and all
consents, approvals, permits and authorizations required to be obtained on or
prior to the Closing Date from Governmental Authorities in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein by Seller and Buyer shall have been made or
obtained, as the case may be; provided, however, that such consents, approvals,
permits and authorizations may be subject to conditions that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
(b) This Agreement, the Reorganization of Selling Fund and related matters
shall have been approved and adopted at the Shareholders Meeting by the
shareholders of Selling Fund on the record date by the Required Shareholder
Vote.
(c) The assets of Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.2(c),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Agreement and the Reorganization and to effect all shareholder redemptions
and distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Agreement shall be included as assets of Selling
Fund held immediately prior to the Reorganization.
(d) No temporary restraining order, preliminary or permanent injunction or
other order issued by any Governmental Authority preventing the consummation of
the Reorganization on the Closing Date shall be in effect; provided, however,
that the party or parties invoking this condition shall use reasonable efforts
to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by Buyer with respect to
Buying Fund Shares to be issued to Selling Fund Shareholders in connection with
the Reorganization shall have become effective
I-16
under the Securities Act and no stop order suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the Securities Act.
(f) Seller and Buyer shall have received on or before the Closing Date an
opinion of Buyer Counsel in form and substance reasonably acceptable to Seller
and Buyer, as to the matters set forth on Schedule 6.2(f). In rendering such
opinion, Buyer Counsel may request and rely upon representations contained in
certificates of officers of Seller, Buyer and others, and the officers of Seller
and Buyer shall use their best efforts to make available such truthful
certificates.
SECTION 6.3. Conditions Precedent of Seller. The obligation of Seller to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Seller.
(a) The representations and warranties of Buyer on behalf of Buying Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
(b) Buyer shall have complied with and satisfied in all material respects
all agreements and conditions relating to Buying Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Seller shall have received on the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Buyer, in such individual's capacity
as an officer of Buyer and not as an individual, to the effect that the
conditions specified in Sections 6.3(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Buyer certifying as to the accuracy and completeness of the
attached Governing Documents of Buyer and resolutions, consents and
authorizations of or regarding Buyer with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
ARTICLE 7
TERMINATION OF AGREEMENT
SECTION 7.1. Termination. This Agreement may be terminated on or prior to
the Closing Date as follows:
(a) by mutual written consent of Seller and Buyer; or
(b) at the election of Seller or Buyer, to be effectuated by the delivery
by the terminating party to the other party of a written notice of such
termination:
(i) if the Closing Date shall not be on or before the Termination
Date, unless the failure to consummate the Reorganization is the result of
a willful and material breach of this Agreement by the party seeking to
terminate this Agreement;
(ii) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been
obtained as contemplated by Section 5.8; or
(iii) if any Governmental Authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Reorganization and such order, decree, ruling or
other action shall have become final and nonappealable.
SECTION 7.2. Survival After Termination. If this Agreement is terminated
in accordance with Section 7.1 hereof and the Reorganization of Selling Fund is
not consummated, this Agreement shall become void and of no further force and
effect with respect to the Reorganization and Selling Fund, except for the
provisions of Section 5.3.
I-17
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Agreement, and the covenants in this
Agreement that are required to be performed at or prior to the Closing Date,
shall terminate upon the consummation of the transactions contemplated
hereunder. The covenants in this Agreement that are required to be performed in
whole or in part subsequent to the Closing Date shall survive the consummation
of the transactions contemplated hereunder for a period of one (1) year
following the Closing Date.
SECTION 8.2. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such Persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or Person other than the parties hereto and their respective successors
and permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof. Without the prior written consent of the parties
hereto, this Agreement may not be assigned by any of the parties hereto.
SECTION 8.4. Obligations of Buyer and Seller.
(a) Seller and Buyer hereby acknowledge and agree that Buying Fund is a
separate investment portfolio of Buyer, that Buyer is executing this Agreement
on behalf of Buying Fund, and that any amounts payable by Buyer under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Buying Fund. Seller further acknowledges and agrees that this
Agreement has been executed by a duly authorized officer of Buyer in his or her
capacity as an officer of Buyer intending to bind Buyer as provided herein, and
that no officer, trustee or shareholder of Buyer shall be personally liable for
the liabilities or obligations of Buyer incurred hereunder. Finally, Seller
acknowledges and agrees that the liabilities and obligations of Buying Fund
pursuant to this Agreement shall be enforceable against the assets of Buying
Fund only and not against the assets of Buyer generally or assets belonging to
any other series of Buyer.
(b) Seller and Buyer hereby acknowledge and agree that Selling Fund is a
separate investment portfolio of Seller, that Seller is executing this Agreement
on behalf of Selling Fund and that any amounts payable by Seller under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Selling Fund.
SECTION 8.5. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by Seller and Buyer.
SECTION 8.6. Enforcement. The parties agree irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state having jurisdiction, in addition to any other remedy to which they are
entitled at law or in equity.
SECTION 8.7. Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or a Schedule to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." Each representation and warranty contained in Article 3 or 4 that
relates to a general category of a subject matter shall be deemed superseded by
a specific representation and warranty relating to a subcategory thereof to the
extent of such specific representation or warranty.
I-18
SECTION 8.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
SECTION 8.9. Entire Agreement; Exhibits and Schedules. This Agreement,
including the Exhibits, Schedules, certificates and lists referred to herein,
and any documents executed by the parties simultaneously herewith or pursuant
thereto, constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, written or oral, between the parties with respect
to such subject matter.
SECTION 8.10. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or by overnight courier, two days after being
sent by registered mail, return receipt requested, or when sent by telecopier
(with receipt confirmed), provided, in the case of a telecopied notice, a copy
is also sent by registered mail, return receipt requested, or by courier,
addressed as follows (or to such other address as a party may designate by
notice to the other):
(a) If to Seller:
INVESCO Stock Funds, Inc.
4350 South Monaco Street
Denver, CO 80237
Attn: Glen A. Payne
with a copy to:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., N.W.
Second Floor
Washington, DC 20036-1800
Attn: Clifford J. Alexander
(b) If to Buyer:
AIM Equity Funds
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Attn: Kevin M. Carome
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attn: Martha J. Hays
SECTION 8.11. Representations by Seller Investment Adviser. In its
capacity as investment adviser to Seller, Seller Investment Adviser represents
to Buyer that to the best of its knowledge the representations and warranties of
Seller and Selling Fund contained in this Agreement are true and correct as of
the date of this Agreement. For purposes of this Section 8.11, the best
knowledge standard shall be deemed to mean that the officers of Seller
Investment Adviser who have substantive responsibility for the provision of
investment advisory services to Seller do not have actual knowledge to the
contrary after due inquiry.
SECTION 8.12. Representations by Buyer Investment Adviser. In its
capacity as investment adviser to Buyer, Buyer Investment Adviser represents to
Seller that to the best of its knowledge the representations and warranties of
Buyer and Buying Fund contained in this Agreement are true and correct as of the
date of this Agreement. For purposes of this Section 8.12, the best knowledge
standard shall be deemed to mean that the officers of Buyer Investment Adviser
who have substantive responsibility for the
I-19
provision of investment advisory services to Buyer do not have actual knowledge
to the contrary after due inquiry.
SECTION 8.13. Successors and Assigns; Assignment. This Agreement shall be
binding upon and inure to the benefit of Seller, on behalf of Selling Fund, and
Buyer, on behalf of Buying Fund, and their respective successors and assigns.
The parties hereto expressly acknowledge and agree that this Agreement shall be
binding upon and inure to the benefit of those Delaware statutory trusts that
are the resulting entities in the permitted restructurings and redomestications
of funds set forth on Schedule 3.5(d).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
INVESCO STOCK FUNDS, INC., acting on
behalf of
INVESCO VALUE EQUITY FUND
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
AIM EQUITY FUNDS, acting on behalf of
AIM LARGE CAP BASIC VALUE FUND
By: /s/ ROBERT H. GRAHAM
------------------------------------
A I M ADVISORS, INC.
By: /s/ MARK H. WILLIAMSON
------------------------------------
INVESCO FUNDS GROUP, INC.
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
I-20
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
SCHEDULE 2.1
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF SHARES OF SELLING FUND SHARES OF BUYING FUND
- --------------------------------- ------------------------
Class A shares.............................................. Class A shares
Class B shares.............................................. Class B shares
Class C shares.............................................. Class C shares
Class K shares.............................................. Class A shares
Investor Class shares....................................... Investor Class shares
</Table>
SCHEDULE 3.4
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
SCHEDULE 3.5(d)
PERMITTED RESTRUCTURINGS AND REDOMESTICATIONS OF FUNDS
<Table>
<Caption>
CURRENT FUNDS CORRESPONDING NEW FUNDS
- ------------- -----------------------
AIM ADVISOR FUNDS................................ AIM INVESTMENT SECURITIES FUNDS
(DELAWARE STATUTORY TRUST) (DELAWARE STATUTORY TRUST)
AIM International Core Equity Fund............... AIM International Core Equity Fund
AIM Real Estate Fund............................. AIM Real Estate Fund
AIM INTERNATIONAL FUNDS, INC..................... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
AIM European Growth Fund......................... AIM European Growth Fund
INVESCO BOND FUNDS, INC.......................... AIM BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO High Yield Fund.......................... INVESCO High Yield Fund
INVESCO Select Income Fund....................... INVESCO Select Income Fund
INVESCO Tax-Free Bond Fund....................... INVESCO Tax-Free Bond Fund
INVESCO U.S. Government Securities Fund.......... INVESCO U.S. Government Securities Fund
INVESCO COMBINATION STOCK & BOND FUNDS, INC...... AIM COMBINATION STOCK & BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Balanced Fund............................ INVESCO Balanced Fund
INVESCO Total Return Fund........................ INVESCO Total Return Fund
INVESCO COUNSELOR SERIES FUNDS, INC.............. AIM COUNSELOR SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Advantage Fund........................... INVESCO Advantage Fund
INVESCO INTERNATIONAL FUNDS, INC................. AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO European Fund............................ INVESCO European Fund
INVESCO International Blue Chip Value Fund....... INVESCO International Blue Chip Value Fund
INVESCO MONEY MARKET FUNDS, INC.................. AIM TREASURER'S SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Cash Reserves Fund....................... INVESCO Cash Reserves Fund
INVESCO Tax-Free Money Fund...................... INVESCO Tax-Free Money Fund
INVESCO SECTOR FUNDS, INC........................ AIM SECTOR FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Energy Fund.............................. INVESCO Energy Fund
INVESCO Financial Services Fund.................. INVESCO Financial Services Fund
INVESCO Real Estate Opportunity Fund............. INVESCO Real Estate Opportunity Fund
INVESCO Technology Fund.......................... INVESCO Technology Fund
INVESCO Telecommunications Fund.................. INVESCO Telecommunications Fund
INVESCO Utilities Fund........................... INVESCO Utilities Fund
INVESCO STOCK FUNDS, INC......................... AIM STOCK FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Growth Fund.............................. INVESCO Growth Fund
INVESCO Growth & Income Fund..................... INVESCO Growth & Income Fund
INVESCO Value Equity Fund........................ INVESCO Value Equity Fund
</Table>
SCHEDULE 4.4
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
SCHEDULE 4.5(a)
PORTFOLIOS OF BUYER
AIM Aggressive Growth Fund
AIM Basic Value II Fund
AIM Blue Chip Fund
AIM Capital Development Fund
AIM Charter Fund
AIM Constellation Fund
AIM Core Strategies Fund
AIM Dent Demographic Trends Fund
AIM Diversified Dividend Fund
AIM Emerging Growth Fund
AIM Large Cap Basic Value Fund
AIM Large Cap Growth Fund
AIM Mid Cap Growth Fund
AIM U.S. Growth Fund
AIM Weingarten Fund
SCHEDULE 4.5(b)
<Table>
<Caption>
NUMBER OF SHARES OF EACH CLASS
CLASSES OF SHARES OF BUYING FUND BUYER IS AUTHORIZED TO ISSUE
- -------------------------------- ------------------------------
Class A shares.............................................. Unlimited
Class B shares.............................................. Unlimited
Class C shares.............................................. Unlimited
Class R shares.............................................. Unlimited
Investor Class shares....................................... Unlimited
</Table>
SCHEDULE 5.1
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
SCHEDULE 6.2(f)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in exchange
solely for Buying Fund Shares distributed directly to Selling Fund Shareholders
and Buying Fund's assumption of the Liabilities, as provided in the Agreement,
will constitute a "reorganization" within the meaning of Section 368(a) of the
Code and Selling Fund and Buying Fund will be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the Code,
no gain or loss will be recognized by Selling Fund on the transfer of its assets
to Buying Fund solely in exchange for Buying Fund Shares and Buying Fund's
assumption of the Liabilities or on the distribution of Buying Fund Shares to
Selling Fund Shareholders; provided that, no opinion is expressed as to the
effect of the Reorganization on Selling Fund or any Selling Fund Shareholder
with respect to any asset as to which any unrealized gain or loss is required to
be recognized for Federal income tax purposes at the end of a taxable year (or
on the termination or transfer of a taxpayer's rights (or obligations) with
respect to such asset) under a mark-to-market system of accounting.
(iii) In accordance with Section 1032 of the Code, no gain or loss will be
recognized by Buying Fund upon the receipt of assets of Selling Fund in exchange
for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss will
be recognized by Selling Fund Shareholders on the receipt of Buying Fund Shares
in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying Fund
of the assets of Selling Fund will be the same as the basis of such assets in
the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Selling Fund transferred to Buying Fund in the
Reorganization will include the holding period for such assets in the hands of
Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
APPENDIX II
AIM LARGE CAP BASIC VALUE FUND
July 21, 2003
Prospectus
AIM Large Cap Basic Value Fund seeks to provide
long-term growth of capital with a secondary objective
of current income.
--------------------------------------------------------
This prospectus contains important information about the
Class A, B, C, R and Investor Class shares of the fund.
Please read it before investing and keep it for future
reference.
Investor Class shares offered by this prospectus are
offered only to grandfathered investors. Please see the
section of the prospectus entitled "Purchasing
Shares -- Grandfathered Investors."
As with all other mutual fund securities, the Securities
and Exchange Commission has not approved or disapproved
these securities or determined whether the information
in this prospectus is adequate or accurate. Anyone who
tells you otherwise is committing a crime.
An investment in the fund:
- is not FDIC insured;
- may lose value; and
- is not guaranteed by a bank.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
------------------------------
AIM LARGE CAP BASIC VALUE FUND
------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVES AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- ------------------------------------------------------
The Advisor 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- ------------------------------------------------------
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
SHAREHOLDER INFORMATION A-1
- ------------------------------------------------------
Choosing a Share Class A-1
Purchasing Shares A-4
Redeeming Shares A-5
Exchanging Shares A-8
Pricing of Shares A-10
Taxes A-11
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investor, AIM Lifetime America, AIM LINK, AIM Institutional Funds,
aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and Design,
Invierta con DISCIPLINA and Invest with DISCIPLINE are registered service marks
and AIM Bank Connection, AIM Internet Connect, AIM Private Asset Management, AIM
Private Asset Management and Design, AIM Stylized and/or Design, AIM Alternative
Assets and Design, AIM Investments, AIM Investments and Design, myaim.com, The
AIM College Savings Plan, AIM Solo 401(k) and Your goals. Our solutions. are
service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
------------------------------
AIM LARGE CAP BASIC VALUE FUND
------------------------------
INVESTMENT OBJECTIVES AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's primary investment objective is long-term growth of capital with a
secondary objective of current income. The investment objectives of the fund may
be changed by the Board of Trustees without shareholder approval.
The fund seeks to meet its objectives by investing, normally, at least 80%
of its assets in securities of large-capitalization companies that offer
potential for capital growth, and may offer potential for current income. In
complying with this 80% investment requirement, the fund will invest primarily
in marketable equity securities, including convertible securities, but its
investments may include other securities, such as synthetic instruments.
Synthetic instruments are investments that have economic characteristics similar
to the fund's direct investments, and may include warrants, futures, options,
exchange-traded funds and American Depositary Receipts. The fund considers a
company to be a large-capitalization company if it has a market capitalization,
at the time of purchase, no smaller than the smallest capitalized company
included in the Russell 1000--Registered Trademark-- Index during the most
recent 11-month period (based on month-end data) plus the most recent data
during the current month. The Russell 1000 Index is a widely recognized,
unmanaged index of common stocks that measures the performance of the 1,000
largest companies in the Russell 3000--Registered Trademark-- Index, which
measures the performance of the 3,000 largest U.S. companies based on total
market capitalization. The fund may also invest up to 25% of its total assets in
foreign securities. The fund may also invest in debt instruments that are
consistent with its investment objectives of long-term growth of capital and
current income. For cash management purposes, the fund may also hold a portion
of its assets in cash or cash equivalents, including shares of affiliated money
market funds. Any percentage limitations with respect to assets of the fund are
applied at the time of purchase.
The portfolio managers purchase securities of companies that they believe
have the potential for above-average growth in revenues and earnings and that
they believe are undervalued in relation to long-term earning power or other
factors. The portfolio managers consider whether to sell a particular security
when they believe the security no longer has that potential.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents, or high-quality debt instruments. As a result, the fund may not
achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity. Debt
securities are particularly vulnerable to credit risk and interest rate
fluctuations. When interest rates rise, bond prices fall; the longer a bond's
duration, the more sensitive it is to this risk.
The values of the convertible securities in which the fund may invest also
will be affected by market interest rates, the risk that the issuer may default
on interest or principal payments and the value of the underlying common stock
into which these securities may be converted. Specifically, since these types of
convertible securities pay fixed interest and dividends, their values may fall
if market interest rates rise and rise if market interest rates fall.
Additionally, an issuer may have the right to buy back certain of the
convertible securities at a time and at a price that is unfavorable to the fund.
Also, since a large percentage of the fund's assets will be invested in a
limited number of securities, any change in value of those securities could
significantly affect the value of your investment in the fund.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
The fund may participate in the initial public offering (IPO) market in some
market cycles. Because of the fund's small asset base, any investment the fund
may make in IPOs may significantly affect the fund's total return. As the fund's
assets grow, the impact of IPO investments will decline, which may reduce the
effect of IPO investments on the fund's total return.
An investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
------------------------------
AIM LARGE CAP BASIC VALUE FUND
------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
ANNUAL TOTAL RETURNS(1)
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
<Table>
<Caption>
ANNUAL
YEARS ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
2000................................................................... 21.74%
2001................................................................... 1.25%
2002................................................................... -23.20%
</Table>
The Class A shares' year-to-date total return as of June 30, 2003 was
12.38%.
During the periods shown in the bar chart, the highest quarterly return was
12.03% (quarter ended December 31, 2001) and the lowest quarterly return was
- -20.22% (quarter ended September 30, 2002).
2
------------------------------
AIM LARGE CAP BASIC VALUE FUND
------------------------------
PERFORMANCE INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PERFORMANCE TABLE(1)
The following performance table compares the fund's performance to that of a
broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices do not reflect payment of fees, expenses or taxes.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 2002) 1 YEAR INCEPTION DATE
- -------------------------------------------------------------------------------
Class A 06/30/99
Return Before Taxes (27.42)% (2.41)%
Return After Taxes on Distributions (27.42) (2.80)
Return After Taxes on Distributions
and Sales of Fund Shares (16.84) (2.10)
Class B 08/01/00
Return Before Taxes (27.55) (7.51)
Class C 08/01/00
Return Before Taxes (24.50) (6.34)
Class R(2) 06/30/99(2)
Return Before Taxes (23.33) (0.98)
Investor Class(3) 06/30/99(3)
Return Before Taxes (23.20) (0.83)
- -------------------------------------------------------------------------------
Russell 1000--Registered Trademark--
Index(4) (21.65) (10.22)(5) 06/30/99(5)
The S&P 500 Index(6) (22.09) (10.73)(5) 06/30/99(5)
The Russell 1000 Value Index(7) (15.52) (5.79)(5) 06/30/99(5)
Lipper Large Cap Value Fund Index(8) (19.68) (8.04)(5) 06/30/99(5)
- -------------------------------------------------------------------------------
</Table>
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A only and after-tax returns for Class B, C, R and Investor Class will
vary.
(1) A significant portion of the fund's returns during certain periods prior to
2001 was attributable to its investments in IPOs. These investments had a
magnified impact when the fund's asset base was relatively small. As the
fund's assets grow, the impact of IPO investments will decline, which may
reduce the effect of IPO investments on the fund's total return. For
additional information regarding the impact of IPO investments on the fund's
performance, please see the "Financial Highlights" section of this
prospectus.
(2) The returns shown for these periods are the blended returns of the
historical performance of the fund's Class R shares since their inception
and the restated historical performance of the fund's Class A shares (for
periods prior to inception of the Class R shares) at net asset value,
adjusted to reflect the higher Rule 12b-1 fees applicable to the Class R
shares. The inception date shown in the table is that of the fund's Class A
shares. The inception date of the fund's Class R shares is June 3, 2002.
(3) The returns shown for these periods are the restated historical performance
of the fund's Class A shares at the net asset value and reflect the higher
Rule 12b-1 fees applicable to Class A shares. Investor Class shares would
have different returns because, although the shares are invested in the same
portfolio of securities, the Investor Class has a different expense
structure. The inception date shown in the table is that of the fund's Class
A shares. As of July 21, 2003, Investor Class shares have not commenced
operations.
(4) The Russell 1000--Registered Trademark-- Index is a widely recognized,
unmanaged index of common stocks that measures the performance of the 1,000
largest companies in Russell 3000--Registered Trademark-- Index, which
measures the performance of the 3,000 largest U.S. companies based on total
market capitalization.
(5) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
(6) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance.
(7) The Russell 1000--Registered Trademark-- Value Index measures the
performance of those Russell 1000--Registered Trademark-- Index companies
with lower price-to-book ratios and lower forecasted growth values.
(8) The Lipper Large Cap Value Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Large Cap Value category. These funds
typically invest in stocks with market capitalizations greater than $5
billion at the time of purchase and have a below-average price-to-earnings
ratio, price-to-book ratio and a three year sales-per-share growth value
compared to the S&P 500 Index.
3
------------------------------
AIM LARGE CAP BASIC VALUE FUND
------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<Table>
<Caption>
SHAREHOLDER FEES
- ---------------------------------------------------------------------------------------------
(fees paid directly from your INVESTOR
investment) CLASS A CLASS B CLASS C CLASS R CLASS
- ---------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases
(as a percentage of offering price) 5.50% None None None None
Maximum Deferred Sales Charge (Load)
(as a percentage of original
purchase price or redemption
proceeds, whichever is less) None(1,2) 5.00% 1.00% None(3) None
- ---------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(4)
- --------------------------------------------------------------------------------------------
(expenses that are deducted from fund INVESTOR
assets) CLASS A CLASS B CLASS C CLASS R CLASS
- --------------------------------------------------------------------------------------------
Management Fees 0.60% 0.60% 0.60% 0.60% 0.60%
Distribution and/or
Service (12b-1) Fees 0.35 1.00 1.00 0.50 0.25
Other Expenses(5) 0.43 0.43 0.43 0.43 0.43
Total Annual Fund
Operating Expenses 1.38 2.03 2.03 1.53 1.28
- --------------------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) Effective November 1, 2002, if you are a retirement plan participant and you
bought $1,000,000 or more of Class A shares, you may pay a 1.00% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total redemption
of the retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
(5) Other expenses for Class R shares and Investor Class shares are based on
estimated average net assets for the current fiscal year.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. To the extent fees are waived and/or
expenses are reimbursed, your expenses will be lower. Although your actual
returns and costs may be higher or lower, based on these assumptions your costs
would be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------
Class A $683 $963 $1,264 $2,116
Class B 706 937 1,293 2,192
Class C 306 637 1,093 2,358
Class R 156 483 834 1,824
Investor Class 130 406 702 1,545
- -------------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------
Class A $683 $963 $1,264 $2,116
Class B 206 637 1,093 2,192
Class C 206 637 1,093 2,358
Class R 156 483 834 1,824
Investor Class 130 406 702 1,545
- -------------------------------------------------------------------------------------
</Table>
4
------------------------------
AIM LARGE CAP BASIC VALUE FUND
------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in
1976. Today, the advisor, together with its subsidiaries, advises or manages
over 190 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 2002, the advisor received compensation
of 0.60% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the management of the
fund's portfolio are
- - Bret W. Stanley (lead manager), Senior Portfolio Manager, who has been
responsible for the fund since 1999 and has been associated with the advisor
and/or its affiliates since 1998. From 1994 to 1998, he was Vice President and
Portfolio Manager for Van Kampen American Capital Asset Management, Inc.
- - R. Canon Coleman II, Portfolio Manager, who has been responsible for the fund
since 2003 and has been associated with the advisor and/or its affiliates
since 1999. From 1997 to 1999 he was a full-time student. From 1993 to 1997,
he worked as a CPA for Deloitte & Touche.
- - Matthew W. Seinsheimer, Portfolio Manager, who has been responsible for the
fund since 2000 and has been associated with the advisor and/or its affiliates
since 1998. From 1995 to 1998, he was Portfolio Manager for American Indemnity
Company.
- - Michael J. Simon, Portfolio Manager, who has been responsible for the fund
since 2002 and has been associated with the advisor and/or its affiliates
since 2001. From 1996 to 2001, he was equity analyst and portfolio manager for
Luther King Capital Management.
They are assisted by the Basic Value Team. More information on the fund's
management team may be found on our website (http://www.aiminvestments.com).
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Large Cap Basic Value Fund are subject to the
maximum 5.50% initial sales charge as listed under the heading "CATEGORY I
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Certain purchases of Class A shares at net asset
value may be subject to the contingent deferred sales charge listed in that
section. Purchases of Class B and Class C shares are subject to the contingent
deferred sales charges listed in that section. Certain purchases of Class R
shares may be subject to the contingent deferred sales charge listed in that
section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
capital gains.
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
5
------------------------------
AIM LARGE CAP BASIC VALUE FUND
------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The information for the fiscal period ended 2002 and for the fiscal years
2002 and 2001 has been audited by Ernst & Young LLP, whose report, along with
the fund's financial statements, is included in the fund's annual report, which
is available upon request. Information prior to fiscal year 2001 was audited by
other public accountants.
A significant portion of the fund's returns was attributable to its
investments in IPOs during certain fiscal years prior to 2001, including the
fiscal year ended October 31, 2000, which had a magnified impact on the fund due
to its relatively small asset base during those periods. As the fund's assets
grow, the impact of IPO investments will decline, which may reduce the effect of
IPO investments on the fund's total return.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------
JUNE 30, 1999
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ---------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999
---------- ------- ------- ------ ----------------
Net asset value, beginning of period $ 9.20 $ 10.94 $ 12.05 $ 9.40 $10.00
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00 0.01(a) 0.02(a) 0.07(a) 0.03
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.38 (1.75) (1.07) 2.88 (0.63)
====================================================================================================================
Total from investment operations 0.38 (1.74) (1.05) 2.95 (0.60)
====================================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.04) (0.18) --
- --------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.02) (0.12) --
====================================================================================================================
Total distributions -- -- (0.06) (0.30) --
====================================================================================================================
Net asset value, end of period $ 9.58 $ 9.20 $ 10.94 $12.05 $ 9.40
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 4.13% (15.90)% (8.74)% 32.21% (6.00)%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $99,590 $94,387 $68,676 $5,888 $1,153
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.46%(c) 1.38% 1.27% 1.25% 1.25%(d)
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.46%(c) 1.38% 1.36% 8.21% 10.02%(d)
====================================================================================================================
Ratio of net investment income to
average net assets 0.05%(c) 0.11% 0.17% 0.62% 0.87%(d)
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate(e) 12% 37% 18% 57% 10%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $98,580,479.
(d) Annualized.
(e) Not annualized for periods less than one year.
6
------------------------------
AIM LARGE CAP BASIC VALUE FUND
------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS B
-----------------------------------------------------------
AUGUST 1, 2000
SIX MONTHS YEAR ENDED OCTOBER (DATE SALES
ENDED 31, COMMENCED) TO
APRIL 30, --------------------- OCTOBER 31,
2003 2002 2001 2000
---------- ------- ------- --------------
Net asset value, beginning of period $ 9.07 $ 10.86 $ 12.02 $10.85
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.06)(a) (0.06)(a) 0.00
- ----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.37 (1.73) (1.05) 1.17
==========================================================================================================
Total from investment operations 0.34 (1.79) (1.11) 1.17
==========================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.03) --
- ----------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.02) --
==========================================================================================================
Total distributions -- -- (0.05) --
==========================================================================================================
Net asset value, end of period $ 9.41 $ 9.07 $ 10.86 $12.02
__________________________________________________________________________________________________________
==========================================================================================================
Total return(b) 3.75% (16.48)% (9.25)% 10.78%
__________________________________________________________________________________________________________
==========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $64,419 $63,977 $58,681 $2,815
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.11%(c) 2.02% 1.95% 1.93%(d)
- ----------------------------------------------------------------------------------------------------------
Without fee waivers 2.11%(c) 2.02% 2.04% 8.89%(d)
==========================================================================================================
Ratio of net investment income (loss) to
average net assets (0.60)%(c) (0.53)% (0.51)% (0.06)%(d)
__________________________________________________________________________________________________________
==========================================================================================================
Portfolio turnover rate(e) 12% 37% 18% 57%
__________________________________________________________________________________________________________
==========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $64,780,456.
(d) Annualized.
(e) Not annualized for periods less than one year.
7
------------------------------
AIM LARGE CAP BASIC VALUE FUND
------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS C
-----------------------------------------------------------
AUGUST 1, 2000
SIX MONTHS YEAR ENDED OCTOBER (DATE SALES
ENDED 31, COMMENCED) TO
APRIL 30, --------------------- OCTOBER 31,
2003 2002 2001 2000
---------- ------- ------- --------------
Net asset value, beginning of period $ 9.07 $ 10.85 $ 12.02 $10.85
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.06)(a) (0.06)(a) 0.00
- ----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.37 (1.72) (1.06) 1.17
==========================================================================================================
Total from investment operations 0.34 (1.78) (1.12) 1.17
==========================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.03) --
- ----------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.02) --
==========================================================================================================
Total distributions -- -- (0.05) --
==========================================================================================================
Net asset value, end of period $ 9.41 $ 9.07 $ 10.85 $12.02
__________________________________________________________________________________________________________
==========================================================================================================
Total return(b) 3.75% (16.41)% (9.33)% 10.78%
__________________________________________________________________________________________________________
==========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $22,720 $21,775 $20,680 $1,248
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.11%(c) 2.02% 1.95% 1.93%(d)
- ----------------------------------------------------------------------------------------------------------
Without fee waivers 2.11%(c) 2.02% 2.04% 8.89%(d)
==========================================================================================================
Ratio of net investment income (loss) to
average net assets (0.60)%(c) (0.53)% (0.51)% (0.06)%(d)
__________________________________________________________________________________________________________
==========================================================================================================
Portfolio turnover rate(e) 12% 37% 18% 57%
__________________________________________________________________________________________________________
==========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $22,923,844.
(d) Annualized.
(e) Not annualized for periods less than one year.
8
------------------------------
AIM LARGE CAP BASIC VALUE FUND
------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS R
-----------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
---------- ---------------
Net asset value, beginning of period $ 9.20 $ 11.60
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00) 0.002(a)
- -------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.37 (2.40)
===========================================================================================
Total from investment operations 0.37 (2.40)
===========================================================================================
Net asset value, end of period $ 9.57 $ 9.20
___________________________________________________________________________________________
===========================================================================================
Total return(b) 4.02% (20.69)%
___________________________________________________________________________________________
===========================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 102 $ 8
___________________________________________________________________________________________
===========================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.61%(c) 1.54%(d)
- -------------------------------------------------------------------------------------------
Without fee waivers 1.61%(c) 1.54%(d)
===========================================================================================
Ratio of net investment income (loss) to average net assets (0.10)%(c) (0.05)%(d)
___________________________________________________________________________________________
===========================================================================================
Portfolio turnover rate(e) 12% 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 is not annualized for periods
less than one year.
(c) Ratios are annualized and based on average daily net assets of $59,211.
(d) Annualized.
(e) Not annualized for periods less than one year.
9
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consult your financial advisor as to which class is most suitable for
you. In addition, you should consider the factors below.
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B CLASS C CLASS R INVESTOR CLASS(6)
- ----------------------------------------------------------------------------------------------------------------------------
- - Initial sales - No initial sales - No initial sales - No initial sales - No initial sales - No initial sales
charge charge charge charge charge charge
- - Reduced or waived - No contingent - Contingent - Contingent - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent deferred sales
charge for charge charge on charge on deferred sales charge
certain redemptions redemptions charge(2)
purchases(2,3) within six years within one
year(5)
- - Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.50% 0.25%(7)
service (12b-1)
fee than Class B,
Class C or Class
R shares (See
"Fee Table and
Expense Example")
- Does not convert - Converts to Class - Does not convert - Does not convert - Does not convert
to Class A shares A shares at the to Class A shares to Class A shares to Class A shares
end of the month
which is eight
years after the
date on which
shares were
purchased along
with a pro rata
portion of its
reinvested
dividends and
distributions(4)
- - Generally more - Generally more - Purchase orders - Generally more - Generally, only - Closed to new
appropriate for appropriate for limited to appropriate for available to the investors, except
long-term short- term amounts less than short- term following types as described in
investors investors $250,000 investors of retirement the "Purchasing
plans: (i) all Shares -- Grandfathered
section 401 and Investors"
457 plans, (ii) section of your
section 403 plans prospectus
sponsored by
section 501(c)(3)
organizations,
and (iii) IRA
rollovers from
such plans if an
AIM Fund was
offered
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
Certain AIM Funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional Information
for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
(4) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve Shares.
AIM Global Trends Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of that
fund at the end of the month which is seven years after the date on which
shares were purchased. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not convert to
Class A shares until the end of the month which is eight years after the
date on which you purchased your original shares.
(5) A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Short Term Bond Fund unless you exchange Class C
shares of another AIM Fund that are subject to a CDSC into AIM Short Term
Bond Fund.
(6) As of July 21, 2003 Investor Class shares of AIM Blue Chip Fund, AIM
European Growth Fund, AIM High Yield Fund, AIM Income Fund, AIM Intermediate
Government Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund,
AIM Money Market Fund, AIM Municipal Bond Fund, AIM Real Estate Fund and AIM
Tax-Exempt Cash Fund have not commenced operations.
(7) Investor Class shares of AIM Money Market Fund and AIM Tax-Exempt Cash Fund
do not have a 12b-1 fee.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares) has adopted 12b-1 plans that allow the AIM Fund to pay distribution fees
to A I M Distributors, Inc. (the distributor) for the sale and distribution of
its shares and fees for services provided to shareholders, all or a substantial
portion of which are paid to the dealer of record. Because the AIM Fund pays
these fees out of its assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
MCF--07/03
A-1
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Sales charges on the AIM Funds and classes of those Funds are detailed below. As
used below, the term "offering price" with respect to all categories of Class A
shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<Table>
<Caption>
CATEGORY I INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION(1) OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
(1) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
<Table>
<Caption>
CATEGORY II INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CATEGORY III INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ------------------------------------------------------------------------------
</Table>
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales
charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class
shares of any AIM Fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II Funds at net asset value. However, if you redeem these shares
prior to 18 months after the date of purchase, they will be subject to a CDSC of
1%.
If you made a Large Purchase of Class A shares of Category III Funds at
net asset value during the period November 15, 2001 through October 30, 2002,
such shares will be subject to a 0.25% CDSC if you redeem them prior to 12
months after the date of purchase.
If you currently own Class A shares of a Category I, II or III Fund and
make additional purchases (through October 30, 2002 for Category III Funds only)
at net asset value that result in account balances of $1,000,000 or more, the
additional shares purchased will be subject to a CDSC (an 18-month, 1% CDSC for
Category I and II Fund shares, and a 12-month, 0.25% CDSC for Category III Fund
shares). The CDSC for Category III Fund shares will not apply to additional
purchases made prior to November 15, 2001 or after October 30, 2002.
Some retirement plans can purchase Class A shares at their net asset
value per share. Effective November 1, 2002, if the distributor paid a
concession to the dealer of record in connection with a Large Purchase of Class
A shares by a retirement plan, the Class A shares may be subject to a 1% CDSC at
the time of redemption if all retirement plan assets are redeemed within one
year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM
Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired
those shares through an exchange, and the shares originally purchased were
subject to a CDSC.
The distributor may pay a dealer concession and/or a service fee for
Large Purchases and purchases by certain retirement plans.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<Table>
<Caption>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- --------------------------------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- --------------------------------------------------------------------------------
</Table>
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset
value and not subject to a CDSC. However, you may be charged a CDSC when you
redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares
through an exchange, and the shares originally purchased were subject to a CDSC.
MCF--07/03
A-2
-------------
THE AIM FUNDS
-------------
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If the
distributor pays a concession to the dealer of record, however, the Class R
shares are subject to a 0.75% CDSC at the time of redemption if all retirement
plan assets are redeemed within 12 months from the date of the retirement plan's
initial purchase.
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares
of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM
Cash Reserve Shares of AIM Money Market Fund and Class B and Class C shares of
AIM Floating Rate Fund and Investor Class shares of any AIM fund will not be
taken into account in determining whether a purchase qualifies for a reduction
in initial sales charges pursuant to Rights of Accumulation or Letters of
Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares with shares currently owned
(Class A, B, C or R) for the purpose of qualifying for the lower initial sales
charge rates that apply to larger purchases. The applicable initial sales charge
for the new purchase is based on the total of your current purchase and the
current value of all other shares you own.
LETTERS OF INTENT
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privileges; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem Class C shares of an AIM Fund other than AIM Short Term Bond
Fund and you received such Class C shares by exchanging Class C shares of AIM
Short Term Bond Fund;
- - if you redeem Class C shares of AIM Short Term Bond Fund unless you received
such Class C shares by exchanging Class C shares of another AIM Fund and the
original purchase was subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--07/03
A-3
-------------
THE AIM FUNDS
-------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
There are no minimum investments with respect to Class R shares for AIM Fund
accounts. The minimum investments with respect to Class A, A3, B and C shares
and Investor Class shares for AIM Fund accounts (except for investments in AIM
Opportunities I Fund, AIM Opportunities II Fund and AIM Opportunities III Fund)
are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Savings Plans (money-purchase/profit sharing plans, 401(k) $ 0 ($25 per AIM Fund investment for $25
plans, Simplified Employee Pension (SEP) accounts, Salary salary deferrals from Savings
Reduction (SARSEP) accounts, Savings Incentive Match Plans Plans)
for Employee IRA (Simple IRA) accounts, 403(b) or 457 plans)
Systematic Purchase Plan 50 25(1)
IRA, Education IRA or Roth IRA 250 50
All other accounts 500(2) 50
- -------------------------------------------------------------------------------------------------------------------------
</Table>
(1) $50 for Investor Class shares.
(2) $1,000 for Investor Class shares.
The minimum initial investment for AIM Opportunities I Fund, AIM Opportunities
II Fund and AIM Opportunities III Fund (the Special Opportunities Funds)
accounts is $10,000. The minimum subsequent investment is $1,000. The maximum
amount for a single purchase order of AIM Opportunities I Fund is $250,000.
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not
be processed unless the account application and purchase payment are received in
good order. In accordance with the USA PATRIOT Act, if you fail to provide all
the required information requested in the current account application, your
purchase order will not be processed.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, A I M Fund from your confirmation statement to the
Services, Inc., P.O. Box 4739, Houston, transfer agent.
TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
reference number. Then, use the
following wire instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: A I M Fund
Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line. You may place your order after
you have provided the bank instructions
that will be requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in AIM prototype retirement
accounts on the internet.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--07/03
A-4
-------------
THE AIM FUNDS
-------------
GRANDFATHERED INVESTORS
As of July 21, 2003, Investor Class shares of certain funds that intend to offer
such shares have not commenced operations (for a listing of funds that intend to
offer Investor Class shares see the "Choosing a Share Class" section of your
prospectus). Once operations commence, Investor Class shares of such funds may
be purchased only by: (1) persons or entities who had established an account,
prior to April 1, 2002, in Investor Class shares of any of the funds currently
distributed by A I M Distributors, Inc. (the "Grandfathered Funds") and have
continuously maintained such account in Investor Class shares since April 1,
2002; (2) any person or entity listed in the account registration for any
Grandfathered Funds, which account was established prior to April 1, 2002 and
continuously maintained since April 1, 2002, such as joint owners, trustees,
custodians and designated beneficiaries; (3) customers of certain financial
institutions, wrap accounts or other fee-based advisory programs, or insurance
company separate accounts, which have had relationships with A I M Distributors,
Inc. and/or any of the Grandfathered Funds prior to April 1, 2002 and
continuously maintained such relationships since April 1, 2002; (4) defined
benefit, defined contribution and deferred compensation plans; and (5) INVESCO
Funds directors, employees of AMVESCAP PLC and its subsidiaries.
SPECIAL PLANS
SYSTEMATIC PURCHASE PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $25 ($1,000 for any of
the Special Opportunities Funds). You may stop the Systematic Purchase Plan at
any time by giving the transfer agent notice ten days prior to your next
scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to a
Special Opportunities Fund is $1,000. The minimum amount you can exchange to
another AIM Fund is $25.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest
your dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; and (b) in the AIM Fund receiving the dividend must be at
least $500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted to
establish a retirement plan. You may use AIM sponsored retirement plans, which
include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k) plans, SIMPLE IRA
plans, SEP/SARSEP plans and Money Purchase/Profit Sharing plans, or another
sponsor's retirement plan. The plan custodian of the AIM sponsored retirement
plan assesses an annual maintenance fee of $10. Contact your financial
consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. Your broker or
financial consultant may charge service fees for handling redemption
transactions. Your shares also may be subject to a contingent deferred sales
charge (CDSC).
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE PRIOR TO NOVEMBER 15, 2001.
If you purchased $1,000,000 or more of Class A shares of any AIM Fund at net
asset value prior to November 15, 2001, or entered into a Letter of Intent prior
to November 15, 2001 to purchase
MCF--07/03
A-5
-------------
THE AIM FUNDS
-------------
$1,000,000 or more of Class A shares of a Category I, II or III Fund at net
asset value, your shares may be subject to a CDSC upon redemption, as described
below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category III - No CDSC
Fund(1) Fund(1)
- Class A shares of AIM Tax-Exempt
Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE ON AND AFTER NOVEMBER 15, 2001
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on and
after November 15, 2001 (and through October 30, 2002 with respect to Class A
shares of Category III Funds), or if you make additional purchases of Class A
shares on and after November 15, 2001 (and through October 30, 2002 with respect
to Class A shares of Category III Funds) at net asset value, your shares may be
subject to a CDSC upon redemption, as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category I or - 1% if shares are redeemed
Fund II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category III - Class A shares of Category III - 0.25% if shares are redeemed
Fund Fund(1) within 12 months of initial
- Class A shares of AIM Tax-Exempt purchase of Category III Fund
Cash Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE AFTER OCTOBER 30, 2002
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on or after
October 31, 2002, or if you make additional purchases of Class A shares on and
after October 31, 2002 at net asset value, your shares may be subject to a CDSC
upon redemption as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
</Table>
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of Category III Fund.
REDEMPTION OF CLASS B SHARES ACQUIRED BY EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--07/03
A-6
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Consultant Contact your financial consultant.
By Mail Send a written request to the transfer
agent. Requests must include (1) original
signatures of all registered owners; (2) the
name of the AIM Fund and your account
number; (3) if the transfer agent does not
hold your shares, endorsed share
certificates or share certificates
accompanied by an executed stock power; and
(4) signature guarantees, if necessary (see
below). The transfer agent may require that
you provide additional information, such as
corporate resolutions or powers of attorney,
if applicable. If you are redeeming from an
IRA account, you must include a statement of
whether or not you are at least 59 1/2 years
old and whether you wish to have federal
income tax withheld from your proceeds. The
transfer agent may require certain other
information before you can redeem from an
employer-sponsored retirement plan. Contact
your employer for details.
By Telephone Call the transfer agent or our AIM 24-hour
Automated Investor Line. You will be allowed
to redeem by telephone if (1) the proceeds
are to be mailed to the address on record
(if there has been no change communicated to
us within the last 30 days) or transferred
electronically to a pre-authorized checking
account; (2) you do not hold physical share
certificates; (3) you can provide proper
identification information; (4) the proceeds
of the redemption do not exceed $250,000;
and (5) you have not previously declined the
telephone redemption privilege. Certain
accounts, including retirement accounts and
403(b) plans, may not be redeemed by
telephone. The transfer agent must receive
your call during the hours of the customary
trading session of the New York Stock
Exchange (NYSE) in order to effect the
redemption at that day's closing price. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts must be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.com. You will be allowed
to redeem by internet if (1) you do not hold
physical share certificates; (2) you can
provide proper identification information;
(3) the proceeds of the redemption do not
exceed $250,000; and (4) you have already
provided proper bank information. AIM
prototype retirement accounts may not be
redeemed on the internet. The transfer agent
must confirm your transaction during the
hours of the customary trading session of
the NYSE in order to effect the redemption
at that day's closing price.
</Table>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC REDEMPTIONS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Redemption Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM CASH RESERVE SHARES OF AIM MONEY MARKET FUND ONLY)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
MCF--07/03
A-7
-------------
THE AIM FUNDS
-------------
REDEMPTIONS BY CHECK
(CLASS A SHARES OF AIM TAX-EXEMPT CASH FUND AND AIM CASH RESERVE SHARES OF AIM
MONEY MARKET FUND ONLY)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $250,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGES
You may, within 120 days after you sell shares (except Class R shares, Class A
shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market
Fund, Class A shares and Class A3 shares of AIM Limited Maturity Treasury Fund
and AIM Tax-Free Intermediate Fund and Investor Class shares), reinvest all or
part of your redemption proceeds in Class A shares of any Category I or II AIM
Fund at net asset value in an identically registered account.
You may, within 120 days after you sell some but not all of your Class A
shares of a Category III Fund, reinvest all or part of your redemption proceeds
in Class A shares of that same Category III Fund at net asset value in an
identically registered account.
The reinvestment amount must meet the subsequent investment minimum as
indicated in the section "Purchasing Shares".
If you paid an initial sales charge on any reinstated amount, you will
receive credit on purchases of Class A shares of a Category I or II Fund.
If you paid a contingent deferred sales charge (CDSC) on any reinstated
amount, you will not be subject to a CDSC if you later redeem that amount.
You must notify the transfer agent in writing at the time you reinstate
that you are exercising your reinstatement privilege.
REDEMPTIONS BY THE AIM FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares
only) has been open at least one year, you have not made an additional purchase
in the account during the past six calendar months, and the value of your
account falls below $500 ($250 for Investor Class shares) for three consecutive
months due to redemptions or exchanges (excluding retirement accounts), the AIM
Funds have the right to redeem the account after giving you 60 days' prior
written notice. You may avoid having your account redeemed during the notice
period by bringing the account value up to $500 ($250 for Investor Class shares)
or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social
Security or other tax ID number on your account application, the AIM Fund may,
at its discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another AIM Fund.
You may also exchange:
(1) Class A shares of an AIM Fund for AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of an AIM Fund (excluding AIM Limited Maturity Treasury Fund,
AIM Tax-Exempt Cash Fund and AIM Tax-Free Intermediate Fund) for Class A3
shares of an AIM Fund;
(3) Class A3 shares of an AIM Fund for AIM Cash Reserve shares of AIM Money
Market Fund;
(4) Class A3 shares of an AIM Fund for Class A shares of any AIM Fund (excluding
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund);
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class A3 shares of an
AIM Fund;
(6) AIM Cash Reserve Shares of AIM Money Market Fund for Class A shares of any
AIM Fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, effective February 17, 2003, and AIM Tax-Exempt Cash
Fund);
(7) Investor Class shares of an AIM Fund for Class A shares of any AIM Fund
(excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund) or Class A3 shares of an AIM Fund; or
(8) Class A or A3 shares of an AIM Fund for Investor Class shares of any AIM
Fund as long as you own Investor Class shares of any AIM Fund at the time of
exchange.
You may be required to pay an initial sales charge when exchanging from a
Fund with a lower initial sales charge than the one into which you are
exchanging. If you exchange into shares that are subject to a CDSC, we will
begin the holding period for purposes of calculating the CDSC on the date you
made your initial purchase.
MCF--07/03
A-8
-------------
THE AIM FUNDS
-------------
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another AIM Fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares
of AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way
of an exchange from shares with higher initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) Class A shares of an AIM Fund subject to an initial sales charge
(excluding Class A shares of AIM Limited Maturity Treasury Fund and
AIM Tax-Free Intermediate Fund), but only if you acquired the
original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to
an initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject
to an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege.
You may not exchange:
(1) Class A shares of a Category I or II Fund for Class A shares of a Category
III Fund after February 16, 2003; or
(2) Class A shares of a Category III Fund for Class A shares of another Category
III Fund after February 16, 2003.
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III Funds purchased at net asset value for Class
A shares of a Category I or II Fund;
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund;
(4) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for Class A shares of Category I or II Funds that are
subject to a CDSC; or
(5) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market
Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of
Category III Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a CDSC for Class
A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
AIM Fund (i) subject to an initial sales charge or (ii) purchased at net
asset value and subject to a CDSC or for AIM Cash Reserve Shares of AIM
Money Market Fund; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund or for Class A shares of any AIM Fund that are
subject to a CDSC, however, if you originally purchased Class A shares of a
Category I or II Fund, and exchanged those shares for AIM Cash Reserve
Shares of AIM Money Market Fund, you may further exchange the AIM Cash
Reserve Shares for Class A shares of a Category I or II Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange;
MCF--07/03
A-9
-------------
THE AIM FUNDS
-------------
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- - You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or terminate this privilege at any time. The AIM Fund or
the distributor will provide you with notice of such modification or termination
whenever it is required to do so by applicable law, but may impose changes at
any time for emergency purposes.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if you do not hold physical share
certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B or Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R shares,
respectively, into which you exchanged for the purpose of calculating contingent
deferred sales charges (CDSC) if you later redeem the exchanged shares. If you
redeem Class B or Class C shares acquired by exchange via a tender offer by AIM
Floating Rate Fund, you will be credited with the time period you held the Class
B or Class C shares of AIM Floating Rate Fund for the purpose of computing the
early withdrawal charge applicable to those shares.
- --------------------------------------------------------------------------------
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ALL OR ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE SYSTEMATIC PURCHASE PLAN AND
SYSTEMATIC REDEMPTION PLAN OPTIONS ON THE SAME ACCOUNT; OR
- SUSPEND, CHANGE OR WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS
PROSPECTUS.
- --------------------------------------------------------------------------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund and AIM
Tax-Free Intermediate Fund value variable rate securities that have an
unconditional demand or put feature exercisable within seven days or less at
par, which reflects the market value of such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that may materially affect
the value of the security, the AIM Funds may value the security at its fair
value as determined in good faith by or under the supervision of the Board of
Directors or Trustees of the AIM Fund. The effect of using fair value pricing is
that an AIM Fund's net asset value will be subject to the judgment of the Board
of Directors or Trustees or its designee instead of being determined by the
market. Because some of the AIM Funds may invest in securities that are
primarily listed on foreign exchanges that trade on days when the AIM Funds do
not price their shares, the value of those funds' assets may change on days when
you will not be able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares on each day
the NYSE is open for business, as of the close of the customary trading session,
or any earlier NYSE closing time that day. AIM Money Market Fund also determines
its net asset value as of 12:00 noon Eastern Time on each day the NYSE is open
for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary
trading session of the NYSE. The AIM Funds price
MCF--07/03
A-10
-------------
THE AIM FUNDS
-------------
purchase, exchange and redemption orders at the net asset value calculated after
the transfer agent receives an order in good order. An AIM Fund may postpone the
right of redemption only under unusual circumstances, as allowed by the
Securities and Exchange Commission, such as when the NYSE restricts or suspends
trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time the
fund holds its assets and the type of income that the fund earns. Different tax
rates apply to ordinary income, qualified dividend income, and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of
AIM Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE
HEADING "OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN
THEIR PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund
shares may differ materially from the federal income tax consequences described
above. In addition, the preceding discussion concerning the taxability of fund
dividends and distributions and of redemptions and exchanges of AIM Fund shares
is inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401 of the Internal
Revenue Code, individual retirement accounts (IRAs) and Roth IRAs. You should
consult your tax advisor before investing.
MCF--07/03
A-11
------------------------------
AIM LARGE CAP BASIC VALUE FUND
------------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
<Table>
- --------------------------------------------------------
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
ON THE INTERNET: You can send us a request
by e-mail or download
prospectuses, annual or
semiannual reports via
our website:
http://www.aiminvestments.com
- --------------------------------------------------------
</Table>
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
publicinfo@sec.gov. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- ------------------------------------
AIM LARGE CAP BASIC VALUE FUND
SEC 1940 Act file number: 811-1424
- ------------------------------------
AIMinvestments.com LCBV-PRO-1
APPENDIX III
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
FUND EMPHASIZES UNDERVALUED STOCKS OVER PROLONGED BEAR MARKET
HOW DID THE FUND PERFORM?
AIM Large Cap Basic Value Fund lost ground under the weight of the protracted
bear market. For the fiscal year ended October 31, 2002, Class A shares returned
- -15.98%, Class B and Class C shares returned -16.48%, and Class R shares
returned -16.06% at net asset value (excluding sales charges).
Comparative indexes experienced a similar downturn. The Russell 1000 Index
returned -14.60% for the year ended October 31, 2002. Other key indexes also
lost ground. The Lipper Large-Cap Value Fund Index returned -14.27%.
WHAT WERE MAJOR TRENDS IN U.S. STOCK MARKETS?
Stocks remained in the grip of a protracted bear market for most of the fiscal
year, which saw several major market indexes, including the Dow and the S&P 500,
dip to their lowest levels since 1997. When the fiscal year began, markets were
in the midst of a strong rally after shaking off the effects of the September 11
terrorist attacks. The Federal Reserve Board (the Fed) helped spark the rally by
cutting the key federal funds rate. At fiscal year-end, it stood at 1.75%--its
lowest level since 1961.
However, the rally ended by January 2002 when the accounting practices of
several high-profile companies came under scrutiny and cast doubts on the
reliability of corporate earnings reports. Investors were also concerned about
mixed economic signals, anemic company earnings, the threat of additional
terrorist attacks, and the possibility of war with Iraq.
Markets rebounded during the final weeks of the fiscal year, and the Dow's
October performance was its best for a single month in more than 15 years.
Several major companies reported better-than-expected earnings, and the prospect
of additional Fed interest-rate cuts sent stocks higher. However, as the
reporting period closed, it was uncertain whether the rally was sustainable.
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
Weak performance in recent months for fund holdings came primarily from
financials, industrials, consumer cyclicals, and technology. Generally speaking,
we did not reduce the portfolio's exposure to these areas for the following
reasons.
We believe a compelling opportunity is forming in the equity markets.
Business values are largely stable despite the rapid declines of stock prices.
More importantly, prices on many quality businesses reflect substantial
discounts to their intrinsic values.
PORTFOLIO COMPOSITION
as of 10/31/02, based on total net assets
<Table>
<Caption>
====================================================================================================================================
TOP 10 HOLDINGS TOP 10 INDUSTRIES TOP COUNTRIES
- ------------------------------------------------------------------------------------------------------------------------------------
1. Tyco International Ltd. (Bermuda) 3.6% 1. Diversified Financial Services 13.0% [PIE CHART]
2. Citigroup Inc. 3.6 2. Banks 6.0 U.S.A. 90%
3. Waste Management, Inc. 3.1 3. Industrial Conglomerates 5.4 Bermuda 6%
4. Freddie Mac 3.0 4. Oil & Gas Drilling 4.8 Netherlands 4%
5. Applied Materials, Inc. 3.0 5. Advertising 4.2
6. Schlumberger Ltd. 2.8 6. Data Processing Services 4.1
7. Omnicom Group Inc. 2.6 7. Food Retail 3.9
8. Walt Disney Co. (The) 2.6 8. Diversified Commercial Services 3.3
9. Transocean Inc. 2.4 9. Pharmaceuticals 3.1
10. First Data Corp. 2.4 10. Property & Casualty Insurance 3.1
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
====================================================================================================================================
</Table>
================================================================================
WHILE WE BELIEVE
THE OVERALL EQUITY
MARKET IS MODERATELY
UNDERVALUED, WE ARE
FINDING EVEN MORE
COMPELLING VALUATION
OPPORTUNITIES WITHIN
THE MARKET.
================================================================================
4
While we believe the overall equity market is moderately undervalued, we are
finding even more compelling valuation opportunities within the market. Most of
the opportunities are in companies that are leveraged to economic growth or have
fallen victim to Wall Street's fears of accounting and corporate governance.
Accordingly, we have avoided the temptation to build a defensive portfolio
for short-term advantage. Instead, we have attempted to create long-term value
for shareholders by building a portfolio of undervalued stocks diversified
across quality businesses that have the potential to grow in the economic
rebound we believe is approaching.
CAN YOU DISCUSS A FEW HOLDINGS IN THE PORTFOLIO?
o Omnicom is the world's third-largest advertising conglomerate (behind
WPP Group and Interpublic in worldwide billings) and is responsible for
many notable slogans and catch phrases. It was a strong gainer for the
fund.
o Tyco is under new management and is working to move beyond the
controversy associated with former CEO Dennis Kozlowski. The company was
the fund's largest holding at the end of the reporting period, and
despite earlier price declines, continues to produce strong cash flow.
o Merrill Lynch has lost half its market value since the peak of the bull
market, and this decline in price has enabled us to acquire a position
in this leading financial service company at an attractive price. We
believe a combination of stronger capital markets, new management, and a
powerful competitive position is likely to close the current gap between
market value and intrinsic value. What were conditions like at the close
of the fiscal year Economic and market conditions remained uncertain.
Inflation and interest rates were low. Preliminary figures indicated
that the nation's gross domestic product (GDP) grew at an annualized
rate of 4.0% in the third quarter of 2002 compared to 1.3% in the second
quarter of the same year. Healthy consumer spending, which accounts for
about two-thirds of economic activity, accounted for much of the
third-quarter economic expansion. However, a weak job market threatened
to put a damper on consumer spending as companies were reluctant to hire
new employees amid concerns about the strength of the economy. In this
environment, the stock market remained volatile and its direction
unpredictable. While stock valuations were more attractive then they had
been in recent years, investors continued to be cautious because of
economic uncertainties, lackluster corporate earnings, and the prospect
of a conflict with Iraq.
HISTORY SHOWS THAT BEAR MARKETS NEVER LAST ...
U. S. STOCK MARKET AS REPRESENTED BY S&P 500
[LINE CHART]
<Table>
9/30/52 24 3/31/61 65 9/30/69 93 3/31/78 89 9/30/86 231 3/31/95 500
12/31/52 26 6/30/61 64 12/31/69 92 6/30/78 95 12/31/86 242 6/30/95 544
3/31/53 25 9/29/61 66 3/31/70 89 9/29/78 102 3/31/87 291 9/29/95 584
6/30/53 24 12/29/61 71 6/30/70 72 12/29/78 96 6/30/87 304 12/29/95 615
9/30/53 23 3/30/62 69 9/30/70 84 3/30/79 101 9/30/87 321 3/29/96 645
12/31/53 24 6/29/62 54 12/31/70 92 6/29/79 102 12/31/87 247 6/28/96 670
3/31/54 26 9/28/62 56 3/31/71 100 9/28/79 109 3/31/88 258 9/30/96 687
6/30/54 29 12/31/62 63 6/30/71 99 12/31/79 107 6/30/88 273 12/31/96 740
9/30/54 32 3/29/63 66 9/30/71 98 3/31/80 102 9/30/88 271 3/31/97 757
12/31/54 35 6/28/63 69 12/31/71 102 6/30/80 114 12/30/88 277 6/30/97 885
3/31/55 36 9/30/63 71 3/31/72 107 9/30/80 125 3/31/89 294 9/30/97 947
6/30/55 41 12/31/63 75 6/30/72 107 12/31/80 135 6/30/89 317 12/31/97 970
9/30/55 43 3/31/64 78 9/29/72 110 3/31/81 136 9/29/89 349 3/31/98 1101
12/30/55 45 6/30/64 81 12/29/72 118 6/30/81 131 12/29/89 353 6/30/98 1133
3/30/56 48 9/30/64 84 3/30/73 111 9/30/81 116 3/30/90 339 9/30/98 1017
6/29/56 46 12/31/64 84 6/29/73 104 12/31/81 122 6/29/90 358 12/31/98 1229
9/28/56 45 3/31/65 86 9/28/73 108 3/31/82 111 9/28/90 306 3/31/99 1286
12/31/56 46 6/30/65 84 12/31/73 97 6/30/82 109 12/31/90 330 6/30/99 1372
3/29/57 44 9/30/65 89 3/29/74 93 9/30/82 120 3/29/91 375 9/30/99 1282
6/28/57 47 12/31/65 92 6/28/74 86 12/31/82 140 6/28/91 371 12/31/99 1469
9/30/57 42 3/31/66 89 9/30/74 63 3/31/83 152 9/30/91 387 3/31/00 1498
12/31/57 39 6/30/66 84 12/31/74 68 6/30/83 168 12/31/91 417 6/30/00 1454
3/31/58 42 9/30/66 76 3/31/75 83 9/30/83 166 3/31/92 403 9/29/00 1436
6/30/58 45 12/30/66 80 6/30/75 95 12/30/83 164 6/30/92 408 12/29/00 1320
9/30/58 50 3/31/67 90 9/30/75 83 3/30/84 159 9/30/92 417 3/30/01 1160
12/31/58 55 6/30/67 90 12/31/75 90 6/29/84 153 12/31/92 435 6/29/01 1224
3/31/59 55 9/29/67 96 3/31/76 102 9/28/84 166 3/31/93 451 9/28/01 1040
6/30/59 58 12/29/67 96 6/30/76 104 12/31/84 167 6/30/93 450 12/31/01 1148
9/30/59 56 3/29/68 90 9/30/76 105 3/29/85 180 9/30/93 458 3/29/02 1147
12/31/59 59 6/28/68 99 12/31/76 107 6/28/85 191 12/31/93 466 6/28/02 989
3/31/60 55 9/30/68 102 3/31/77 98 9/30/85 182 3/31/94 445 9/30/02 815
6/30/60 56 12/31/68 103 6/30/77 100 12/31/85 211 6/30/94 444
9/30/60 53 3/31/69 101 9/30/77 96 3/31/86 238 9/30/94 462
12/30/60 58 6/30/69 97 12/30/77 95 6/30/86 250 12/30/94 459
Source: Bloomberg LP
====================================================================================================================================
</Table>
The last 2 1/2 years have been challenging for equity mutual fund investors. The
S&P 500, considered representative of U.S. stock market performance, has
declined significantly since hitting an all-time high in early 2000.
The colored bars on the chart represent bear markets, typically defined as a
20% decline in the stock market. As the chart shows, the 2000-2002 bear market
has been more severe and more prolonged than any other in the last 50 years. But
it shows that market declines have always ended--and that the stock market has
risen over time. While past performance cannot guarantee comparable future
results, and while no one can say precisely when the current decline will end,
history shows that bear markets never last.
That is why AIM urges all investors to maintain a long-term investment
discipline.
================================================================================
PORTFOLIO MANAGEMENT TEAM AS OF 10/31/02
BRET W. STANLEY, LEAD MANAGER
MATTHEW W. SEINSHEIMER
MICHAEL J. SIMON
ASSISTED BY THE AIM BASIC VALUE TEAM
See important fund and index
disclosures inside front cover.
[GRAPHIC]
For More Information Visit
AIMinvestments.com
================================================================================
5
RESULTS OF A $10,000 INVESTMENT
6/30/99-10/31/02
[MOUNTAIN CHART]
<Table>
<Caption>
AIM LARGE CAP
BASIC VALUE FUND LIPPER LARGE-CAP RUSSELL
DATE CLASS A SHARES VALUE FUND INDEX 1000 INDEX
06/30/99 9450 10000 10000
7/99 9099 9716 9695
8/99 8872 9539 9604
9/99 8455 9186 9340
10/99 8879 9629 9968
11/99 9237 9662 10224
12/99 9690 9960 10840
1/00 9417 9539 10396
2/00 9260 9138 10368
3/00 10321 9974 11313
4/00 10280 9863 10936
5/00 10543 9871 10653
6/00 10220 9762 10925
7/00 10443 9718 10743
8/00 11075 10280 11539
9/00 11249 10118 11003
10/00 11725 10199 10870
11/00 11316 9761 9876
12/00 11784 10154 9996
1/01 12116 10239 10325
2/01 11939 9745 9362
3/01 11537 9367 8740
4/01 12152 9897 9442
5/01 12513 10057 9506
6/01 12473 9783 9291
7/01 12462 9717 9164
8/01 11924 9262 8606
9/01 10642 8539 7876
10/01 10729 8594 8040
11/01 11610 9145 8659
12/01 11951 9283 8752
1/02 11715 9112 8640
2/02 11489 9062 8469
3/02 12209 9461 8817
4/02 11787 9058 8311
5/02 11727 9070 8238
6/02 10609 8438 7630
7/02 9697 7709 7066
8/02 9828 7761 7102
9/02 8461 6863 6340
10/02 9015 7367 6866
Source: Lipper, Inc.
Past performance cannot guarantee comparable future results.
================================================================================
</Table>
The chart compares AIM Large Cap Basic Value Fund Class A shares to benchmark
indexes. It is intended to give you a general idea of how your fund performed
compared to those indexes over the period 6/30/99 - 10/31/02. It is important to
understand the difference between your fund and an index. Market indexes, such
as the Russell 1000 Index are not managed and incur no sales charges, expenses
or fees. If you could buy all the securities that make up a market index, you
would incur expenses that would affect your investment return. An index of funds
such as the Lipper Large Cap Value Fund Index includes a number of mutual funds
grouped by investment objective. Each of these funds interprets that objective
differently, and each employs a different management style and investment
strategy.
Your fund's total return includes sales charges, expenses and management
fees. Performance of the fund's Class A, Class B, Class C and Class R shares
will differ due to different sales charge structures and class expenses. For
fund performance calculations and indexes used in this report, see the inside
front cover.
Performance shown in the chart and table does not reflect deduction of taxes
a shareholder would pay on fund distributions or sale of fund shares.
Performance for the index does not reflect the effects of taxes.
FUND RETURNS
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 10/31/02, including sales charges
CLASS A SHARES
Inception (6/30/99) -3.06%
1 Year -20.62
CLASS B SHARES
Inception (8/1/00) -8.71%
1 Year -20.66
CLASS C SHARES
Inception (8/1/00) -7.48%
1 Year -17.32
CLASS R SHARES*
Inception -1.54%
1 Year -16.06%
* Class R shares were first offered on June 3, 2002. Returns prior to that date
are hypothetical results based on Class A share returns at net asset value,
adjusted to reflect Class R 12B-1 fees. (The inception date of Class A shares is
6/30/99.) Class R share returns do not include a 0.75% contingent deferred sales
charge (CDSC) that may be imposed on a total redemption of retirement plan
assets within the first year.
In addition to returns as of the close of the reporting period, industry
regulations require us to provide average annual total returns (including sales
charges) as of September 30, 2002, the most recent calendar quarter-end, which
were: Class A Shares, one year, -25.00%, inception (6/30/99), -4.99%. Class B
Shares, one year, -25.12%, inception (8/1/00), -11.63%. Class C Shares, one
year, -21.97%, inception (6/30/00), -10.39%, Class R Shares, one year, -20.74%,
inception (6/30/00), -3.46%.
DUE TO RECENT SIGNIFICANT MARKET VOLATILITY, RESULTS OF AN INVESTMENT MADE TODAY
MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN. CALL YOUR
FINANCIAL ADVISOR FOR MORE CURRENT PERFORMANCE.
================================================================================
6
APPENDIX IV
[REGISTRANT]
MASTER INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made this day of , 200 , by and between
[Registrant], a Delaware statutory trust (the "Trust") with respect to its
series of shares shown on the Appendix A attached hereto, as the same may be
amended from time to time, and A I M Advisors, Inc., a Delaware corporation (the
"Advisor").
RECITALS
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, diversified management investment
company;
WHEREAS, the Advisor is registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), as an investment advisor and engages in
the business of acting as an investment advisor;
WHEREAS, the Trust's Agreement and Declaration of Trust (the "Declaration
of Trust") authorizes the Board of Trustees of the Trust (the "Board of
Trustees") to create separate series of shares of beneficial interest of the
Trust, and as of the date of this Agreement, the Board of Trustees has created
separate series portfolios (such portfolios and any other portfolios
hereafter added to the Trust being referred to collectively herein as the
"Funds"); and
WHEREAS, the Trust and the Advisor desire to enter into an agreement to
provide for investment advisory services to the Funds upon the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Advisory Services. The Advisor shall act as investment advisor for the
Funds and shall, in such capacity, supervise all aspects of the Funds'
operations, including the investment and reinvestment of cash, securities or
other properties comprising the Funds' assets, subject at all times to the
policies and control of the Board of Trustees. The Advisor shall give the Trust
and the Funds the benefit of its best judgment, efforts and facilities in
rendering its services as investment advisor.
2. Investment Analysis and Implementation. In carrying out its
obligations under Section 1 hereof, the Advisor shall:
(a) supervise all aspects of the operations of the Funds;
(b) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Funds,
and whether concerning the individual issuers whose securities are included
in the assets of the Funds or the activities in which such issuers engage,
or with respect to securities which the Advisor considers desirable for
inclusion in the Funds' assets;
(c) determine which issuers and securities shall be represented in the
Funds' investment portfolios and regularly report thereon to the Board of
Trustees;
(d) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon to the
Board of Trustees; and
(e) take, on behalf of the Trust and the Funds, all actions which
appear to the Trust and the Funds necessary to carry into effect such
purchase and sale programs and supervisory functions as aforesaid,
including but not limited to the placing of orders for the purchase and
sale of securities for the Funds.
IV-1
3. Securities Lending Duties and Fees. The Advisor agrees to provide the
following services in connection with the securities lending activities of each
Fund: (a) oversee participation in the securities lending program to ensure
compliance with all applicable regulatory and investment guidelines; (b) assist
the securities lending agent or principal (the "Agent") in determining which
specific securities are available for loan; (c) monitor the Agent to ensure that
securities loans are effected in accordance with the Advisor's instructions and
with procedures adopted by the Board of Trustees; (d) prepare appropriate
periodic reports for, and seek appropriate approvals from, the Board of Trustees
with respect to securities lending activities; (e) respond to Agent inquiries;
and (f) perform such other duties as necessary.
As compensation for such services provided by the Advisor in connection
with securities lending activities of each Fund, a lending Fund shall pay the
Advisor a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities.
4. Delegation of Responsibilities. The Advisor is authorized to delegate
any or all of its rights, duties and obligations under this Agreement to one or
more sub-advisors, and may enter into agreements with sub-advisors, and may
replace any such sub-advisors from time to time in its discretion, in accordance
with the 1940 Act, the Advisers Act, and rules and regulations thereunder, as
such statutes, rules and regulations are amended from time to time or are
interpreted from time to time by the staff of the Securities and Exchange
Commission ("SEC"), and if applicable, exemptive orders or similar relief
granted by the SEC and upon receipt of approval of such sub-advisors by the
Board of Trustees and by shareholders (unless any such approval is not required
by such statutes, rules, regulations, interpretations, orders or similar
relief).
5. Independent Contractors. The Advisor and any sub-advisors shall for
all purposes herein be deemed to be independent contractors and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Trust in any way or otherwise be deemed to be an agent of the
Trust.
6. Control by Board of Trustees. Any investment program undertaken by the
Advisor pursuant to this Agreement, as well as any other activities undertaken
by the Advisor on behalf of the Funds, shall at all times be subject to any
directives of the Board of Trustees.
7. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and the Advisers Act and
any rules and regulations adopted thereunder;
(b) the provisions of the registration statement of the Trust, as the
same may be amended from time to time under the Securities Act of 1933 and
the 1940 Act;
(c) the provisions of the Declaration of Trust, as the same may be
amended from time to time;
(d) the provisions of the by-laws of the Trust, as the same may be
amended from time to time; and
(e) any other applicable provisions of state, federal or foreign law.
8. Broker-Dealer Relationships. The Advisor is responsible for decisions
to buy and sell securities for the Funds, broker-dealer selection, and
negotiation of brokerage commission rates.
(a) The Advisor's primary consideration in effecting a security
transaction will be to obtain the best execution.
(b) In selecting a broker-dealer to execute each particular
transaction, the Advisor will take the following into consideration: the
best net price available; the reliability, integrity and financial
condition of the broker-dealer; the size of and the difficulty in executing
the order; and the value of the expected contribution of the broker-dealer
to the investment performance of the Funds on a continuing basis.
Accordingly, the price to the Funds in any transaction may be less
favorable than
IV-2
that available from another broker-dealer if the difference is reasonably
justified by other aspects of the fund execution services offered.
(c) Subject to such policies as the Board of Trustees may from time to
time determine, the Advisor shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Funds to pay a broker or dealer that
provides brokerage and research services to the Advisor an amount of
commission for effecting a fund investment transaction in excess of the
amount of commission another broker or dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the Advisor's overall
responsibilities with respect to a particular Fund, other Funds of the
Trust, and to other clients of the Advisor as to which the Advisor
exercises investment discretion. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Funds to such brokers and
dealers who also provide research or statistical material, or other
services to the Funds, to the Advisor, or to any sub-advisor. Such
allocation shall be in such amounts and proportions as the Advisor shall
determine and the Advisor will report on said allocations regularly to the
Board of Trustees indicating the brokers to whom such allocations have been
made and the basis therefor.
(d) With respect to one or more Funds, to the extent the Advisor does
not delegate trading responsibility to one or more sub-advisors, in making
decisions regarding broker-dealer relationships, the Advisor may take into
consideration the recommendations of any sub-advisor appointed to provide
investment research or advisory services in connection with the Funds, and
may take into consideration any research services provided to such
sub-advisor by broker-dealers.
(e) Subject to the other provisions of this Section 8, the 1940 Act,
the Securities Exchange Act of 1934, and rules and regulations thereunder,
as such statutes, rules and regulations are amended from time to time or
are interpreted from time to time by the staff of the SEC, any exemptive
orders issued by the SEC, and any other applicable provisions of law, the
Advisor may select brokers or dealers with which it or the Funds are
affiliated.
9. Compensation. The compensation that each Fund shall pay the Advisor is
set forth in Appendix B attached hereto.
10. Expenses of the Funds. All of the ordinary business expenses incurred
in the operations of the Funds and the offering of their shares shall be borne
by the Funds unless specifically provided otherwise in this Agreement. These
expenses borne by the Funds include but are not limited to brokerage
commissions, taxes, legal, accounting, auditing, or governmental fees, the cost
of preparing share certificates, custodian, transfer and shareholder service
agent costs, expenses of issue, sale, redemption and repurchase of shares,
expenses of registering and qualifying shares for sale, expenses relating to
trustees and shareholder meetings, the cost of preparing and distributing
reports and notices to shareholders, the fees and other expenses incurred by the
Trust on behalf of the Funds in connection with membership in investment company
organizations and the cost of printing copies of prospectuses and statements of
additional information distributed to the Funds' shareholders.
11. Services to Other Companies or Accounts. The Trust understands that
the Advisor now acts, will continue to act and may act in the future as
investment manager or advisor to fiduciary and other managed accounts, and as
investment manager or advisor to other investment companies, including any
offshore entities, or accounts, and the Trust has no objection to the Advisor so
acting, provided that whenever the Trust and one or more other investment
companies or accounts managed or advised by the Advisor have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each company and account.
The Trust recognizes that in some cases this procedure may adversely affect the
size of the positions obtainable and the prices realized for the Funds.
IV-3
12. Non-Exclusivity. The Trust understands that the persons employed by
the Advisor to assist in the performance of the Advisor's duties under this
Agreement will not devote their full time to such service and nothing contained
in this Agreement shall be deemed to limit or restrict the right of the Advisor
or any affiliate of the Advisor to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature. The Trust
further understands and agrees that officers or directors of the Advisor may
serve as officers or trustees of the Trust, and that officers or trustees of the
Trust may serve as officers or directors of the Advisor to the extent permitted
by law; and that the officers and directors of the Advisor are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm or trust, including other investment advisory companies.
13. Effective Date, Term and Approval. This Agreement shall become
effective with respect to a Fund, if approved by the shareholders of such Fund,
on the Effective Date for such Fund, as set forth in Appendix A attached hereto.
If so approved, this Agreement shall thereafter continue in force and effect
until , 200 , and may be continued from year to year thereafter,
provided that the continuation of the Agreement is specifically approved at
least annually:
(a) (i) by the Board of Trustees or (ii) by the vote of "a majority of
the outstanding voting securities" of such Fund (as defined in Section
2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or "interested persons" (as defined in the 1940
Act) of a party to this Agreement (other than as trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated as to the Trust or as
to any one or more of the Funds at any time, without the payment of any penalty,
by vote of the Board of Trustees or by vote of a majority of the outstanding
voting securities of the applicable Fund, or by the Advisor, on sixty (60) days'
written notice to the other party. The notice provided for herein may be waived
by the party entitled to receipt thereof. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for purposes of
this paragraph having the meaning defined in Section 2(a)(4) of the 1940 Act.
15. Amendment. No amendment of this Agreement shall be effective unless
it is in writing and signed by the party against which enforcement of the
amendment is sought.
16. Liability of Advisor and Fund. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Advisor or any of its officers, directors or
employees, the Advisor shall not be subject to liability to the Trust or to the
Funds or to any shareholder of the Funds for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security. Any liability of
the Advisor to one Fund shall not automatically impart liability on the part of
the Advisor to any other Fund. No Fund shall be liable for the obligations of
any other Fund.
17. Liability of Shareholders. Notice is hereby given that, as provided
by applicable law, the obligations of or arising out of this Agreement are not
binding upon any of the shareholders of the Trust individually but are binding
only upon the assets and property of the Trust and that the shareholders shall
be entitled, to the fullest extent permitted by applicable law, to the same
limitation on personal liability as shareholders of private corporations for
profit.
18. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered, telecopied or mailed postage paid, to the other party
entitled to receipt thereof at such address as such party may designate for the
receipt of such notice. Until further notice to the other party, it is agreed
that the address of the Trust and that of the Advisor shall be 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173.
19. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act or the
IV-4
Advisers Act shall be resolved by reference to such term or provision of the
1940 Act or the Advisers Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to said Acts.
In addition, where the effect of a requirement of the 1940 Act or the Advisers
Act reflected in any provision of the Agreement is revised by rule, regulation
or order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Subject to the foregoing, this Agreement shall
be governed by and construed in accordance with the laws (without reference to
conflicts of law provisions) of the State of Texas.
20. License Agreement. The Trust shall have the non-exclusive right to
use the name "AIM" to designate any current or future series of shares only so
long as A I M Advisors, Inc. serves as investment manager or advisor to the
Trust with respect to such series of shares.
IV-5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
written above.
[REGISTRANT]
(a Delaware statutory trust)
Attest:
<Table>
- ----------------------------------------- By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
Attest:
A I M ADVISORS, INC.
- -----------------------------------------
By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
</Table>
IV-6
APPENDIX A
FUNDS AND EFFECTIVE DATES
<Table>
<Caption>
NAME OF FUND EFFECTIVE DATE OF ADVISORY AGREEMENT
- ------------ ------------------------------------
[To Be Added] [To Be Added]
</Table>
A-1
APPENDIX B
COMPENSATION TO THE ADVISOR
The Trust shall pay the Advisor, out of the assets of a Fund, as full
compensation for all services rendered, an advisory fee for such Fund set forth
below. Such fee shall be calculated by applying the following annual rates to
the average daily net assets of such Fund for the calendar year computed in the
manner used for the determination of the net asset value of shares of such Fund.
[To Be Added -- Please see Exhibit L for the annual rates applicable to
your Fund]
B-1
APPENDIX V
[NAME OF INVESCO FUND]
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of August
13, 2003, by and between [name of current INVESCO Fund], a Maryland corporation
(the "Company"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A to this Agreement, and
[name of new Delaware statutory trust], a Delaware statutory trust (the
"Trust"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A.
BACKGROUND
The Company is organized as a series management investment company and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended. The Company currently publicly offers shares of
common stock representing interests in one or more separate series portfolios.
Each of these series portfolios is listed on Schedule A and is referred to in
this Agreement as a "Current Fund."
The Board of Directors of the Company has designated one or more classes of
common stock that represent interests in each Current Fund. Each of these
classes is listed on Schedule B to this Agreement and is referred to in this
Agreement as a "Current Fund Class."
The Company desires to change its form and place of organization by
reorganizing as the Trust. In anticipation of such reorganization, the Board of
Trustees of the Trust has established a series portfolio corresponding to each
of the Current Funds (each a "New Fund"), and has designated one or more classes
of shares of beneficial interest in each New Fund corresponding to the Current
Fund Classes (each a "New Fund Class"). Schedule A lists the New Funds and
Schedule B lists the New Fund Classes.
Each Current Fund desires to provide for its Reorganization (each, a
"Reorganization" and collectively, the "Reorganizations") through the transfer
of all of its assets to the corresponding New Fund in exchange for the
assumption by such New Fund of the liabilities of the corresponding Current Fund
and the issuance by the Trust to such Current Fund of shares of beneficial
interest in the New Fund ("New Fund Shares"). New Fund Shares received by a
Current Fund will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the Current Fund immediately prior to the
Reorganization (the "Current Fund Shares"). Each Current Fund will then
distribute the New Fund Shares it has received to its shareholders.
Each Reorganization of each Current Fund is dependent upon the consummation
of the Reorganization of all of the other Current Funds, so that the
Reorganizations of all of the Current Funds must be consummated if any of them
are to be consummated. For convenience, the balance of this Agreement refers
only to a single Reorganization, but the terms and conditions hereof shall apply
separately to each Reorganization and to the Current Fund and the corresponding
New Fund participating therein, as applicable.
The Reorganization is subject to, and shall be effected in accordance with,
the terms of this Agreement. This Agreement is intended to be and is adopted by
the Company, on its own behalf and on behalf of the Current Funds, and by the
Trust, on its own behalf and on behalf of the New Funds, as a Plan of
Reorganization within the meaning of the regulations under Section 368(a) of the
Internal Revenue Code of 1986, as amended.
V-1
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS
Any capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the preamble or background to this Agreement. In addition,
the following terms shall have the following meanings:
1.1 "Assets" shall mean all assets including, without limitation, all
cash, cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to register shares
under applicable securities laws, books and records, deferred and prepaid
expenses shown as assets on a Current Fund's books, and other property owned by
a Current Fund at the Effective Time.
1.2 "Closing" shall mean the consummation of the transfer of Assets,
assumption of Liabilities and issuance of shares described in Sections 2.1 and
2.2 of this Agreement, together with the related acts necessary to consummate
the Reorganization, to occur on the date set forth in Section 3.1.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.4 "Current Fund" shall mean each of the series portfolios of the Company
as shown on Schedule A.
1.5 "Current Fund Class" shall mean each class of common stock of the
Company representing an interest in a Current Fund as shown on Schedule B.
1.6 "Current Fund Shares" shall mean the shares of a Current Fund
outstanding immediately prior to the Reorganization.
1.7 "Effective Time" shall have the meaning set forth in Section 3.1.
1.8 "Liabilities" shall mean all liabilities of a Current Fund including,
without limitation, all debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
determinable at the Effective Time, and whether or not specifically referred to
herein.
1.9 "New Fund" shall mean each of the series portfolios of the Trust, one
of which shall correspond to one of the Current Funds as shown on Schedule A.
1.10 "New Fund Class" shall mean each class of shares of beneficial
interest in a New Fund, one of which shall correspond to one of the Current Fund
Classes as shown on Schedule B.
1.11 "New Fund Shares" shall mean those shares of beneficial interest in a
New Fund issued to a Current Fund hereunder.
1.12 "Registration Statement" shall have the meaning set forth in Section
5.4.
1.13 "RIC" shall mean a "regulated investment company" (as defined under
Subchapter M of the Code).
1.14 "SEC" shall mean the Securities and Exchange Commission.
1.15 "Shareholder(s)" shall mean a Current Fund's shareholder(s) of
record, determined as of the Effective Time.
1.16 "Shareholders Meeting" shall have the meaning set forth in Section
5.1.
1.17 "Transfer Agent" shall have the meaning set forth in Section 2.2.
1.18 "1940 Act" shall mean the Investment Company Act of 1940, as amended.
V-2
2. PLAN OF REORGANIZATION
2.1 The Company agrees, on behalf of each Current Fund, to assign, sell,
convey, transfer and deliver all of the Assets of each Current Fund to its
corresponding New Fund. The Trust, on behalf of each New Fund, agrees in
exchange therefor:
(a) to issue and deliver to the corresponding Current Fund the number
of full and fractional (rounded to the third decimal place) New Fund Shares
of each New Fund Class designated on Schedule B equal to the number of full
and fractional Current Fund Shares of each corresponding Current Fund Class
designated on Schedule B; and
(b) to assume all of the Current Fund's Liabilities.
Such transactions shall take place at the Closing.
2.2 At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Shares issued pursuant to Section 5.2 shall be
redeemed by each New Fund for $10.00 and (b) each Current Fund shall distribute
the New Fund Shares received by it pursuant to Section 2.1 to the Current Fund's
Shareholders in exchange for such Shareholders' Current Fund Shares. Such
distribution shall be accomplished through opening accounts, by the transfer
agent for the Trust (the "Transfer Agent"), on each New Fund's share transfer
books in the Shareholders' names and transferring New Fund Shares to such
accounts. Each Shareholder's account shall be credited with the respective pro
rata number of full and fractional (rounded to the third decimal place) New Fund
Shares of each New Fund Class due that Shareholder. All outstanding Current Fund
Shares, including those represented by certificates, shall simultaneously be
canceled on each Current Fund's share transfer books. The Trust shall not issue
certificates representing the New Fund Shares in connection with the
Reorganization. However, certificates representing Current Fund Shares shall
represent New Fund Shares after the Reorganization.
2.3 Following receipt of the required shareholder vote and as soon as
reasonably practicable after the Closing, the status of each Current Fund as a
designated series of the Company shall be terminated; provided, however, that
the termination of each Current Fund as a designated series of the Company shall
not be required if the Reorganization shall not have been consummated.
2.4 Following receipt of the required shareholder vote and as soon as
reasonably practicable after distribution of the New Fund Shares pursuant to
Section 2.2, the Company and the Trust shall cause Articles of Transfer to be
filed with the State Department of Assessments and Taxation of Maryland and,
following the filing of Articles of Transfer, the Company shall file Articles of
Dissolution with the State Department of Assessments and Taxation of Maryland to
dissolve the Company as a Maryland corporation; provided, however, that the
filing of Articles of Transfer and Articles of Dissolution as aforesaid shall
not be required if the Reorganization shall not have been consummated.
2.5 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder of the Current Fund Shares exchanged
therefor shall be paid by the person to whom such New Fund Shares are to be
issued, as a condition of such transfer.
2.6 Any reporting responsibility of the Company or each Current Fund to a
public authority is and shall remain its responsibility up to and including the
date on which it is terminated.
3. CLOSING
3.1 The Closing shall occur at the principal office of the Company on
[date], 2003, or on such other date and at such other place upon which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the Company's and the Trust's close of business on
the date of the Closing or at such other time as the parties may agree (the
"Effective Time").
3.2 The Company or its fund accounting agent shall deliver to the Trust at
the Closing, a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, transferred by the Current Funds to
the New
V-3
Funds, as reflected on the New Funds' books immediately following the Closing,
does or will conform to such information on the Current Funds' books immediately
before the Closing. The Company shall cause the custodian for each Current Fund
to deliver at the Closing a certificate of an authorized officer of the
custodian stating that (a) the Assets held by the custodian will be transferred
to each corresponding New Fund at the Effective Time and (b) all necessary taxes
in conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3 The Company shall deliver to the Trust at the Closing a list of the
names and addresses of each Shareholder of each Current Fund and the number of
outstanding Current Fund Shares of the Current Fund Class owned by each
Shareholder, all as of the Effective Time, certified by the Company's Secretary
or Assistant Secretary. The Trust shall cause the Transfer Agent to deliver at
the Closing a certificate as to the opening on each New Fund's share transfer
books of accounts in the Shareholders' names. The Trust shall issue and deliver
a confirmation to the Company evidencing the New Fund Shares to be credited to
each corresponding Current Fund at the Effective Time or provide evidence
satisfactory to the Company that such shares have been credited to each Current
Fund's account on such books. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, stock certificates, receipts, or
other documents as the other party or its counsel may reasonably request.
3.4 The Company and the Trust shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Company represents and warrants on its own behalf and on behalf of
each Current Fund as follows:
(a) The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland, and its Charter
is on file with the Maryland Department of Assessments and Taxation;
(b) The Company is duly registered as an open-end series management
investment company under the 1940 Act, and such registration is in full
force and effect;
(c) Each Current Fund is a duly established and designated series of
the Company;
(d) At the Closing, each Current Fund will have good and marketable
title to its Assets and full right, power, and authority to sell, assign,
transfer, and deliver its Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, the corresponding New Fund
will acquire good and marketable title to the Assets;
(e) The New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms
hereof;
(f) Each Current Fund is a "fund" as defined in Section 851(g)(2) of
the Code; each Current Fund qualified for treatment as a RIC for each
taxable year since it commenced operations that has ended (or will end)
before the Closing and will continue to meet all the requirements for such
qualification for its current taxable year (and the Assets will be invested
at all times through the Effective Time in a manner that ensures compliance
with the foregoing); each Current Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it; and each Current Fund has made all distributions for each
calendar year that has ended (or will end) before the Closing that are
necessary to avoid the imposition of federal excise tax or has paid or
provided for the payment of any excise tax imposed for any such calendar
year;
V-4
(g) During the five-year period ending on the date of the
Reorganization, neither Company nor any person related to Company (as
defined in Section 1.368-1(e)(3) of the Federal income tax regulations
adopted pursuant to the Code without regard to Section 1.368-1(e)(3)(i)(A))
will have directly or through any transaction, agreement, or arrangement
with any other person, (i) acquired shares of a Current Fund for
consideration other than shares of such Current Fund, except for shares
redeemed in the ordinary course of such Current Fund's business as an
open-end investment company as required by the 1940 Act, or (ii) made
distributions with respect to a Current Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and
4982 of the Code for qualification as a regulated investment company and
avoidance of excise tax liability and (b) additional distributions, to the
extent such additional distributions do not exceed 50 percent of the value
(without giving effect to such distributions) of the proprietary interest
in such Current Fund at the Effective Time. There is no plan or intention
of the Shareholders who individually own 5% or more of any Current Fund
Shares and, to the best of the Company's knowledge, there is no plan or
intention of the remaining Shareholders to redeem or otherwise dispose of
any New Fund Shares to be received by them in the Reorganization. The
Company does not anticipate dispositions of those shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
redemptions of shares of the Current Fund as a series of an open-end
investment company. Consequently, the Company is not aware of any plan that
would cause the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganization to be one
percent (1%) or more of the shares of the Current Fund outstanding as of
the Effective Time;
(h) The Liabilities were incurred by the Current Funds in the ordinary
course of their business and are associated with the Assets;
(i) The Company is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
(j) As of the Effective Time, no Current Fund will have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Current Fund Shares except for
the right of investors to acquire its shares at net asset value in the
normal course of its business as a series of an open-end diversified
management investment company operating under the 1940 Act;
(k) At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by the Company's
shareholders;
(l) Throughout the five-year period ending on the date of the Closing,
each Current Fund will have conducted its historic business within the
meaning of Section 1.368-1(d) of the Income Tax Regulations under the Code
in a substantially unchanged manner;
(m) The fair market value of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred Assets are subject; and
(n) The total adjusted basis of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred assets are subject.
4.2 The Trust represents and warrants on its own behalf and on behalf of
each New Fund as follows:
(a) The Trust is a statutory trust duly organized, validly existing,
and in good standing under the laws of the State of Delaware, and its
Certificate of Trust has been duly filed in the office of the Secretary of
State of Delaware;
(b) The Trust is duly registered as an open-end management investment
company under the 1940 Act. At the Effective Time, the New Fund Shares to
be issued pursuant to Section 2.1 of this Agreement shall be duly
registered under the Securities Act of 1933 by a Registration Statement
filed with the SEC;
V-5
(c) At the Effective Time, each New Fund will be a duly established
and designated series of the Trust;
(d) No New Fund has commenced operations nor will it commence
operations until after the Closing;
(e) Prior to the Effective Time, there will be no issued and
outstanding shares in any New Fund or any other securities issued by the
Trust on behalf of any New Fund, except as provided in Section 5.2;
(f) No consideration other than New Fund Shares (and each New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets in
the Reorganization;
(g) The New Fund Shares to be issued and delivered to each
corresponding Current Fund hereunder will, at the Effective Time, have been
duly authorized and, when issued and delivered as provided herein, will be
duly and validly issued and outstanding shares of the New Fund, fully paid
and nonassessable;
(h) Each New Fund will be a "fund" as defined in Section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
(i) The Trust, on behalf of the New Funds, has no plan or intention to
issue additional New Fund Shares following the Reorganization except for
shares issued in the ordinary course of its business as an open-end
investment company; nor does the Trust, on behalf of the New Funds, have
any plan or intention to redeem or otherwise reacquire any New Fund Shares
issued pursuant to the Reorganization, other than in the ordinary course of
such business or to the extent necessary to comply with its legal
obligation under Section 22(e) of the 1940 Act;
(j) Each New Fund will actively continue the corresponding Current
Fund's business in substantially the same manner that the Current Fund
conducted that business immediately before the Reorganization; and no New
Fund has any plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of its business
or dispositions necessary to maintain its qualification as a RIC, although
in the ordinary course of its business the New Fund will continuously
review its investment portfolio (as each Current Fund did before the
Reorganization) to determine whether to retain or dispose of particular
stocks or securities, including those included in the Assets, provided,
however that this Section 4.2(j) shall not preclude any of the combinations
of funds set forth on Schedule C to this Agreement; and
(k) There is no plan or intention for any of the New Funds to be
dissolved or merged into another corporation or statutory trust or "fund"
thereof (within the meaning of Section 851(g)(2) of the Code) following the
Reorganization, provided, however that this Section 4.2(k) shall not
preclude any of the combinations of Funds set forth on Schedule C.
4.3 Each of the Company and the Trust, on its own behalf and on behalf of
each Current Fund or each New Fund, as appropriate, represents and warrants as
follows:
(a) The fair market value of the New Fund Shares of each New Fund
received by each Shareholder will be equal to the fair market value of the
Current Fund Shares of the corresponding Current Fund surrendered in
exchange therefor;
(b) Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares of each New Fund and will own
such shares solely by reason of their ownership of the Current Fund Shares
of the corresponding Current Fund immediately before the Reorganization;
(c) The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
V-6
(d) There is no intercompany indebtedness between a Current Fund and a
New Fund that was issued or acquired, or will be settled, at a discount;
and
(e) Immediately following consummation of the Reorganization, each New
Fund will hold the same assets, except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization, and be subject to
the same liabilities that the corresponding Current Fund held or was
subject to immediately prior to the Reorganization. Assets used to pay (i)
expenses, (ii) all redemptions (other than redemptions at the usual rate
and frequency of the Current Fund as a series of an open-end investment
company), and (iii) distributions (other than regular, normal
distributions), made by a Current Fund after the date of this Agreement
will, in the aggregate, constitute less than one percent (1%) of its net
assets.
5. COVENANTS
5.1 As soon as practicable after the date of this Agreement, the Company
shall call a meeting of its shareholders (the "Shareholders Meeting") to
consider and act on this Agreement and, in connection therewith, the sale of all
of the Company's assets and the dissolution of the Company as a Maryland
corporation. The Board of Directors of the Company shall recommend that
shareholders approve this Agreement and, in connection therewith, sale of all of
the Company's assets and the dissolution of the Company as a Maryland
corporation. Approval by shareholders of this Agreement will authorize the
Company, and the Company hereby agrees, to vote on the matters referred to in
Sections 5.2 and 5.3.
5.2 Prior to the Closing, the Company shall acquire one New Fund Share in
each New Fund Class of each New Fund for the purpose of enabling the Company to
elect the Company's directors as the Trust's trustees (to serve without limit in
time, except as they may resign or be removed by action of the Trust's trustees
or shareholders), to ratify the selection of the Trust's independent
accountants, and to vote on the matters referred to in Section 5.3.
5.3 Immediately prior to the Closing, the Trust (on its own behalf and
with respect to each New Fund or each New Fund Class, as appropriate) shall
enter into a Master Investment Advisory Agreement, a Master Sub-Advisory
Agreement, if applicable, a Master Administrative Services Agreement, Master
Distribution Agreements, a Custodian Agreement, and a Transfer Agency and
Servicing Agreement; shall adopt plans of distribution pursuant to Rule 12b-l of
the 1940 Act, a multiple class plan pursuant to Rule 18f-3 of the 1940 Act; and
shall enter into or adopt, as appropriate, such other agreements and plans as
are necessary for each New Fund's operation as a series of an open-end
investment company. Each such agreement and plan shall have been approved by the
Trust's trustees and, to the extent required by law, by such of those trustees
who are not "interested persons" of the Trust (as defined in the 1940 Act) and
by the Company as the sole shareholder of each New Fund.
5.4 The Company or the Trust, as appropriate, shall file with the SEC one
or more post-effective amendments to the Company's Registration Statement on
Form N-lA under the Securities Act of 1933, as amended, and the 1940 Act, as
amended (the "Registration Statement"), (i) which will contain such amendments
to such Registration Statement as are determined by the Company to be necessary
and appropriate to effect the Reorganization, (ii) which will register the New
Fund Shares to be issued pursuant to Section 2.1 of this Agreement, and (iii) if
applicable, under which the Trust will succeed to the Registration Statement,
and shall use its best efforts to have such post-effective amendment or
amendments to the Registration Statement become effective as of the Closing.
6. CONDITIONS PRECEDENT
The obligations of the Company, on its own behalf and on behalf of each
Current Fund, and the Trust, on its own behalf and on behalf of each New Fund,
will be subject to (a) performance by the other party of all its obligations to
be performed hereunder at or before the Effective Time, (b) all representations
and warranties of the other party contained herein being true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated
V-7
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
6.1 The shareholders of the Company shall have approved this
Agreement and the transactions contemplated by this Agreement in accordance
with applicable law.
6.2 All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry
out the transactions contemplated hereby. All consents, orders, and permits
of federal, state, and local regulatory authorities (including the SEC and
state securities authorities) deemed necessary by either the Company or the
Trust to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain such consults, orders, and permits would not involve a risk of a
material adverse effect on the assets or properties of either a Current
Fund or a New Fund, provided that either the Company or the Trust may for
itself waive any of such conditions.
6.3 Each of the Company and the Trust shall have received an opinion
from Ballard Spahr Andrews & Ingersoll, LLP as to the federal income tax
consequences mentioned below. In rendering such opinion, such counsel may
rely as to factual matters, exclusively and without independent
verification, on the representations made in this Agreement (or in separate
letters of representation that the Company and the Trust shall use their
best efforts to deliver to such counsel) and the certificates delivered
pursuant to Section 3.4. Such opinion shall be substantially to the effect
that, based on the facts and assumptions stated therein and conditioned on
consummation of the Reorganization in accordance with this Agreement, for
federal income tax purposes:
(a) The Reorganization will constitute a reorganization within the
meaning of section 368(a) of the Code, and each Current Fund and each
New Fund will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(b) No gain or loss will be recognized to a Current Fund on the
transfer of its Assets to the corresponding New Fund in exchange solely
for the New Fund's New Fund Shares and the New Fund's assumption of the
Current Fund's Liabilities or on the subsequent distribution of those
New Fund Shares to its Shareholders, in constructive exchange for their
Current Fund Shares, in liquidation of the Current Fund;
(c) No gain or loss will be recognized to a New Fund on its receipt
of the corresponding Current Fund's Assets in exchange for New Fund
Shares and its assumption of the Current Fund's Liabilities;
(d) Each New Fund's basis for the corresponding Current Fund's
Assets will be the same as the basis thereof in the Current Fund's hands
immediately before the Reorganization, and the New Fund's holding period
for those Assets will include the Current Fund's holding period
therefor;
(e) A Shareholder will recognize no gain or loss on the
constructive exchange of Current Fund Shares solely for New Fund Shares
pursuant to the Reorganization; and
(f) A Shareholder's basis for the New Fund Shares of each New Fund
to be received in the Reorganization will be the same as the basis for
the Current Fund Shares of the corresponding Current Fund to be
constructively surrendered in exchange for such New Fund Shares, and a
Shareholder's holding period for such New Fund Shares will include its
holding period for such Current Fund Shares, provided that such Current
Fund Shares are held as capital assets by the Shareholder at the
Effective Time.
6.4 No stop-order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceeding for that purpose shall
have been initiated or threatened by the SEC (and not withdrawn or
terminated).
V-8
At any time prior to the Closing, any of the foregoing conditions (except
those set forth in Sections 6.1 and 6.3) may be waived by the directors/trustees
of either the Company or the Trust if, in their judgment, such waiver will not
have a material adverse effect on the interests of the Current Fund's
Shareholders.
7. EXPENSES
Except as otherwise provided in Section 4.3(c), all expenses incurred in
connection with the transactions contemplated by this Agreement (regardless of
whether they are consummated) will be borne by the parties as they mutually
agree.
8. ENTIRE AGREEMENT
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties.
9. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding its approval by the Company's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
shareholders' interests.
10. TERMINATION
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by the Company's shareholders:
10.1 By either the Company or the Trust (a) in the event of the other
party's material breach of any representation, warranty, or covenant
contained herein to be performed at or prior to the Effective Time, (b) if
a condition to its obligations has not been met and it reasonably appears
that such condition will not or cannot be met, or (c) if the Closing has
not occurred on or before December 31, 2003; or
10.2 By the parties' mutual agreement.
Except as otherwise provided in Section 7, in the event of termination
under Sections 10.1(c) or 10.2, there shall be no liability for damages on the
part of either the Company or the Trust or any Current Fund or corresponding New
Fund, to the other.
11. MISCELLANEOUS
11.1 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2 Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3 The execution and delivery of this Agreement have been authorized by
the Trust's trustees, and this Agreement has been executed and delivered by a
duly authorized officer of the Trust in his or her capacity as an officer of the
Trust intending to bind the Trust as provided herein, and no officer, trustee or
shareholder of the Trust shall be personally liable for the liabilities or
obligations of the Trust incurred hereunder. The liabilities and obligations of
the Trust pursuant to this Agreement shall be enforceable against the assets of
the New Funds only and not against the assets of the Trust generally.
V-9
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.
<Table>
Attest: [NAME OF MARYLAND CORPORATION],
on behalf of each of its series listed in Schedule A
By: ----------------------------------------------------
- --------------------------------------------
Title:
--------------------------------------------------
Attest: [NAME OF DELAWARE STATUTORY TRUST],
on behalf of each of its series listed in Schedule A
By: ----------------------------------------------------
- --------------------------------------------
Title:
--------------------------------------------------
</Table>
V-10
SCHEDULE A
<Table>
<Caption>
SERIES OF CORRESPONDING SERIES OF
[MARYLAND CORPORATION] [DELAWARE STATUTORY TRUST]
(EACH A "CURRENT FUND") (EACH A "NEW FUND")
- ----------------------- --------------------------
[To Be Added]............................................... [To Be Added]
</Table>
V-11
SCHEDULE B
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF EACH CURRENT FUND EACH NEW FUND
- ---------------------------- ------------------------
[To Be Added]............................................... [To Be Added]
</Table>
V-12
SCHEDULE C
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
V-13
GROUP U-IVE
AIM BLUE CHIP FUND,
AIM LARGE CAP BASIC VALUE FUND AND
AIM LARGE CAP GROWTH FUND,
EACH A PORTFOLIO OF AIM EQUITY FUNDS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 347-4246
INVESCO GROWTH FUND,
INVESCO GROWTH & INCOME FUND AND
INVESCO VALUE EQUITY FUND,
EACH A PORTFOLIO OF INVESCO STOCK FUNDS, INC.
4350 South Monaco Street
Denver, Colorado 80237
Toll Free: (800) 525-8085
STATEMENT OF ADDITIONAL INFORMATION
(October 21, 2003 Special Meetings of Shareholders of INVESCO Growth Fund,
INVESCO Growth & Income Fund and INVESCO Value Equity Fund)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement and Prospectus dated
August 25, 2003 of each of AIM Blue Chip Fund, AIM Large Cap Basic Value Fund
and AIM Large Cap Growth Fund for use in connection with the Special Meetings of
Shareholders of INVESCO Growth Fund, INVESCO Growth & Income Fund, and INVESCO
Value Equity Fund to be held on October 21, 2003. Copies of each Combined Proxy
Statement and Prospectus may be obtained at no charge by writing AIM Fund
Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739 or by calling
1-800-347-4246. Unless otherwise indicated, capitalized terms used herein and
not otherwise defined have the same meanings as are given to them in each
Combined Proxy Statement and Prospectus.
A Statement of Additional Information for AIM Equity Funds dated July
21, 2003, has been filed with the Securities and Exchange Commission and is
attached hereto as Appendix I which is incorporated herein by this reference.
The date of this Statement of Additional Information is August 15,
2003.
TABLE OF CONTENTS
THE TRUST......................................................................................................... 4
DESCRIPTION OF PERMITTED INVESTMENTS.............................................................................. 4
TRUSTEES AND OFFICERS OF THE TRUST................................................................................ 4
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............................................................... 4
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION..................................... 4
PORTFOLIO TRANSACTIONS............................................................................................ 4
DESCRIPTION OF SHARES............................................................................................. 5
DETERMINATION OF NET ASSET VALUE.................................................................................. 5
TAXES............................................................................................................. 5
PERFORMANCE DATA.................................................................................................. 5
FINANCIAL INFORMATION............................................................................................. 5
Appendix I - Statement of Additional Information of the Trust
Appendix II - Audited Financial Statements of INVESCO Stock Funds, Inc.
(7/31/02)
Appendix III - Unaudited Financial Statements of INVESCO Stock Funds, Inc.
(1/31/03)
S-2
Appendix IV - Pro forma financial statements for AIM Large Cap Growth Fund
Appendix V - Pro forma financial statements for AIM Large Cap Basic Value Fund
S-3
THE TRUST
This Statement of Additional Information relates to AIM Equity Funds (the
"Trust") and its investment portfolios, AIM Blue Chip Fund, AIM Large Cap Basic
Value Fund and AIM Large Cap Growth Fund (the "Funds"). The Trust is registered
as an open-end management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"). The Funds are separate series of shares of
beneficial interest of the Trust. For additional information about the Trust,
see heading "General Information About the Trust" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
DESCRIPTION OF PERMITTED INVESTMENTS
For a discussion of the fundamental and nonfundamental investment policies of
the Funds adopted by the Trust's Board of Trustees, see heading "Description of
the Funds and Their Investments and Risks" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
TRUSTEES AND OFFICERS OF THE TRUST
For a disclosure of the names and a brief occupational biography of each of the
Trust's trustees and executive officers identifying those who are interested
persons of the Trust as well as stating their aggregate remuneration, see
heading "Management of the Trust" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
For a disclosure of the control persons of the Funds, the principal holders of
shares of the Funds and the ownership by officers and trustees of the Funds, see
heading "Control Persons and Principal Holders of Securities" in the Trust's
Statement of Additional Information attached hereto as Appendix I.
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION
For a discussion of the Trust's advisory and management-related services
agreements and plans of distribution, see headings "Investment Advisory and
Other Services" and "Distribution of Securities" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
PORTFOLIO TRANSACTIONS
For a discussion of the Trust's brokerage policy, see heading "Brokerage
Allocation and Other Practices" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
S-4
DESCRIPTION OF SHARES
For a discussion of the Trust's authorized securities and the characteristics of
the Trust's shares of beneficial interest, see heading "General Information
About the Trust" in the Trust's Statement of Additional Information attached
hereto as Appendix I.
DETERMINATION OF NET ASSET VALUE
For a discussion of the Trust's valuation and pricing procedures and a
description of its purchase and redemption procedures, see heading "Purchase,
Redemption and Pricing of Shares" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
TAXES
For a discussion of any tax information relating to ownership of the Trust's
shares, see heading "Dividends, Distributions and Tax Matters" in the Trust's
Statement of Additional information attached hereto as Appendix I.
PERFORMANCE DATA
For a description and quotation of certain performance data used by the Trust,
see heading "Calculation of Performance Data" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
FINANCIAL INFORMATION
The audited financial statements of AIM Blue Chip Fund, and the report thereon
by Ernst & Young LLP, are set forth under the heading "Financial Statements" in
the Trust's Statement of Additional Information attached hereto as Appendix I.
The unaudited financial statements of AIM Blue Chip Fund, and the report thereon
by Ernst & Young LLP, are set forth as Appendix I.
The audited financial statements of AIM Large Cap Basic Value Fund, and the
report thereon by Ernst & Young LLP, are set forth under the heading "Financial
Statements" in the Trust's Statement of Additional Information attached hereto
as Appendix I.
The unaudited financial statements of AIM Large Cap Basic Value Fund, and the
report thereon by Ernst & Young LLP, are set forth as Appendix I.
The audited financial statements of AIM Large Cap Growth Fund, and the report
thereon by Ernst & Young LLP, are set forth under the heading "Financial
Statements" in the Trust's Statement of Additional Information attached hereto
as Appendix I.
The unaudited financial statements of AIM Large Cap Growth Fund, and the report
thereon by Ernst & Young LLP, are set forth as Appendix I.
S-5
The audited financial statements of INVESCO Growth Fund, and the report thereon
by PricewaterhouseCoopers LLP, are set forth in the Annual Report of INVESCO
Growth Fund, dated July 31, 2002, which is incorporated herein by reference and
attached hereto as Appendix II.
The unaudited financial statements of INVESCO Growth Fund, and the report
thereon by PricewaterhouseCoopers LLP, are set forth in the Semi-Annual Report
of INVESCO Growth Fund dated January 31, 2003, which is incorporated herein by
reference and attached hereto as Appendix III.
The audited financial statements of INVESCO Growth & Income Fund, and the report
thereon by PricewaterhouseCoopers LLP, are set forth in the Annual Report of
INVESCO Growth & Income Fund, dated July 31, 2002, which is incorporated herein
by reference and attached hereto as Appendix II.
The unaudited financial statements of INVESCO Growth & Income Fund, and the
report thereon by PricewaterhouseCoopers LLP, are set forth in the Semi-Annual
Report of INVESCO Growth & Income Fund dated January 31, 2003, which is
incorporated herein by reference and attached hereto as Appendix III.
The audited financial statements of INVESCO Value Equity Fund, and the report
thereon by PricewaterhouseCoopers LLP, are set forth in the Annual Report of
INVESCO Value Equity Fund, dated July 31, 2002, which is incorporated herein by
reference and attached hereto as Appendix II.
The unaudited financial statements of INVESCO Value Equity Fund, and the report
thereon by PricewaterhouseCoopers LLP, are set forth in the Semi-Annual Report
of INVESCO Value Equity Fund dated January 31, 2003, which is incorporated
herein by reference and attached hereto as Appendix III.
Pro forma financial statements for AIM Large Cap Growth Fund, giving effect to
the reorganization of INVESCO Growth Fund into AIM Large Cap Growth Fund, are
attached hereto as Appendix IV.
Pro forma financial statements for AIM Large Cap Basic Value Fund, giving effect
to the reorganization of INVESCO Value Equity Fund into AIM Large Cap Basic
Value Fund, are attached hereto as Appendix V.
S-6
APPENDIX I
STATEMENT OF
ADDITIONAL INFORMATION
AIM EQUITY FUNDS
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(713) 626-1919
--------------
THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO THE CLASS A, CLASS B, CLASS
C, CLASS R AND INVESTOR CLASS SHARES, AS APPLICABLE, OF EACH PORTFOLIO (EACH A
"FUND," COLLECTIVELY THE "FUNDS") OF AIM EQUITY FUNDS LISTED BELOW. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, AND IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUSES FOR THE CLASS A, CLASS B, CLASS C, CLASS R
AND INVESTOR CLASS SHARES, AS APPLICABLE, OF THE FUNDS LISTED BELOW. YOU MAY
OBTAIN A COPY OF ANY PROSPECTUS FOR ANY FUND LISTED BELOW FROM AN AUTHORIZED
DEALER OR BY WRITING TO:
A I M FUND SERVICES, INC.
P.O. BOX 4739
HOUSTON, TEXAS 77210-4739
OR BY CALLING (800) 347-4246
THIS STATEMENT OF ADDITIONAL INFORMATION DATED JULY 21, 2003, RELATES TO THE
CLASS A, CLASS B, CLASS C, CLASS R AND INVESTOR CLASS SHARES, AS APPLICABLE, OF
THE FOLLOWING PROSPECTUSES:
FUND DATED
---- -----
AIM AGGRESSIVE GROWTH FUND MARCH 3, 2003
AIM BASIC VALUE II FUND MARCH 3, 2003
AIM BLUE CHIP FUND JULY 21, 2003
AIM CAPITAL DEVELOPMENT FUND MARCH 3, 2003
AIM CHARTER FUND MARCH 3, 2003
AIM CONSTELLATION FUND MARCH 3, 2003
AIM CORE STRATEGIES FUND MARCH 3, 2003
AIM DENT DEMOGRAPHIC TRENDS FUND MARCH 3, 2003
AIM DIVERSIFIED DIVIDEND FUND MAY 2, 2003
AIM EMERGING GROWTH FUND MARCH 3, 2003
AIM LARGE CAP BASIC VALUE FUND JULY 21, 2003
AIM LARGE CAP GROWTH FUND JULY 21, 2003
AIM MID CAP GROWTH FUND MARCH 3, 2003
AIM U.S. GROWTH FUND MARCH 3, 2003
AIM WEINGARTEN FUND MARCH 3, 2003
AIM EQUITY FUNDS
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION ABOUT THE TRUST......................................................................... 1
Fund History.................................................................................... 1
Shares of Beneficial Interest................................................................... 1
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS.................................................... 4
Classification.................................................................................. 4
Investment Strategies and Risks................................................................. 4
Equity Investments.................................................................. 8
Foreign Investments................................................................. 8
Debt Investments.................................................................... 10
Other Investments................................................................... 11
Investment Techniques............................................................... 12
Derivatives......................................................................... 16
Additional Securities or Investment Techniques...................................... 22
Fund Policies................................................................................... 23
Temporary Defensive Positions................................................................... 26
MANAGEMENT OF THE TRUST..................................................................................... 26
Board of Trustees............................................................................... 26
Management Information.......................................................................... 26
Trustee Ownership of Fund Shares.................................................... 27
Factors Considered in Approving the Investment Advisory Agreement................... 27
Compensation.................................................................................... 28
Retirement Plan For Trustees........................................................ 28
Deferred Compensation Agreements.................................................... 28
Purchase of Class A Shares of the Funds at Net Asset Value.......................... 29
Codes of Ethics................................................................................. 29
Proxy Voting Policies........................................................................... 29
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES......................................................... 30
INVESTMENT ADVISORY AND OTHER SERVICES...................................................................... 30
Investment Advisor.............................................................................. 30
Investment Sub-Advisor.......................................................................... 32
Service Agreements.............................................................................. 33
Other Service Providers......................................................................... 33
BROKERAGE ALLOCATION AND OTHER PRACTICES.................................................................... 34
Brokerage Transactions.......................................................................... 34
Commissions..................................................................................... 35
Brokerage Selection............................................................................. 35
Directed Brokerage (Research Services).......................................................... 36
Regular Brokers or Dealers...................................................................... 36
Allocation of Portfolio Transactions............................................................ 36
Allocation of Initial Public Offering ("IPO") Transactions...................................... 36
PURCHASE, REDEMPTION AND PRICING OF SHARES.................................................................. 37
Purchase and Redemption of Shares............................................................... 37
Offering Price.................................................................................. 53
Redemption In Kind.............................................................................. 54
Backup Withholding.............................................................................. 54
i
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................................................................... 55
Dividends and Distributions..................................................................... 55
Tax Matters..................................................................................... 56
DISTRIBUTION OF SECURITIES.................................................................................. 63
Distribution Plans.............................................................................. 63
Distributor..................................................................................... 65
CALCULATION OF PERFORMANCE DATA............................................................................. 66
APPENDICES:
RATINGS OF DEBT SECURITIES.................................................................................. A-1
TRUSTEES AND OFFICERS....................................................................................... B-1
TRUSTEE COMPENSATION TABLE.................................................................................. C-1
PROXY VOTING POLICIES....................................................................................... D-1
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES......................................................... E-1
MANAGEMENT FEES............................................................................................. F-1
ADMINISTRATIVE SERVICES FEES................................................................................ G-1
BROKERAGE COMMISSIONS....................................................................................... H-1
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASES OF SECURITIES OF
REGULAR BROKERS OR DEALERS.................................................................................. I-1
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS..................................... J-1
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS............................................... K-1
TOTAL SALES CHARGES......................................................................................... L-1
PERFORMANCE DATA............................................................................................ M-1
FINANCIAL STATEMENTS........................................................................................ FS
ii
GENERAL INFORMATION ABOUT THE TRUST
FUND HISTORY
AIM Equity Funds (the "Trust") is a Delaware statutory trust which is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company. The Trust currently
consists of fifteen separate portfolios: AIM Aggressive Growth Fund, AIM Basic
Value II Fund (which is not currently offered to the public), AIM Blue Chip
Fund, AIM Capital Development Fund, AIM Charter Fund, AIM Constellation Fund,
AIM Core Strategies Fund, AIM Dent Demographic Trends Fund, AIM Diversified
Dividend Fund, AIM Emerging Growth Fund, AIM Large Cap Basic Value Fund, AIM
Large Cap Growth Fund, AIM Mid Cap Growth Fund, AIM U.S. Growth Fund (which is
not currently offered to the public), and AIM Weingarten Fund (each a "Fund" and
collectively, the "Funds"). Under an Amended and Restated Agreement and
Declaration of Trust, dated May 15, 2002, as amended (the "Trust Agreement"),
the Board of Trustees is authorized to create new series of shares without the
necessity of a vote of shareholders of the Trust.
The Trust was originally organized on May 19, 1988 as a Maryland
corporation. The Trust reorganized as a Delaware business trust on June 21,
2000. The following Funds were included in the reorganization: AIM Aggressive
Growth Fund, AIM Blue Chip Fund, AIM Capital Development Fund, AIM Charter Fund,
AIM Constellation Fund, AIM Dent Demographic Trends Fund, AIM Emerging Growth
Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund, AIM Mid Cap
Growth Fund and AIM Weingarten Fund. All historical and other information
contained in this Statement of Additional Information for periods prior to June
21, 2000 relating to the Funds (or a class thereof) is that of the predecessor
funds (or the corresponding class thereof). AIM Basic Value II Fund, AIM Core
Strategies Fund, AIM Diversified Dividend Fund and AIM U.S. Growth Fund
commenced operations as series of the Trust. Prior to May 2, 2003, AIM
Diversified Dividend Fund was known as AIM Large Cap Core Equity Fund.
SHARES OF BENEFICIAL INTEREST
Shares of beneficial interest of the Trust are redeemable at their net
asset value (subject, in certain circumstances, to a contingent deferred sales
charge) at the option of the shareholder or at the option of the Trust in
certain circumstances.
The Trust allocates moneys and other property it receives from the issue
or sale of shares of each of its series of shares, and all income, earnings and
profits from such issuance and sales, subject only to the rights of creditors,
to the appropriate Fund. These assets constitute the underlying assets of each
Fund, are segregated on the Trust's books of account, and are charged with the
expenses of such Fund and its respective classes. The Trust allocates any
general expenses of the Trust not readily identifiable as belonging to a
particular Fund by or under the direction of the Board of Trustees, primarily on
the basis of relative net assets, or other relevant factors.
Each share of each Fund represents an equal proportionate interest in that
Fund with each other share and is entitled to such dividends and distributions
out of the income belonging to such Fund as are declared by the Board.
1
Each Fund offers separate classes of shares as follows:
FUND CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL CLASS INVESTOR CLASS
AIM Aggressive Growth Fund X X X X X
AIM Basic Value II Fund X X X
AIM Blue Chip Fund X X X X X X
AIM Capital Development Fund X X X X X
AIM Charter Fund X X X X X
AIM Constellation Fund X X X X X
AIM Core Strategies Fund X X X
AIM Dent Demographic Trends Fund X X X
AIM Diversified Dividend Fund X X X
AIM Emerging Growth Fund X X X
AIM Large Cap Basic Value Fund X X X X X
AIM Large Cap Growth Fund X X X X X
AIM Mid Cap Growth Fund X X X X
AIM U.S. Growth Fund X X X
AIM Weingarten Fund X X X X X
This Statement of Additional Information relates solely to the Class A,
Class B, Class C, Class R and Investor Class shares, if applicable, of the
Funds. The Institutional Class shares are intended for use by certain eligible
institutional investors, are discussed in a separate Statement of Additional
Information and are available to the following:
- banks and trust companies acting in a fiduciary or similar capacity;
- bank and trust company common and collective trust funds;
- banks and trust companies investing for their own account;
- entities acting for the account of a public entity (e.g.
Taft-Hartley funds, states, cities or government agencies);
- retirement plans; and
- platform sponsors with which A I M Distributors, Inc. ("AIM
Distributors") has entered into an agreement.
2
Each class of shares represents interests in the same portfolio of
investments. Differing sales charges and expenses will result in differing net
asset values and dividends and distributions. Upon any liquidation of the Trust,
shareholders of each class are entitled to share pro rata in the net assets
belonging to the applicable Fund allocable to such class available for
distribution after satisfaction of outstanding liabilities of the Fund allocable
to such class.
Each share of a Fund generally has the same voting, dividend, liquidation
and other rights; however, each class of shares of a Fund is subject to
different sales loads, conversion features, exchange privileges and
class-specific expenses. Only shareholders of a specific class may vote on
matters relating to that class' distribution plan.
Because Class B shares automatically convert to Class A shares at
month-end eight years after the date of purchase, the Funds' distribution plan
adopted pursuant to Rule 12b-1 under the 1940 Act requires that Class B
shareholders must also approve any material increase in distribution fees
submitted to Class A shareholders of that Fund. A pro rata portion of shares
from reinvested dividends and distributions convert along with the Class B
shares.
Except as specifically noted above, shareholders of each Fund are entitled
to one vote per share (with proportionate voting for fractional shares),
irrespective of the relative net asset value of the shares of a Fund. However,
on matters affecting an individual Fund or class of shares, a separate vote of
shareholders of that Fund or class is required. Shareholders of a Fund or class
are not entitled to vote on any matter which does not affect that Fund or class
but that requires a separate vote of another Fund or class. An example of a
matter that would be voted on separately by shareholders of each Fund is the
approval of the advisory agreement with A I M Advisors, Inc. ("AIM"), and an
example of a matter that would be voted on separately by shareholders of each
class of shares is approval of the distribution plans. When issued, shares of
each Fund are fully paid and nonassessable, have no preemptive or subscription
rights, and are freely transferable. Other than the automatic conversion of
Class B shares to Class A shares, there are no conversion rights. Shares do not
have cumulative voting rights, which means that in situations in which
shareholders elect trustees, holders of more than 50% of the shares voting for
the election of trustees can elect all of the trustees of the Trust, and the
holders of less than 50% of the shares voting for the election of trustees will
not be able to elect any trustees.
Under Delaware law, shareholders of a Delaware statutory trust shall be
entitled to the same limitations of liability extended to shareholders of
private for-profit corporations. There is a remote possibility, however, that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. The Trust Agreement disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the trustees to all parties, and each
party thereto must expressly waive all rights of action directly against
shareholders of the Trust. The Trust Agreement provides for indemnification out
of the property of a Fund for all losses and expenses of any shareholder of such
Fund held liable on account of being or having been a shareholder. Thus, the
risk of a shareholder incurring financial loss due to shareholder liability is
limited to circumstances in which a Fund is unable to meet its obligations and
the complaining party is not held to be bound by the disclaimer.
The trustees and officers of the Trust will not be liable for any act,
omission or obligation of the Trust or any trustee or officer; however, a
trustee or officer is not protected against any liability to the Trust or to the
shareholders to which a trustee or officer would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his or her office with the Trust
("Disabling Conduct"). The Trust Agreement provides for indemnification by the
Trust of the trustees, the officers and employees or agents of the Trust,
provided that such persons have not engaged in Disabling Conduct. The Trust
Agreement also authorizes the purchase of liability insurance on behalf of
trustees and officers.
3
SHARE CERTIFICATES. Shareholders of the Funds do not have the right to
demand or require the Trust to issue share certificates.
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
CLASSIFICATION
The Trust is an open-end management investment company. Each of the Funds
other than AIM Emerging Growth Fund is "diversified" for purposes of the 1940
Act.
INVESTMENT STRATEGIES AND RISKS
The table on the following pages identifies various securities and
investment techniques used by AIM in managing The AIM Family of Funds --
Registered Trademark --. The table has been marked to indicate those securities
and investment techniques that AIM may use to manage a Fund. A Fund may not use
all of these techniques at any one time. A Fund's transactions in a particular
security or use of a particular technique is subject to limitations imposed by a
Fund's investment objective, policies and restrictions described in that Fund's
Prospectus and/or this Statement of Additional Information, as well as federal
securities laws. The Funds' investment objectives, policies, strategies and
practices are non-fundamental unless otherwise indicated. A more detailed
description of the securities and investment techniques, as well as the risks
associated with those securities and investment techniques that the Funds
utilize, follows the table. The descriptions of the securities and investment
techniques in this section supplement the discussion of principal investment
strategies contained in each Fund's Prospectus; where a particular type of
security or investment technique is not discussed in a Fund's Prospectus, that
security or investment technique is not a principal investment strategy.
4
AIM EQUITY FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND AIM AIM AIM AIM AIM AIM AIM
AGGRESSIVE BASIC BLUE CAPITAL CHARTER CONSTELLATION CORE
GROWTH VALUE II CHIP DEVELOPMENT FUND FUND STRATEGIES
SECURITY/ FUND FUND FUND FUND FUND
INVESTMENT
TECHNIQUE
EQUITY INVESTMENTS
Common Stock X X X X X X X
Preferred Stock X X X X X X X
Convertible X X X X X X X
Securities
Alternative Entity
Securities X X X X X X X
FOREIGN INVESTMENTS
Foreign Securities X X X X X X X
Foreign Government
Obligations X X X X X X X
Foreign Exchange
Transactions X X X X X X X
DEBT INVESTMENTS FOR EQUITY FUNDS
U.S. Government
Obligations X X X X X X X
Liquid Assets X X X X X X X
Investment Grade
Corporate Debt
Obligations X X X X X X X
Junk Bonds
OTHER INVESTMENTS
REITs X X X X X X X
Other Investment
Companies X X X X X X X
Defaulted Securities
Municipal Forward
Contracts
FUND AIM AIM AIM AIM AIM AIM AIM AIM
DENT DIVERSIFIED EMERGING LARGE LARGE MID U.S. WEINGARTEN
DEMOGRAPHIC DIVIDEND GROWTH CAP CAP CAP GROWTH FUND
SECURITY/ TRENDS FUND FUND BASIC GROWTH GROWTH FUND
INVESTMENT FUND VALUE FUND FUND
TECHNIQUE FUND
EQUITY INVESTMENTS
Common Stock X X X X X X X X
Preferred Stock X X X X X X X X
Convertible X X X X X X X X
Securities
Alternative Entity
Securities X X X X X X X X
FOREIGN INVESTMENTS
Foreign Securities X X X X X X X X
Foreign Government
Obligations X X X X X X X X
Foreign Exchange
Transactions X X X X X X X X
DEBT INVESTMENTS FOR EQUITY FUNDS
U.S. Government
Obligations X X X X X X X X
Liquid Assets X X X X X X X X
Investment Grade
Corporate Debt
Obligations X X X X X X X X
Junk Bonds
OTHER INVESTMENTS
REITs X X X X X X X X
Other Investment
Companies X X X X X X X X
Defaulted Securities
Municipal Forward
Contracts
5
AIM EQUITY FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND AIM AIM AIM AIM AIM AIM AIM
AGGRESSIVE BASIC BLUE CAPITAL CHARTER CONSTELLATION CORE
GROWTH VALUE II CHIP DEVELOPMENT FUND FUND STRATEGIES
SECURITY/ FUND FUND FUND FUND FUND
INVESTMENT
TECHNIQUE
Variable or Floating
Rate Instruments
Indexed Securities
Zero-Coupon and
Pay-in-Kind
Securities
Synthetic Municipal
Instruments
INVESTMENT TECHNIQUES
Delayed Delivery X X X X X X X
Transactions
When-Issued X X X X X X X
Securities
Short Sales X X X X X X X
Margin Transactions
Swap Agreements X X X X X X X
Interfund Loans X X X X X X X
Borrowing X X X X X X X
Lending Portfolio X X X X X X X
Securities
Repurchase Agreements X X X X X X X
Reverse Repurchase
Agreements X X
Dollar Rolls X
Illiquid Securities X X X X X X X
Rule 144A Securities X X X X X X X
Unseasoned Issuers X X
FUND AIM AIM AIM AIM AIM AIM AIM AIM
DENT DIVERSIFIED EMERGING LARGE LARGE MID U.S. WEINGARTEN
DEMOGRAPHIC DIVIDEND GROWTH CAP CAP CAP GROWTH FUND
SECURITY/ TRENDS FUND FUND BASIC GROWTH GROWTH FUND
INVESTMENT FUND VALUE FUND FUND
TECHNIQUE FUND
Variable or Floating
Rate Instruments
Indexed Securities
Zero-Coupon and
Pay-in-Kind
Securities
Synthetic Municipal
Instruments
INVESTMENT TECHNIQUES
Delayed Delivery X X X X X X X X
Transactions
When-Issued X X X X X X X X
Securities
Short Sales X X X X X X X X
Margin Transactions
Swap Agreements X X X X X X X X
Interfund Loans X X X X X X X X
Borrowing X X X X X X X X
Lending Portfolio X X X X X X X X
Securities
Repurchase Agreements X X X X X X X X
Reverse Repurchase
Agreements X X X X X
Dollar Rolls
Illiquid Securities X X X X X X X X
Rule 144A Securities X X X X X X X X
Unseasoned Issuers X X X X X X
6
AIM EQUITY FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND AIM AIM AIM AIM AIM AIM AIM
AGGRESSIVE BASIC BLUE CAPITAL CHARTER CONSTELLATION CORE
GROWTH VALUE II CHIP DEVELOPMENT FUND FUND STRATEGIES
SECURITY/ FUND FUND FUND FUND FUND
INVESTMENT
TECHNIQUE
Sale of Money Market
Securities
Standby Commitments
DERIVATIVES
Equity-Linked X X X X X X X
Derivatives
Put Options X X X X X X X
Call Options X X X X X X X
Straddles X X X X X X X
Warrants X X X X X X X
Futures Contracts
and Options on X X X X X X X
Futures Contracts
Forward Currency
Contracts X X X X X X X
Cover X X X X X X X
ADDITIONAL SECURITIES OR INVESTMENT TECHNIQUES
Special Situations X
Privatizations X
Commercial Bank X
Obligations
Master Limited
Partnerships
FUND AIM AIM AIM AIM AIM AIM AIM AIM
DENT DIVERSIFIED EMERGING LARGE LARGE MID U.S. WEINGARTEN
DEMOGRAPHIC DIVIDEND GROWTH CAP CAP CAP GROWTH FUND
SECURITY/ TRENDS FUND FUND BASIC GROWTH GROWTH FUND
INVESTMENT FUND VALUE FUND FUND
TECHNIQUE FUND
Sale of Money Market
Securities
Standby Commitments
DERIVATIVES
Equity-Linked X X X X X X X X
Derivatives
Put Options X X X X X X X X
Call Options X X X X X X X X
Straddles X X X X X X X X
Warrants X X X X X X X X
Futures Contracts
and Options on X X X X X X X X
Futures Contracts
Forward Currency
Contracts X X X X X X X X
Cover X X X X X X X X
ADDITIONAL SECURITIES OR INVESTMENT TECHNIQUES
Special Situations
Privatizations
Commercial Bank
Obligations
Master Limited X
Partnerships
7
Equity Investments
COMMON STOCK. Common stock is issued by companies principally to raise
cash for business purposes and represents a residual interest in the issuing
company. A Fund participates in the success or failure of any company in which
it holds stock. The prices of equity securities change in response to many
factors including the historical and prospective earnings of the issuer, the
value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
PREFERRED STOCK. Preferred stock, unlike common stock, often offers a
stated dividend rate payable from a corporation's earnings. If interest rates
rise, the fixed dividend on preferred stocks may be less attractive, causing the
price of preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity, a
negative feature when interest rates decline. Dividends on some preferred stock
may be "cumulative," requiring all or a portion of prior unpaid dividends to be
paid before dividends are paid on the issuer's common stock. Preferred stock
also generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation, and may be
"participating," which means that it may be entitled to a dividend exceeding the
stated dividend in certain cases. In some cases an issuer may offer auction rate
preferred stock, which means that the interest to be paid is set by auction and
will often be reset at stated intervals. The rights of preferred stocks on the
distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities.
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures,
notes, preferred stocks and other securities that may be converted into a
prescribed amount of common stock or other equity securities at a specified
price and time. The holder of convertible securities is entitled to receive
interest paid or accrued on debt, or dividends paid or accrued on preferred
stock, until the security matures or is converted.
The value of a convertible security depends on interest rates, the yield
of similar nonconvertible securities, the financial strength of the issuer and
the seniority of the security in the issuer's capital structure. Convertible
securities may be illiquid, and may be required to convert at a time and at a
price that is unfavorable to the Fund. AIM Blue Chip Fund does not intend to
invest more than 10% of its total assets in convertible securities.
ALTERNATIVE ENTITY SECURITIES. Companies that are formed as limited
partnerships, limited liability companies, business trusts or other
non-corporate entities may issue equity securities that are similar to common or
preferred stock of corporations.
Foreign Investments
FOREIGN SECURITIES. Foreign securities are equity or debt securities
issued by issuers outside the United States, and include securities in the form
of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
or other securities representing underlying securities of foreign issuers.
Depositary receipts are typically issued by a bank or trust company and evidence
ownership of underlying securities issued by foreign corporations.
Each Fund may invest up to 25% of its total assets in foreign securities,
except that each of AIM Charter Fund, AIM Constellation Fund and AIM Weingarten
Fund may invest up to 20% of its total assets in foreign securities, and AIM
U.S. Growth Fund may invest up to 20% of its net assets in foreign securities.
Investments by a Fund in foreign securities, whether denominated in U.S.
dollars or foreign currencies, may entail all of the risks set forth below.
Investments by a Fund in ADRs, EDRs or similar securities also may entail some
or all of the risks described below.
8
Currency Risk. The value of the Funds' foreign investments will be
affected by changes in currency exchange rates. The U.S. dollar value of a
foreign security decreases when the value of the U.S. dollar rises against the
foreign currency in which the security is denominated, and increases when the
value of the U.S. dollar falls against such currency.
Political and Economic Risk. The economies of many of the countries in
which the Funds may invest may not be as developed as the United States' economy
and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of the
Funds' investments.
Regulatory Risk. Foreign companies are not registered with the Securities
and Exchange Commission ("SEC") and are generally not subject to the regulatory
controls imposed on United States issuers and, as a consequence, there is
generally less publicly available information about foreign securities than is
available about domestic securities. Foreign companies are not subject to
uniform accounting, auditing and financial reporting standards, corporate
governance practices and requirements comparable to those applicable to domestic
companies. Income from foreign securities owned by the Funds may be reduced by a
withholding tax at the source, which tax would reduce dividend income payable to
the Funds' shareholders.
Market Risk. The securities markets in many of the countries in which the
Funds invest will have substantially less trading volume than the major United
States markets. As a result, the securities of some foreign companies may be
less liquid and experience more price volatility than comparable domestic
securities. Increased custodian costs as well as administrative costs (such as
the need to use foreign custodians) may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government regulation
and supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction costs
in foreign securities markets are likely to be higher, since brokerage
commission rates in foreign countries are likely to be higher than in the United
States.
On January 1, 1999, certain members of the European Economic and Monetary
Union ("EMU"), established a common European currency known as the "euro" and
each member's local currency became a denomination of the euro. Each
participating country (currently, Austria, Belgium, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain) has
replaced its local currency with the euro effective January 1, 2002.
Risks of Developing Countries. The Funds, except for AIM Dent Demographic
Trends Fund, may each invest up to 5% and AIM Dent Demographic Trends Fund may
invest up to 10% of their total assets in securities of companies located in
developing countries. Investments in developing countries present risks greater
than, and in addition to, those presented by investments in foreign issuers in
general. A number of developing countries restrict, to varying degrees, foreign
investment in stocks. Repatriation of investment income, capital, and the
proceeds of sales by foreign investors may require governmental registration
and/or approval in some developing countries. A number of the currencies of
developing countries have experienced significant declines against the U.S.
dollar in recent years, and devaluation may occur subsequent to investments in
these currencies by the Fund. Inflation and rapid fluctuations in inflation
rates have had and may continue to have negative effects on the economies and
securities markets of certain emerging market countries. Many of the developing
securities markets are relatively small or less diverse, have low trading
volumes, suffer periods of relative illiquidity, and are characterized by
significant price volatility. There is a risk in developing countries that a
future economic or political crisis could lead to price controls, forced mergers
of companies, expropriation or confiscatory taxation, seizure, nationalization,
or creation of government monopolies, any of which may have a detrimental effect
on the Fund's investments.
FOREIGN GOVERNMENT OBLIGATIONS. Debt securities issued by foreign
governments are often, but not always, supported by the full faith and credit of
the foreign governments, or their subdivisions, agencies or instrumentalities,
that issue them. These securities involve the risks discussed above with respect
to foreign securities. Additionally, the issuer of the debt or the governmental
authorities that
9
control repayment of the debt may be unwilling or unable to pay interest or
repay principal when due. Political or economic changes or the balance of trade
may affect a country's willingness or ability to service its debt obligations.
Periods of economic uncertainty may result in the volatility of market prices of
sovereign debt obligations, especially debt obligations issued by the
governments of developing countries. Foreign government obligations of
developing countries, and some structures of emerging market debt securities,
both of which are generally below investment grade, are sometimes referred to as
"Brady Bonds".
FOREIGN EXCHANGE TRANSACTIONS. Foreign exchange transactions include
direct purchases of futures contracts with respect to foreign currency, and
contractual agreements to purchase or sell a specified currency at a specified
future date (up to one year) at a price set at the time of the contract. Such
contractual commitments may be forward currency contracts entered into directly
with another party or exchange traded futures contracts.
Each Fund has authority to deal in foreign exchange between currencies of
the different countries in which it will invest as a hedge against possible
variations in the foreign exchange rates between those currencies. A Fund may
commit the same percentage of its assets to foreign exchange hedges as it can
invest in foreign securities.
The Funds may utilize either specific transactions ("transaction hedging")
or portfolio positions ("position hedging") to hedge foreign currency exposure
through foreign exchange transactions. Transaction hedging is the purchase or
sale of foreign currency with respect to specific receivables or payables of a
Fund accruing in connection with the purchase or sale of its portfolio
securities, the sale and redemption of shares of the Fund, or the payment of
dividends and distributions by the Fund. Position hedging is the purchase or
sale of foreign currency with respect to portfolio security positions (or
underlying portfolio security positions, such as in an ADR) denominated or
quoted in a foreign currency. Additionally, foreign exchange transactions may
involve some of the risks of investments in foreign securities.
Debt Investments
U.S. GOVERNMENT OBLIGATIONS. Obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities include bills, notes and bonds
issued by the U.S. Treasury, as well as "stripped" or "zero coupon" U.S.
Treasury obligations representing future interest or principal payments on U.S.
Treasury notes or bonds. Stripped securities are sold at a discount to their
"face value," and may exhibit greater price volatility than interest-bearing
securities since investors receive no payment until maturity. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association ("GNMA"), are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the right of the issuer
to borrow from the U.S. Treasury; others, such as those of the Student Loan
Marketing Association ("SLMA"), are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, though
issued by an instrumentality chartered by the U.S. Government, like the Federal
Farm Credit Bureau ("FFCB"), are supported only by the credit of the
instrumentality. The U.S. Government may choose not to provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not legally
obligated to do so.
LIQUID ASSETS. Cash equivalents include money market instruments (such as
certificates of deposit, time deposits, bankers' acceptances from U.S. or
foreign banks, and repurchase agreements), shares of affiliated money market
funds or high-quality debt obligations (such as U.S. Government obligations,
commercial paper, master notes and other short-term corporate instruments, and
municipal obligations).
INVESTMENT GRADE CORPORATE DEBT OBLIGATIONS. Each Fund may invest in U.S.
dollar-denominated debt obligations issued or guaranteed by U.S. corporations or
U.S. commercial banks, U.S. dollar-denominated obligations of foreign issuers
and debt obligations of foreign issuers denominated in foreign currencies. Such
debt obligations include, among others, bonds, notes,
10
debentures and variable rate demand notes. In choosing corporate debt securities
on behalf of a Fund, its investment adviser may consider (i) general economic
and financial conditions; (ii) the specific issuer's (a) business and
management, (b) cash flow, (c) earnings coverage of interest and dividends, (d)
ability to operate under adverse economic conditions, (e) fair market value of
assets, and (f) in the case of foreign issuers, unique political, economic or
social conditions applicable to such issuer's country; and, (iii) other
considerations deemed appropriate. AIM Blue Chip Fund will not invest in
non-convertible corporate debt securities rated below investment grade by
Standard and Poor's ratings Services ("S&P") and Moody's Investors Services
("Moody's") or in unrated non-convertible corporate debt securities believed by
the Funds' Investment advisor to be below investment grade quality.
Descriptions of debt securities ratings are found in Appendix A.
Other Investments
REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs are trusts that sell equity
or debt securities to investors and use the proceeds to invest in real estate or
interests therein. A REIT may focus on particular projects, such as apartment
complexes, or geographic regions, such as the southeastern United States, or
both.
To the extent consistent with their respective investment objectives and
policies, each Fund may invest up to 15% of its total assets in equity and/or
debt securities issued by REITs.
To the extent that a Fund has the ability to invest in REITs, the Fund
could conceivably own real estate directly as a result of a default on the
securities it owns. A Fund, therefore, may be subject to certain risks
associated with the direct ownership of real estate including difficulties in
valuing and trading real estate, declines in the value of real estate, risks
related to general and local economic conditions, adverse changes in the climate
for real estate, environmental liability risks, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to tenants, and increases in interest rates.
In addition to the risks described above, equity REITs may be affected by
any changes in the value of the underlying property owned by the trusts, while
mortgage REITs may be affected by the quality of any credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified, and are
therefore subject to the risk of financing single or a limited number of
projects. Such trusts are also subject to heavy cash flow dependency, defaults
by borrowers, self-liquidation, and the possibility of failing to maintain an
exemption from the 1940 Act. Changes in interest rates may also affect the value
of debt securities held by a Fund. By investing in REITs indirectly through a
Fund, a shareholder will bear not only his/her proportionate share of the
expenses of the Fund, but also, indirectly, similar expenses of the REITs.
OTHER INVESTMENT COMPANIES. With respect to a Fund's purchase of shares of
another investment company, including Affiliated Money Market Funds (defined
below), the Fund will indirectly bear its proportionate share of the advisory
fees and other operating expenses of such investment company. The Funds have
obtained an exemptive order from the SEC allowing them to invest in money market
funds that have AIM or an affiliate of AIM as an investment advisor (the
"Affiliated Money Market Funds"), provided that investments in Affiliated Money
Market Funds do not exceed 25% of the total assets of the investing Fund.
The following restrictions apply to investments in other investment
companies other than Affiliated Money Market Funds: (i) a Fund may not purchase
more than 3% of the total outstanding voting stock of another investment
company; (ii) a Fund may not invest more than 5% of its total assets in
securities issued by another investment company; and (iii) a Fund may not invest
more than 10% of its total assets in securities issued by other investment
companies.
11
Investment Techniques
DELAYED DELIVERY TRANSACTIONS. Delayed delivery transactions, also
referred to as forward commitments, involve commitments by a Fund to dealers or
issuers to acquire or sell securities at a specified future date beyond the
customary settlement for such securities. These commitments may fix the payment
price and interest rate to be received or paid on the investment. A Fund may
purchase securities on a delayed delivery basis to the extent it can anticipate
having available cash on settlement date. Delayed delivery agreements will not
be used as a speculative or leverage technique except for AIM Constellation
Fund.
Investment in securities on a delayed delivery basis may increase a Fund's
exposure to market fluctuation and may increase the possibility that the Fund
will incur short-term gains subject to federal taxation or short-term losses if
the Fund must engage in portfolio transactions in order to honor a delayed
delivery commitment. Until the settlement date, a Fund will segregate liquid
assets of a dollar value sufficient at all times to make payment for the delayed
delivery transactions. Such segregated liquid assets will be marked-to-market
daily, and the amount segregated will be increased if necessary to maintain
adequate coverage of the delayed delivery commitments. No additional delayed
delivery agreements or when-issued commitments (as described below) will be made
by a Fund if, as a result, more than 25% of the Fund's total assets would become
so committed.
The delayed delivery securities, which will not begin to accrue interest
or dividends until the settlement date, will be recorded as an asset of a Fund
and will be subject to the risk of market fluctuation. The purchase price of the
delayed delivery securities is a liability of a Fund until settlement. Absent
extraordinary circumstances, a Fund will not sell or otherwise transfer the
delayed delivery basis securities prior to settlement.
A Fund may enter into buy/sell back transactions (a form of delayed
delivery agreement). In a buy/sell back transaction, a Fund enters a trade to
sell securities at one price and simultaneously enters a trade to buy the same
securities at another price for settlement at a future date.
WHEN-ISSUED SECURITIES. Purchasing securities on a "when-issued" basis
means that the date for delivery of and payment for the securities is not fixed
at the date of purchase, but is set after the securities are issued. The payment
obligation and, if applicable, the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A Fund
will only make commitments to purchase such securities with the intention of
actually acquiring such securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable.
Securities purchased on a when-issued basis and the securities held in a
Fund's portfolio are subject to changes in market value based upon the public's
perception of the creditworthiness of the issuer and, if applicable, changes in
the level of interest rates. Therefore, if a Fund is to remain substantially
fully invested at the same time that it has purchased securities on a
when-issued basis, there will be a possibility that the market value of the
Fund's assets will fluctuate to a greater degree. Furthermore, when the time
comes for the Fund to meet its obligations under when-issued commitments, the
Fund will do so by using then available cash flow, by sale of the segregated
liquid assets, by sale of other securities or, although it would not normally
expect to do so, by directing the sale of the when-issued securities themselves
(which may have a market value greater or less than the Fund's payment
obligation).
Investment in securities on a when-issued basis may increase a Fund's
exposure to market fluctuation and may increase the possibility that the Fund
will incur short-term gains subject to federal taxation or short-term losses if
the Fund must sell another security in order to honor a when-issued commitment.
If a Fund purchases a when-issued security, the Fund will segregate liquid
assets in an amount equal to the when-issued commitment. If the market value of
such segregated assets declines, additional liquid assets will be segregated on
a daily basis so that the market value of the segregated assets will equal the
amount of the Fund's when-issued commitments. No additional delayed
12
delivery agreements (as described above) or when-issued commitments will be made
by a Fund if, as a result, more than 25% of the Fund's total assets would become
so committed.
SHORT SALES. In a short sale, a Fund does not immediately deliver the
securities sold and does not receive the proceeds from the sale. A Fund is said
to have a short position in the securities sold until it delivers the securities
sold, at which time it receives the proceeds of the sale. A Fund will make a
short sale, as a hedge, when it believes that the price of a security may
decline, causing a decline in the value of a security owned by the Fund or a
security convertible into or exchangeable for such security, or when the Fund
does not want to sell the security it owns, because it wishes to defer
recognition of gain or loss for federal income tax purposes. In such case, any
future losses in a Fund's long position should be reduced by a gain in the short
position. Conversely, any gain in the long position should be reduced by a loss
in the short position. The extent to which such gains or losses are reduced will
depend upon the amount of the security sold short relative to the amount a Fund
owns, either directly or indirectly, and, in the case where the Fund owns
convertible securities, changes in the conversion premium. In determining the
number of shares to be sold short against a Fund's position in a convertible
security, the anticipated fluctuation in the conversion premium is considered. A
Fund may also make short sales to generate additional income from the investment
of the cash proceeds of short sales.
A Fund will only make short sales "against the box," meaning that at all
times when a short position is open, the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and in an amount
equal to, the securities sold short. To secure its obligation to deliver the
securities sold short, a Fund will segregate with its custodian an equal amount
to the securities sold short or securities convertible into or exchangeable for
such securities. A Fund may pledge no more than 10% of its total assets as
collateral for short sales against the box.
MARGIN TRANSACTIONS. None of the Funds will purchase any security on
margin, except that each Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of portfolio securities. The
payment by a Fund of initial or variation margin in connection with futures or
related options transactions will not be considered the purchase of a security
on margin.
SWAP AGREEMENTS. Each Fund may enter into interest rate, index and
currency exchange rate swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to the Fund than if it had invested
directly in an instrument that yielded that desired return. Swap agreements are
two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. Commonly used swap agreements include: (i)
interest rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap"; (ii) interest rate floors, under which, in return for a premium,
one party agrees to make payments to the other to the extent that interest rates
fall below a specified level, or "floor"; and (iii) interest rate collars, under
which a party sells a cap and purchases a floor or vice versa in an attempt to
protect itself against interest rate movements exceeding given minimum or
maximum levels.
The "notional amount" of the swap agreement is only a fictitious basis on
which to calculate the obligations that the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by a Fund would calculate
the obligations on a "net basis." Consequently, a Fund's obligations (or rights)
under a swap agreement will generally be equal only to the net amount to be paid
or received under the agreement based on the relative values of the positions
held by each party to the agreement (the "net amount"). Obligations under a swap
agreement will be accrued daily (offset against amounts owing to the Fund) and
any accrued but unpaid net amounts owed to a swap counterparty will be covered
by segregating liquid assets to avoid any potential leveraging of the Fund. A
Fund will not enter into a swap agreement with any single party if the net
amount owed to or to be received under
13
existing contracts with that party would exceed 5% of the Fund's total assets.
For a discussion of the tax considerations relating to swap agreements, see
"Dividends, Distributions and Tax Matters -- Swap Agreements."
INTERFUND LOANS. Each Fund may lend uninvested cash up to 15% of its net
assets to other AIM Funds and each Fund may borrow from other AIM Funds to the
extent permitted under such Fund's investment restrictions. During temporary or
emergency periods, the percentage of a Fund's net assets that may be loaned to
other AIM Funds may be increased as permitted by the SEC. If any interfund
borrowings are outstanding, a Fund cannot make any additional investments. If a
Fund has borrowed from other AIM Funds and has aggregate borrowings from all
sources that exceed 10% of such Fund's total assets, such Fund will secure all
of its loans from other AIM Funds. The ability of a Fund to lend its securities
to other AIM Funds is subject to certain other terms and conditions.
BORROWING. Each Fund may borrow money to a limited extent for temporary or
emergency purposes. If there are unusually heavy redemptions because of changes
in interest rates or for any other reason, a Fund may have to sell a portion of
its investment portfolio at a time when it may be disadvantageous to do so.
Selling fund securities under these circumstances may result in a lower net
asset value per share or decreased dividend income, or both. The Trust believes
that, in the event of abnormally heavy redemption requests, a Fund's borrowing
ability would help to mitigate any such effects and could make the forced sale
of their portfolio securities less likely.
LENDING PORTFOLIO SECURITIES. The Funds may each lend their portfolio
securities (principally to broker-dealers) where such loans are callable at any
time and are continuously secured by segregated collateral equal to no less than
the market value, determined daily, of the loaned securities. Such collateral
will be cash, letters of credit, or debt securities issued or guaranteed by the
U.S. Government or any of its agencies. Each Fund may lend portfolio securities
to the extent of one-third of its total assets.
The Fund would continue to receive the income on loaned securities and
would, at the same time, earn interest on the loan collateral or on the
investment of any cash collateral. A Fund will not have the right to vote
securities while they are being lent, but it can call a loan in anticipation of
an important vote. Any cash collateral pursuant to these loans would be invested
in short-term money market instruments or Affiliated Money Market Funds. Lending
securities entails a risk of loss to the Fund if and to the extent that the
market value of the securities loaned increases and the collateral is not
increased accordingly or in the event of default by the borrower. The Fund could
also experience delays and costs in gaining access to the collateral.
REPURCHASE AGREEMENTS. Repurchase agreements are agreements under which a
Fund acquires ownership of a security from a broker-dealer or bank that agrees
to repurchase the security at a mutually agreed upon time and price (which is
higher than the purchase price), thereby determining the yield during a Fund's
holding period. A Fund may, however, enter into a "continuing contract" or
"open" repurchase agreement under which the seller is under a continuing
obligation to repurchase the underlying obligation from the Fund on demand and
the effective interest rate is negotiated on a daily basis. Each of the Funds
may engage in repurchase agreement transactions involving the types of
securities in which it is permitted to invest.
If the seller of a repurchase agreement fails to repurchase the security
in accordance with the terms of the agreement, a Fund might incur expenses in
enforcing its rights, and could experience losses, including a decline in the
value of the underlying security and loss of income. The securities underlying a
repurchase agreement will be marked-to-market every business day so that the
value of such securities is at least equal to the investment value of the
repurchase agreement, including any accrued interest thereon.
The Funds may invest their cash balances in joint accounts with other AIM
Funds for the purpose of investing in repurchase agreements with maturities not
to exceed 60 days, and in certain other money market instruments with remaining
maturities not to exceed 90 days. Repurchase agreements are considered loans by
a Fund under the 1940 Act.
14
AIM Charter Fund may enter into repurchase agreements (at any time up to 50% of
its total net assets), using only U.S. Government securities, for the sole
purpose of increasing its yield on idle cash.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are
agreements that involve the sale of securities held by a Fund to financial
institutions such as banks and broker-dealers, with an agreement that the Fund
will repurchase the securities at an agreed upon price and date. A Fund may
employ reverse repurchase agreements (i) for temporary emergency purposes, such
as to meet unanticipated net redemptions so as to avoid liquidating other
portfolio securities during unfavorable market conditions; (ii) to cover
short-term cash requirements resulting from the timing of trade settlements; or
(iii) to take advantage of market situations where the interest income to be
earned from the investment of the proceeds of the transaction is greater than
the interest expense of the transaction. At the time it enters into a reverse
repurchase agreement, a Fund will segregate liquid assets having a dollar value
equal to the repurchase price, and will subsequently continually monitor the
account to ensure that such equivalent value is maintained at all times. Reverse
repurchase agreements involve the risk that the market value of securities to be
purchased by the Fund may decline below the price at which it is obligated to
repurchase the securities, or that the other party may default on its
obligation, so that the Fund is delayed or prevented from completing the
transaction. Reverse repurchase agreements are considered borrowings by a Fund
under the 1940 Act.
DOLLAR ROLLS. A dollar roll involves the sale by a Fund of a mortgage
security to a financial institution such as a broker-dealer or a bank, with an
agreement to repurchase a substantially similar (i.e., same type, coupon and
maturity) security at an agreed upon price and date. The mortgage securities
that are purchased will bear the same interest rate as those sold, but will
generally be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase, a Fund
will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any additional
fee income received on the sale, could generate income for a Fund exceeding the
yield on the sold security.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities under a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of
the securities may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the Fund's obligation to repurchase
the securities. At the time the Fund enters into a dollar roll, it will
segregate liquid assets having a dollar value equal to the repurchase price, and
will monitor the account to ensure that such equivalent value is maintained. The
Fund typically enters into dollar roll transactions to enhance the Fund's return
either on an income or total return basis or to manage pre-payment risk. Dollar
rolls are considered borrowings by a Fund under the 1940 Act.
ILLIQUID SECURITIES. Illiquid securities are securities that cannot be
disposed of within seven days in the normal course of business at the price at
which they are valued. Illiquid securities may include securities that are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933 (the "1933 Act"). Restricted securities may, in
certain circumstances, be resold pursuant to Rule 144A, and thus may or may not
constitute illiquid securities.
Each Fund may invest up to 15% of its net assets in securities that are
illiquid. Limitations on the resale of restricted securities may have an adverse
effect on their marketability, which may prevent a Fund from disposing of them
promptly at reasonable prices. A Fund may have to bear the expense of
registering such securities for resale, and the risk of substantial delays in
effecting such registrations.
RULE 144A SECURITIES. Rule 144A securities are securities which, while
privately placed, are eligible for purchase and resale pursuant to Rule 144A
under the 1933 Act. This Rule permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. AIM, under the supervision of
the Board of Trustees, will
15
consider whether securities purchased under Rule 144A are illiquid and thus
subject to the Funds' restriction on investment in illiquid securities.
Determination of whether a Rule 144A security is liquid or not is a question of
fact. In making this determination AIM will consider the trading markets for the
specific security taking into account the unregistered nature of a Rule 144A
security. In addition, AIM could consider the (i) frequency of trades and
quotes; (ii) number of dealers and potential purchasers; (iii) dealer
undertakings to make a market; and (iv) nature of the security and of market
place trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). AIM will also
monitor the liquidity of Rule 144A securities and, if as a result of changed
conditions, AIM determines that a Rule 144A security is no longer liquid, AIM
will review a Fund's holdings of illiquid securities to determine what, if any,
action is required to assure that such Fund complies with its restriction on
investment in illiquid securities. Investing in Rule 144A securities could
increase the amount of each Fund's investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
UNSEASONED ISSUERS. Investments in the equity securities of companies
having less than three years' continuous operations (including operations of any
predecessor) involve more risk than investments in the securities of more
established companies because unseasoned issuers have only a brief operating
history and may have more limited markets and financial resources. As a result,
securities of unseasoned issuers tend to be more volatile than securities of
more established companies.
Derivatives
The Funds may each invest in forward currency contracts, futures
contracts, options on securities, options on indices, options on currencies, and
options on futures contracts to attempt to hedge against the overall level of
investment and currency risk normally associated with each Fund's investments.
The Funds may also invest in equity-linked derivative products designed to
replicate the composition and performance of particular indices. These
instruments are often referred to as "derivatives," which may be defined as
financial instruments whose performance is derived, at least in part, from the
performance of another asset (such as a security, currency or an index of
securities).
EQUITY-LINKED DERIVATIVES. Equity-Linked Derivatives are interests in a
securities portfolio designed to replicate the composition and performance of a
particular index. Equity-Linked Derivatives are exchange traded. The performance
results of Equity-Linked Derivatives will not replicate exactly the performance
of the pertinent index due to transaction and other expenses, including fees to
service providers, borne by the Equity-Linked Derivatives. Examples of such
products include S&P Depositary Receipts ("SPDRs"), World Equity Benchmark
Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones Industrial
Average Instruments ("DIAMONDS") and Optimised Portfolios As Listed Securities
("OPALS"). Investments in Equity-Linked Derivatives involve the same risks
associated with a direct investment in the types of securities included in the
indices such products are designed to track. There can be no assurance that the
trading price of the Equity-Linked Derivatives will equal the underlying value
of the basket of securities purchased to replicate a particular index or that
such basket will replicate the index. Investments in Equity-Linked Derivatives
may constitute investments in other investment companies and, therefore, a Fund
may be subject to the same investment restrictions with Equity-Linked
Derivatives as with other investment companies. See "Other Investment
Companies."
PUT AND CALL OPTIONS. A call option gives the purchaser the right to buy
the underlying security, contract or foreign currency at the stated exercise
price at any time prior to the expiration of the option (or on a specified date
if the option is a European style option), regardless of the market price or
exchange rate of the security, contract or foreign currency, as the case may be
at the time of exercise. If the purchaser exercises the call option, the writer
of a call option is obligated to sell the underlying security, contract or
foreign currency. A put option gives the purchaser the right to sell the
underlying security, contract or foreign currency at the stated exercise price
at any time prior to the expiration date of the option (or on a specified date
if the option is a European style option), regardless of the market price or
exchange rate of the security, contract or foreign currency, as the case may be
at the time of exercise. If the purchaser exercises the put option, the writer
of a put option is obligated to buy the underlying security, contract or foreign
currency. The premium paid to the writer is consideration for undertaking the
16
obligations under the option contract. Until an option expires or is offset, the
option is said to be "open." When an option expires or is offset, the option is
said to be "closed."
A Fund will not write (sell) options if, immediately after such sale, the
aggregate value of securities or obligations underlying the outstanding options
exceeds 20% of the Fund's total assets. A Fund will not purchase options if, at
any time of the investment, the aggregate premiums paid for the options will
exceed 5% of the Fund's total assets.
Pursuant to federal securities rules and regulations, if a Fund writes
options, it may be required to set aside assets to reduce the risks associated
with using those options. This process is described in more detail below in the
section "Cover."
Writing Options. A Fund may write put and call options in an attempt to
realize, through the receipt of premiums, a greater current return than would be
realized on the underlying security, contract, or foreign currency alone. A Fund
may only write a call option on a security if it owns an equal amount of such
securities or securities convertible into, or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities subject to the call option. In return for the premium
received for writing a call option, the Fund foregoes the opportunity for profit
from a price increase in the underlying security, contract, or foreign currency
above the exercise price so long as the option remains open, but retains the
risk of loss should the price of the security, contract, or foreign currency
decline.
A Fund may write a put option without owning the underlying security if it
covers the option as described in the section "Cover." A Fund may only write a
put option on a security as part of an investment strategy and not for
speculative purposes. In return for the premium received for writing a put
option, the Fund assumes the risk that the price of the underlying security,
contract, or foreign currency will decline below the exercise price, in which
case the put would be exercised and the Fund would suffer a loss.
If an option that a Fund has written expires, it will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security, contract or currency during the option
period. If a call option is exercised, a Fund will realize a gain or loss from
the sale of the underlying security, contract or currency, which will be
increased or offset by the premium received. A Fund would write a put option at
an exercise price that, reduced by the premium received on the option, reflects
the price it is willing to pay for the underlying security, contract or
currency. The obligation imposed upon the writer of an option is terminated upon
the expiration of the option, or such earlier time at which a Fund effects a
closing purchase transaction by purchasing an option (put or call as the case
may be) identical to that previously sold.
Writing call options can serve as a limited hedge because declines in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. Closing transactions may be effected in order
to realize a profit on an outstanding call option, to prevent an underlying
security, contract or currency from being called or to permit the sale of the
underlying security, contract or currency. Furthermore, effecting a closing
transaction will permit a Fund to write another call option on the underlying
security, contract or currency with either a different exercise price or
expiration date, or both.
Purchasing Options. A Fund may purchase a call option for the purpose of
acquiring the underlying security, contract or currency for its portfolio. The
Fund is not required to own the underlying security in order to purchase a call
option, and may only cover the transaction with cash, liquid assets and/or
short-term debt securities. Utilized in this fashion, the purchase of call
options would enable a Fund to acquire the security, contract or currency at the
exercise price of the call option plus the premium paid. So long as it holds
such a call option, rather than the underlying security or currency itself, the
Fund is partially protected from any unexpected increase in the market price of
the underlying security, contract or currency. If the market price does not
exceed the exercise price, the Fund could purchase the security on the open
market and could allow the call option to expire, incurring a loss only to the
extent of the
17
premium paid for the option. Each of the Funds may also purchase call options on
underlying securities, contracts or currencies against which it has written
other call options. For example, where a Fund has written a call option on an
underlying security, rather than entering a closing transaction of the written
option, it may purchase a call option with a different exercise strike and/or
expiration date that would eliminate some or all of the risk associated with the
written call. Used in combinations, these strategies are commonly referred to as
"call spreads."
A Fund may only purchase a put option on an underlying security, contract
or currency ("protective put") owned by the Fund in order to protect against an
anticipated decline in the value of the security, contract or currency. Such
hedge protection is provided only during the life of the put option. The premium
paid for the put option and any transaction costs would reduce any profit
realized when the security, contract or currency is delivered upon the exercise
of the put option. Conversely, if the underlying security, contract or currency
does not decline in value, the option may expire worthless and the premium paid
for the protective put would be lost. A Fund may also purchase put options on
underlying securities, contracts or currencies against which it has written
other put options. For example, where a Fund has written a put option on an
underlying security, rather than entering a closing transaction of the written
option, it may purchase a put option with a different exercise price and/or
expiration date that would eliminate some or all of the risk associated with the
written put. Used in combinations, these strategies are commonly referred to as
"put spreads." Likewise, a Fund may write call options on underlying securities,
contracts or currencies against which it has purchased protective put options.
This strategy is commonly referred to as a "collar."
Over-The-Counter Options. Options may be either listed on an exchange or
traded in over-the-counter ("OTC") markets. Listed options are third-party
contracts (i.e., performance of the obligations of the purchaser and seller is
guaranteed by the exchange or clearing corporation) and have standardized strike
prices and expiration dates. OTC options are two-party contracts with negotiated
strike prices and expiration dates. A Fund will not purchase an OTC option
unless it believes that daily valuations for such options are readily
obtainable. OTC options differ from exchange-traded options in that OTC options
are transacted with dealers directly and not through a clearing corporation
(which guarantees performance). Consequently, there is a risk of non-performance
by the dealer. Since no exchange is involved, OTC options are valued on the
basis of an average of the last bid prices obtained from dealers, unless a
quotation from only one dealer is available, in which case only that dealer's
price will be used. In the case of OTC options, there can be no assurance that a
liquid secondary market will exist for any particular option at any specific
time. Because purchased OTC options in certain cases may be difficult to dispose
of in a timely manner, the Fund may be required to treat some or all of these
options (i.e., the market value) as illiquid securities. Although a Fund will
enter into OTC options only with dealers that are expected to be capable of
entering into closing transactions with it, there is no assurance that the Fund
will in fact be able to close out an OTC option position at a favorable price
prior to expiration. In the event of insolvency of the dealer, a Fund might be
unable to close out an OTC option position at any time prior to its expiration.
Index Options. Index options (or options on securities indices) are
similar in many respects to options on securities, except that an index option
gives the holder the right to receive, upon exercise, cash instead of
securities, if the closing level of the securities index upon which the option
is based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. The amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
call or put times a specified multiple (the "multiplier"), which determines the
total dollar value for each point of such difference.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the Fund cannot, as a practical matter, acquire and
hold a portfolio containing exactly the same securities as underlie the index
and, as a result, bears a risk that the value of the securities held will not be
perfectly correlated with the value of the index.
18
Pursuant to federal securities rules and regulations, if a Fund writes
index options, it may be required to set aside assets to reduce the risks
associated with writing those options. This process is described in more detail
below in the section "Cover".
STRADDLES. The Fund, for hedging purposes, may write straddles
(combinations of put and call options on the same underlying security) to adjust
the risk and return characteristics of the Fund's overall position. A possible
combined position would involve writing a covered call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written covered call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
WARRANTS. Warrants are, in effect, longer-term call options. They give the
holder the right to purchase a given number of shares of a particular company at
specified prices within certain periods of time. The purchaser of a warrant
expects that the market price of the security will exceed the purchase price of
the warrant plus the exercise price of the warrant, thus giving him a profit.
Since the market price may never exceed the exercise price before the expiration
date of the warrant, the purchaser of the warrant risks the loss of the entire
purchase price of the warrant. Warrants generally trade in the open market and
may be sold rather than exercised. Warrants are sometimes sold in unit form with
other securities of an issuer. Units of warrants and common stock may be
employed in financing young, unseasoned companies. The purchase price of a
warrant varies with the exercise price of the warrant, the current market value
of the underlying security, the life of the warrant and various other investment
factors.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Futures Contract is
a two party agreement to buy or sell a specified amount of a specified security
or currency (or delivery of a cash settlement price, in the case of an index
future) for a specified price at a designated date, time and place
(collectively, "Futures Contracts"). A stock index Futures Contract provides for
the delivery, at a designated date, time and place, of an amount of cash equal
to a specified dollar amount times the difference between the stock index value
at the close of trading on the contract and the price agreed upon in the Futures
Contract; no physical delivery of stocks comprising the index is made. Brokerage
fees are incurred when a Futures Contract is bought or sold, and margin deposits
must be maintained at all times when a Futures Contract is outstanding.
A Fund will enter into Futures Contracts for hedging purposes only; that
is, Futures Contracts will be sold to protect against a decline in the price of
securities or currencies that the Fund owns, or Futures Contracts will be
purchased to protect the Fund against an increase in the price of securities or
currencies it has committed to purchase or expects to purchase. A Fund's hedging
may include sales of Futures Contracts as an offset against the effect of
expected increases in interest rates, and decreases in currency exchange rates
and stock prices, and purchases of Futures Contracts as an offset against the
effect of expected declines in interest rates, and increases in currency
exchange rates or stock prices.
The Funds currently may not invest in any security (including futures
contracts or options thereon) that is secured by physical commodities.
The Funds will only enter into Futures Contracts that are traded (either
domestically or internationally) on futures exchanges and are standardized as to
maturity date and underlying financial instrument. Futures exchanges and trading
thereon in the United States are regulated under the Commodity Exchange Act and
by the Commodity Futures Trading Commission ("CFTC"). Foreign futures exchanges
and trading thereon are not regulated by the CFTC and are not subject to the
same regulatory controls. For a further discussion of the risks associated with
investments in foreign securities, see "Foreign Investments" in this Statement
of Additional Information.
Closing out an open Futures Contract is effected by entering into an
offsetting Futures Contract for the same aggregate amount of the identical
financial instrument or currency and the same delivery date. There can be no
assurance, however, that a Fund will be able to enter into an offsetting
transaction
19
with respect to a particular Futures Contract at a particular time. If a Fund is
not able to enter into an offsetting transaction, it will continue to be
required to maintain the margin deposits on the Futures Contract.
"Margin" with respect to Futures Contracts is the amount of funds that
must be deposited by a Fund in order to initiate Futures Contracts trading and
maintain its open positions in Futures Contracts. A margin deposit made when the
Futures Contract is entered ("initial margin") is intended to ensure the Fund's
performance under the Futures Contract. The margin required for a particular
Futures Contract is set by the exchange on which the Futures Contract is traded
and may be significantly modified from time to time by the exchange during the
term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which a Fund entered into the Futures Contract will
be made on a daily basis as the price of the underlying security, currency or
index fluctuates making the Futures Contract more or less valuable, a process
known as marking-to-market.
If a Fund were unable to liquidate a Futures Contract or an option on a
Futures Contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the Futures Contract or option or to maintain cash or
securities in a segregated account.
Options on Futures Contracts. Options on Futures Contracts are similar to
options on securities or currencies except that options on Futures Contracts
give the purchaser the right, in return for the premium paid, to assume a
position in a Futures Contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the Futures Contract position by the writer of the option to the holder of the
option will be accompanied by delivery of the accumulated balance in the
writer's Futures Contract margin account. The Funds currently may not invest in
any security (including futures contracts or options thereon) that is secured by
physical commodities.
Limitations on Futures Contracts and Options on Futures Contracts and on
Certain Options on Currencies. To the extent that a Fund enters into Futures
Contracts, options on Futures Contracts and options on foreign currencies traded
on a CFTC-regulated exchange, in each case other than for bona fide hedging
purposes (as defined by the CFTC), the aggregate initial margin and premiums
required to establish those positions (excluding the amount by which options are
"in-the-money") will not exceed 5% of the total assets of the Fund, after taking
into account unrealized profits and unrealized losses on any contracts it has
entered into. This guideline may be modified by the Board, without a shareholder
vote. This limitation does not limit the percentage of the Fund's assets at risk
to 5%.
Pursuant to federal securities rules and regulations, a Fund's use of
Futures Contracts and options on Futures Contracts may require that Fund to set
aside assets to reduce the risks associated with using Futures Contracts and
options on Futures Contracts. This process is described in more detail below in
the section "Cover."
FORWARD CURRENCY CONTRACTS. A forward currency contract is an obligation,
usually arranged with a commercial bank or other currency dealer, to purchase or
sell a currency against another currency at a future date and price as agreed
upon by the parties. A Fund either may accept or make delivery of the currency
at the maturity of the forward currency contract. A Fund may also, if its contra
party agrees prior to maturity, enter into a closing transaction involving the
purchase or sale of an offsetting contract. Forward currency contracts are
traded over-the-counter, and not on organized commodities or securities
exchanges. As a result, it may be more difficult to value such contracts, and it
may be difficult to enter into closing transactions.
20
Each of the Funds may engage in forward currency transactions in
anticipation of, or to protect itself against, fluctuations in exchange rates. A
Fund may enter into forward currency contracts with respect to a specific
purchase or sale of a security, or with respect to its portfolio positions
generally. When a Fund purchases a security denominated in a foreign currency
for settlement in the near future, it may immediately purchase in the forward
market the currency needed to pay for and settle the purchase. By entering into
a forward currency contract with respect to the specific purchase or sale of a
security denominated in a foreign currency, the Fund can secure an exchange rate
between the trade and settlement dates for that purchase or sale transaction.
This practice is sometimes referred to as "transaction hedging." Position
hedging is the purchase or sale of foreign currency with respect to portfolio
security positions denominated or quoted in a foreign currency.
The cost to a Fund of engaging in forward currency contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
The use of forward currency contracts does not eliminate fluctuations in the
prices of the underlying securities a Fund owns or intends to acquire, but it
does establish a rate of exchange in advance. In addition, while forward
currency contract sales limit the risk of loss due to a decline in the value of
the hedged currencies, they also limit any potential gain that might result
should the value of the currencies increase.
Pursuant to federal securities rules and regulations, a Fund's use of
forward currency contracts may require that Fund to set aside assets to reduce
the risks associated with using forward currency contracts. This process is
described in more detail below in the section "Cover."
COVER. Transactions using forward currency contracts, futures contracts
and options (other than options purchased by a Fund) expose a Fund to an
obligation to another party. A Fund will not enter into any such transactions
unless, in addition to complying with all the restrictions noted in the
disclosure above, it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options, forward currency contracts or futures
contracts or (2) cash, liquid assets and/or short-term debt securities with a
value sufficient at all times to cover its potential obligations not covered as
provided in (1) above. Each Fund will comply with SEC guidelines regarding cover
for these instruments and, if the guidelines so require, set aside cash or
liquid securities. To the extent that a futures contract, forward currency
contract or option is deemed to be illiquid, the assets used to "cover" the
Fund's obligation will also be treated as illiquid for purposes of determining
the Fund's maximum allowable investment in illiquid securities.
Even though options purchased by the Funds do not expose the Funds to an
obligation to another party, but rather provide the Funds with a right to
exercise, the Funds intend to "cover" the cost of any such exercise. To the
extent that a purchased option is deemed illiquid, a Fund will treat the market
value of the option (i.e., the amount at risk to the Fund) as illiquid, but will
not treat the assets used as cover on such transactions as illiquid.
Assets used as cover cannot be sold while the position in the
corresponding forward currency contract, futures contract or option is open,
unless they are replaced with other appropriate assets. If a large portion of a
Fund's assets is used for cover or otherwise set aside, it could affect
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES. The use by the
Funds of options, futures contracts and forward currency contracts involves
special considerations and risks, as described below. Risks pertaining to
particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's ability to
correctly predict the direction of changes in the value of the applicable
markets and securities, contracts and/or currencies. While AIM is experienced in
the use of these instruments, there can be no assurance that any particular
hedging strategy will succeed.
21
(2) There might be imperfect correlation, or even no correlation, between
the price movements of an instrument (such as an option contract) and the price
movements of the investments being hedged. For example, if a "protective put" is
used to hedge a potential decline in a security and the security does decline in
price, the put option's increased value may not completely offset the loss in
the underlying security. Such a lack of correlation might occur due to factors
unrelated to the value of the investments being hedged, such as changing
interest rates, market liquidity, and speculative or other pressures on the
markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly
or partially offsetting the negative effect of unfavorable price movements in
the investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments.
(4) There is no assurance that a liquid secondary market will exist for
any particular option, futures contract or option thereon or forward currency
contract at any particular time.
(5) As described above, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties. If a Fund were
unable to close out its positions in such instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. The requirements might impair the Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time.
(6) There is no assurance that a Fund will use hedging transactions. For
example, if a Fund determines that the cost of hedging will exceed the potential
benefit to the Fund, the Fund will not enter into such transaction.
Additional Securities or Investment Techniques
SPECIAL SITUATIONS. AIM Constellation Fund may invest in "special
situations." A special situation arises when, in the opinion of the Fund's
management, the securities of a particular company will, within a reasonably
estimated period of time, be accorded market recognition at an appreciated value
solely by reason of a development applicable to that company, and regardless of
general business conditions or movements of the market as a whole. Developments
creating special situations might include, among others: liquidations,
reorganizations, recapitalizations, mergers, material litigation, technical
breakthroughs, and new management or management policies. Although large and
well-known companies may be involved, special situations more often involve
comparatively small or unseasoned companies. Investments in unseasoned companies
and special situations often involve much greater risk than in ordinary
investment securities.
PRIVATIZATIONS. AIM Basic Value II Fund may invest in privatizations. The
governments of some foreign countries have been engaged in programs of selling
part or all of their stakes in government owned or controlled enterprises
("privatizations"). AIM believes that privatizations may offer opportunities for
significant capital appreciation and intend to invest in privatizations in
appropriate circumstances. In certain foreign countries, the ability of foreign
entities to participate in privatizations may be limited by local law, or the
terms on which a Fund may be permitted to participate may be less advantageous
than those for local investors. There can be no assurance that foreign
governments will continue to sell companies currently owned or controlled by
them or that privatization programs will be successful.
COMMERCIAL BANK OBLIGATIONS. For the purpose of AIM Basic Value II Fund's
investment policies with respect to bank obligations, obligations of foreign
branches of U.S. banks and of foreign banks are obligations of the issuing bank
and may be general obligations of the parent bank. Such obligations, however,
may be limited by the terms of a specific obligation and by government
regulation. As with investment in non-U.S. securities in general, investments in
the obligations of foreign branches of U.S. banks and of foreign banks may
subject the Fund to investment risks that are different in some
22
respects from those of investments in obligations of domestic issuers. Although
the Fund typically will acquire obligations issued and supported by the credit
of U.S. or foreign banks having total assets at the time of purchase of $1
billion or more, this $1 billion figure is not an investment policy or
restriction of the Fund. For the purposes of calculation with respect to the $1
billion figure, the assets of a bank will be deemed to include the assets of its
U.S. and non-U.S. branches.
MASTER LIMITED PARTNERSHIPS ("MLPS"). AIM Diversified Dividend Fund may
invest in MLPs. MLPs are securities through which the operating results of
businesses are passed on to unitholders of MLPs. Operating earnings flow
directly to the unitholders in the form of cash distributions. Although the
characteristics of MLPs closely resemble a traditional limited partnership, a
major difference is that MLPs may trade on a public exchange or in the
over-the-counter market. The ability to trade on a public exchange or in the
over-the-counter market provides a certain amount of liquidity not found in many
limited partnership investments.
FUND POLICIES
FUNDAMENTAL RESTRICTIONS. Each Fund is subject to the following investment
restrictions, which may be changed only by a vote of such Fund's outstanding
shares. Fundamental restrictions may be changed only by a vote of the lesser of
(i) 67% or more of the Fund's shares present at a meeting if the holders of more
than 50% of the outstanding shares are present in person or represented by
proxy, or (ii) more than 50% of the Fund's outstanding shares. Any investment
restriction that involves a maximum or minimum percentage of securities or
assets (other than with respect to borrowing) shall not be considered to be
violated unless an excess over or a deficiency under the percentage occurs
immediately after, and is caused by, an acquisition or disposition of securities
or utilization of assets by the Fund.
(1) The Fund is a "diversified company" as defined in the 1940 Act. The
Fund will not purchase the securities of any issuer if, as a result, the Fund
would fail to be a diversified company within the meaning of the 1940 Act, and
the rules and regulations promulgated thereunder, as such statute, rules and
regulations are amended from time to time or are interpreted from time to time
by the SEC staff (collectively, the "1940 Act Laws and Interpretations") or
except to the extent that the Fund may be permitted to do so by exemptive order
or similar relief (collectively, with the 1940 Act Laws and Interpretations, the
"1940 Act Laws, Interpretations and Exemptions"). In complying with this
restriction, however, the Fund may purchase securities of other investment
companies to the extent permitted by the 1940 Act Laws, Interpretations and
Exemptions.
(2) The Fund may not borrow money or issue senior securities, except as
permitted by the 1940 Act Laws, Interpretations and Exemptions.
(3) The Fund may not underwrite the securities of other issuers. This
restriction does not prevent the Fund from engaging in transactions involving
the acquisition, disposition or resale of its portfolio securities, regardless
of whether the Fund may be considered to be an underwriter under the 1933 Act.
(4) The Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940 Act Laws,
Interpretations and Exemptions) of its investments in the securities of issuers
primarily engaged in the same industry. This restriction does not limit the
Fund's investments in (i) obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or (ii) tax-exempt obligations
issued by governments or political subdivisions of governments. In complying
with this restriction, the Fund will not consider a bank-issued guaranty or
financial guaranty insurance as a separate security.
(5) The Fund may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments. This
restriction does not prevent the Fund from investing in issuers that invest,
deal, or otherwise engage in transactions in real estate or interests therein,
or investing in securities that are secured by real estate or interests therein.
23
(6) The Fund may not purchase physical commodities or sell physical
commodities unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from engaging in
transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities.
(7) The Fund may not make personal loans or loans of its assets to persons
who control or are under common control with the Fund, except to the extent
permitted by 1940 Act Laws, Interpretations and Exemptions. This restriction
does not prevent the Fund from, among other things, purchasing debt obligations,
entering into repurchase agreements, loaning its assets to broker-dealers or
institutional investors, or investing in loans, including assignments and
participation interests.
(8) The Fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and restrictions as the Fund.
The investment restrictions set forth above provide each of the Funds with
the ability to operate under new interpretations of the 1940 Act or pursuant to
exemptive relief from the SEC without receiving prior shareholder approval of
the change. Even though each of the Funds has this flexibility, the Board of
Trustees has adopted non-fundamental restrictions for each of the Funds relating
to certain of these restrictions which AIM and certain Funds' sub-advisor must
follow in managing the Funds. Any changes to these non-fundamental restrictions,
which are set forth below, require the approval of the Board of Trustees.
NON-FUNDAMENTAL RESTRICTIONS. The following non-fundamental investment
restrictions apply to each of the Funds. They may be changed for any Fund
without approval of that Fund's voting securities.
(1) In complying with the fundamental restriction regarding issuer
diversification, the Fund will not, with respect to 75% of its total assets,
purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities),
if, as a result, (i) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, or (ii) the Fund would hold more than 10% of
the outstanding voting securities of that issuer. The Fund may (i) purchase
securities of other investment companies as permitted by Section 12(d)(1) of the
1940 Act and (ii) invest its assets in securities of other money market funds
and lend money to other investment companies or their series portfolios that
have AIM or an affiliate of AIM as an investment advisor (an "AIM Advised
Fund"), subject to the terms and conditions of any exemptive orders issued by
the SEC.
(2) In complying with the fundamental restriction regarding borrowing
money and issuing senior securities, the Fund may borrow money in an amount not
exceeding 33-1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). The Fund may borrow from banks,
broker-dealers or an AIM Advised Fund. Other than AIM Constellation Fund, the
Fund may not borrow for leveraging, but may borrow for temporary or emergency
purposes, in anticipation of or in response to adverse market conditions, or for
cash management purposes. AIM Constellation Fund may not purchase additional
securities when any borrowings from an AIM Advised Fund are outstanding. Each
other Fund may not purchase additional securities when any borrowings from banks
exceed 5% of the Fund's total assets or when any borrowings from an AIM Advised
Fund are outstanding.
(3) In complying with the fundamental restriction regarding industry
concentration, the Fund may invest up to 25% of its total assets in the
securities of issuers whose principal business activities are in the same
industry.
(4) In complying with the fundamental restriction with regard to making
loans, the Fund may lend up to 33-1/3% of its total assets and may lend money to
an AIM Advised Fund, on such terms and conditions as the SEC may require in an
exemptive order.
24
(5) Notwithstanding the fundamental restriction with regard to investing
all assets in an open-end fund, the Fund may not invest all of its assets in the
securities of a single open-end management investment company with the same
fundamental investment objectives, policies and restrictions as the Fund.
(6) Notwithstanding the fundamental restriction with regard to engaging in
transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities, the Fund currently may not
invest in any security (including futures contracts or options thereon) that is
secured by physical commodities.
ADDITIONAL NON-FUNDAMENTAL POLICIES. As non-fundamental policies:
(1) AIM Blue Chip Fund normally invests at least 80% of its assets in
securities of blue chip companies. For purposes of the foregoing sentence,
"assets" means net assets, plus the amount of any borrowings for investment
purposes. The Fund will provide written notice to its shareholders prior to any
change to this policy, as required by the 1940 Act Laws, Interpretations and
Exemptions.
(2) AIM Mid Cap Growth Fund normally invests at least 80% of its assets in
securities of mid-capitalization companies. For purposes of the foregoing
sentence, "assets" means net assets, plus the amount of any borrowings for
investment purposes. The Fund will provide written notice to its shareholders
prior to any change to this policy, as required by the 1940 Act Laws,
Interpretations and Exemptions.
(3) AIM Large Cap Basic Value Fund normally invests at least 80% of its
assets in securities of large-capitalization companies that offer potential for
capital growth, and may offer potential for current income. For purposes of the
foregoing sentence, "assets" means net assets, plus the amount of any borrowings
for investment purposes. The Fund will provide written notice to its
shareholders prior to any change to this policy, as required by the 1940 Act
Laws, Interpretations and Exemptions.
(4) AIM Large Cap Growth Fund normally invests at least 80% of its assets
in securities of large-capitalization companies. For purposes of the foregoing
sentence, "assets" means net assets, plus the amount of any borrowings for
investment purposes. The Fund will provide written notice to its shareholders
prior to any change to this policy, as required by the 1940 Act Laws,
Interpretations and Exemptions.
(5) AIM Diversified Dividend Fund normally invests at least 80% of its
assets in dividend-paying equity securities. For purposes of the foregoing
sentence, "assets" means net assets, plus the amount of any borrowings for
investment purposes. The Fund will provide written notice to its shareholders
prior to any change to this policy, as required by the 1940 Act Laws,
Interpretations and Exemptions.
(6) AIM U.S. Growth Fund normally invests at least 80% of its assets in
core growth securities of market-leading U.S. companies. For purposes of the
foregoing sentence, "assets" means net assets, plus the amount of any borrowings
for investment purposes. The Fund will provide written notice to its
shareholders prior to any change to this policy, as required by the 1940 Act
Laws, Interpretations and Exemptions.
(7) The amount AIM Constellation Fund may borrow will also be limited by
the applicable margin limitations imposed by the Federal Reserve Board. If at
any time the value of AIM Constellation Fund's assets should fail to meet the
300% asset coverage requirement, the Fund will, within three days, reduce its
borrowings to the extent necessary. AIM Constellation Fund may be required to
eliminate partially or totally its outstanding borrowings at times when it may
not be desirable for it to do so. Any investment gains made by AIM Constellation
Fund with the borrowed monies in excess of interest paid by the Fund will cause
the net asset value of AIM Constellation Fund's shares to rise faster than would
otherwise be the case. On the other hand, if the investment performance of the
additional securities purchased with the proceeds of such borrowings fails to
cover the interest paid on the money borrowed by
25
AIM Constellation Fund, the net asset value of AIM Constellation Fund will
decrease faster than would otherwise be the case. This speculative factor is
known as "leveraging."
TEMPORARY DEFENSIVE POSITIONS
In anticipation of or in response to adverse market or other conditions,
or atypical circumstances such as unusually large cash inflows or redemptions,
the Funds may temporarily hold all or a portion of their assets in cash, cash
equivalents or high-quality debt instruments. Each of the Funds may also invest
up to 25% of its total assets in Affiliated Money Market Funds for these
purposes.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The overall management of the business and affairs of the Funds and the
Trust is vested in the Board of Trustees. The Board of Trustees approves all
significant agreements between the Trust, on behalf of one or more of the Funds,
and persons or companies furnishing services to the Funds. The day-to-day
operations of each Fund are delegated to the officers of the Trust and to AIM,
subject always to the objective(s), restrictions and policies of the applicable
Fund and to the general supervision of the Board of Trustees. Certain trustees
and officers of the Trust are affiliated with AIM and A I M Management Group
Inc. ("AIM Management"), the parent corporation of AIM. All of the Trust's
executive officers hold similar offices with some or all of the other AIM Funds.
MANAGEMENT INFORMATION
The trustees and officers of the Trust, their principal occupations during
the last five years and certain other information concerning them are set forth
in Appendix B.
The standing committees of the Board of Trustees are the Audit Committee,
the Investments Committee, the Valuation Committee and the Committee on
Directors/Trustees.
The members of the Audit Committee are Frank S. Bayley, Bruce L. Crockett,
Albert R. Dowden (Vice Chair), Edward K. Dunn, Jr. (Chair), Jack M. Fields,
Lewis F. Pennock, Louis S. Sklar, Dr. Prema Mathai-Davis and Ruth H. Quigley.
The Audit Committee is responsible for: (i) the appointment, compensation and
oversight of any independent auditors employed by each Fund (including
resolution of disagreements between Fund management and the auditor regarding
financial reporting) for the purpose of preparing or issuing an audit report or
related work; (ii) overseeing the financial reporting process of each Fund;
(iii) monitoring the process and the resulting financial statements prepared by
Fund management to promote accuracy of financial reporting and asset valuation;
and (iv) pre-approving permissible non-audit services that are provided to each
Fund by its independent auditors. During the fiscal year ended October 31, 2002,
the Audit Committee held six meetings.
The members of the Investments Committee are Messrs. Bayley, Crockett,
Dowden, Dunn, Fields, Pennock and Sklar (Chair), Carl Frischling, Dr.
Mathai-Davis (Vice Chair) and Miss Quigley. The Investments Committee is
responsible for: (i) overseeing AIM's investment-related compliance systems and
procedures to ensure their continued adequacy; and (ii) considering and acting,
on an interim basis between meetings of the full Board, on investment-related
matters requiring Board consideration, including dividends and distributions,
brokerage policies and pricing matters. During the fiscal year ended October 31,
2002, the Investments Committee held four meetings.
The members of the Valuation Committee are Messrs. Dunn and Pennock
(Chair), and Miss Quigley (Vice Chair). The Valuation Committee is responsible
for: (i) periodically reviewing AIM's Procedures for Valuing Securities
("Procedures"), and making any recommendations to AIM with respect thereto; (ii)
reviewing proposed changes to the Procedures recommended by AIM from time to
time; (iii) periodically reviewing information provided by AIM regarding
industry developments in connection
26
with valuation; (iv) periodically reviewing information from AIM regarding fair
value and liquidity determinations made pursuant to the Procedures, and making
recommendations to the full Board in connection therewith (whether such
information is provided only to the Committee or to the Committee and the full
Board simultaneously); and (v) if requested by AIM, assisting AIM's internal
valuation committee and/or the full Board in resolving particular valuation
anomalies. During the fiscal year ended October 31, 2002, the Valuation
Committee held one meeting.
The members of the Committee on Directors/Trustees are Messrs. Bayley,
Crockett (Chair), Dowden, Dunn, Fields (Vice Chair), Pennock and Sklar, Dr.
Mathai-Davis and Miss Quigley. The Committee on Directors/Trustees is
responsible for: (i) nominating persons who are not interested persons of the
Fund for election or appointment: (a) as additions to the Board, (b) to fill
vacancies which, from time to time, may occur in the Board and (c) for election
by shareholders of the Fund at meetings called for the election of trustees;
(ii) nominating persons who are not interested persons of the Fund for selection
as, members of each committee of the Board, including without limitation, the
Audit Committee, the Committee on Directors/Trustees, the Investments Committee
and the Valuation Committee, and to nominate persons for selection as chair and
vice chair of each such committee; (iii) reviewing from time to time the
compensation payable to the independent trustees and making recommendations to
the Board regarding compensation; (iv) reviewing and evaluating from time to
time the functioning of the Board and the various committees of the Board; (v)
selecting independent legal counsel to the independent trustees and approving
the compensation paid to independent legal counsel; and (vi) approving the
compensation paid to independent counsel and other advisers, if any , to the
Audit Committee of the Fund. During the fiscal year ended October 31, 2002, the
Committee on Directors/Trustees held five meetings.
The Committee on Directors/Trustees will consider nominees recommended by
a shareholder to serve as trustees, provided: (i) that such person is a
shareholder of record at the time he or she submits such names and is entitled
to vote at the meeting of shareholders at which trustees will be elected; and
(ii) that the Committee on Directors/Trustees or the Board, as applicable, shall
make the final determination of persons to be nominated.
Trustee Ownership of Fund Shares
The dollar range of equity securities beneficially owned by each trustee
(i) in the Funds and (ii) on an aggregate basis, in all registered investment
companies overseen by the trustee within the AIM Funds complex is set forth in
Appendix B.
Factors Considered in Approving the Investment Advisory Agreement
The advisory agreement with AIM was re-approved for each Fund by the
Trust's Board at a meeting held on May 13-14, 2003. In evaluating the fairness
and reasonableness of the advisory agreement, the Board of Trustees considered a
variety of factors for each Fund, including: the requirements of each Fund for
investment supervisory and administrative services; the quality of AIM's
services, including a review of each Fund's investment performance and AIM's
investment personnel; the size of the fees in relationship to the extent and
quality of the investment advisory services rendered; fees charged to AIM's
other clients; fees charged by competitive investment advisors; the size of the
fees in light of services provided other than investment advisory services; the
expenses borne by each Fund as a percentage of its assets and relationship to
contractual limitations; any fee waivers (or payments of Fund expenses) by AIM;
AIM's profitability; the benefits received by AIM from its relationship to each
Fund, including soft dollar arrangements, and the extent to which each Fund
shares in those benefits; the organizational capabilities and financial
condition of AIM and conditions and trends prevailing in the economy, the
securities markets and the mutual fund industry; and the historical relationship
between each Fund and AIM.
In considering the above factors, the Board also took into account the
fact that uninvested cash and cash collateral from securities lending
arrangements (collectively, "cash balances") of each Fund may be invested in
money market funds advised by AIM pursuant to the terms of an exemptive order.
The Board found that each Fund may realize certain benefits upon investing cash
balances in AIM advised
27
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board also found
that each Fund will not receive reduced services if it invests its cash balances
in such money market funds. The Board further determined that the proposed
securities lending program and related procedures with respect to each of the
lending Funds is in the best interests of each lending Fund and their respective
shareholders. The Board therefore concluded that the investment of cash
collateral received in connection with the securities lending program in the
money market funds according to the procedures is in the best interests of each
lending Fund and its respective shareholders.
After consideration of these factors, the Board found that: (i) the
services provided to each Fund and its shareholders were adequate; (ii) the
agreements were fair and reasonable under the circumstances; and (iii) the fees
payable under the agreements would have been obtained through arm's length
negotiations. The Board therefore concluded that each Fund's advisory agreement
was in the best interests of such Fund and its shareholders and continued the
agreement for an additional year.
COMPENSATION
Each trustee who is not affiliated with AIM is compensated for his or her
services according to a fee schedule which recognizes the fact that such trustee
also serves as a director or trustee of other AIM Funds. Each such trustee
receives a fee, allocated among the AIM Funds for which he or she serves as a
director or trustee, which consists of an annual retainer component and a
meeting fee component.
Information regarding compensation paid or accrued for each trustee of the
Trust who was not affiliated with AIM during the year ended December 31, 2002 is
found in Appendix C.
Retirement Plan For Trustees
The trustees have adopted a retirement plan for the trustees of the Trust
who are not affiliated with AIM. The retirement plan includes a retirement
policy as well as retirement benefits for the non-AIM-affiliated trustees.
The retirement policy permits each non-AIM-affiliated trustee to serve
until December 31 of the year in which the trustee turns 72. A majority of the
trustees may extend from time to time the retirement date of a trustee.
Annual retirement benefits are available to each non-AIM-affiliated
trustee of the Trust and/or the other AIM Funds (each, a "Covered Fund") who has
at least five years of credited service as a trustee (including service to a
predecessor fund) for a Covered Fund. The retirement benefits will equal 75% of
the trustee's annual retainer paid or accrued by any Covered Fund to such
trustee during the twelve-month period prior to retirement, including the amount
of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the trustee. The annual retirement benefits are
payable in quarterly installments for a number of years equal to the lesser of
(i) ten or (ii) the number of such trustee's credited years of service. A death
benefit is also available under the plan that provides a surviving spouse with a
quarterly installment of 50% of a deceased trustee's retirement benefits for the
same length of time that the trustee would have received based on his or her
service. A trustee must have attained the age of 65 (55 in the event of death or
disability) to receive any retirement benefit.
Deferred Compensation Agreements
Messrs. Dunn, Fields, Frischling and Sklar and Dr. Mathai-Davis (for
purposes of this paragraph only, the "Deferring Trustees") have each executed a
Deferred Compensation Agreement (collectively, the "Compensation Agreements").
Pursuant to the Compensation Agreements, the Deferring Trustees have the option
to elect to defer receipt of up to 100% of their compensation payable by the
Trust, and such amounts are placed into a deferral account. Currently, the
Deferring Trustees have the option to
28
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested. Distributions from the Deferring Trustees' deferral
accounts will be paid in cash, generally in equal quarterly installments over a
period of up to ten (10) years (depending on the Compensation Agreement)
beginning on the date selected under the Compensation Agreement. The Trust's
Board of Trustees, in its sole discretion, may accelerate or extend the
distribution of such deferral accounts after the Deferring Trustee's retirement
benefits commence under the Plan. The Board, in its sole discretion, also may
accelerate or extend the distribution of such deferral accounts after the
Deferring Trustee's termination of service as a trustee of the Trust. If a
Deferring Trustee dies prior to the distribution of amounts in his or her
deferral account, the balance of the deferral account will be distributed to his
or her designated beneficiary. The Compensation Agreements are not funded and,
with respect to the payments of amounts held in the deferral accounts, the
Deferring Trustees have the status of unsecured creditors of the Trust and of
each other AIM Fund from which they are deferring compensation.
Purchase of Class A Shares of the Funds at Net Asset Value
The trustees and other affiliated persons of the Trust may purchase Class
A shares of the Funds without paying an initial sales charge. AIM Distributors
permits such purchases because there is a reduced sales effort involved in sales
to such purchasers, thereby resulting in relatively low expenses of
distribution. For a complete description of the persons who will not pay an
initial sales charge on purchases of Class A shares of the Funds, see "Purchase,
Redemption and Pricing of Shares - Purchase and Redemption of Shares - Purchases
of Class A Shares, Class A3 Shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund and AIM Cash Reserve Shares of AIM Money Market Fund
- - Purchases of Class A Shares at Net Asset Value."
CODES OF ETHICS
AIM, the Trust, AIM Distributors, A I M Capital Management, Inc. (the
"Sub-Advisor") and H.S. Dent Advisors, Inc. (the "Sub-Advisor") have each
adopted a Code of Ethics governing, as applicable, personal trading activities
of all directors/trustees, officers of the Trust, persons who, in connection
with their regular functions, play a role in the recommendation of any purchase
or sale of a security by any of the Funds or obtain information pertaining to
such purchase or sale, and certain other employees. The Codes of Ethics are
intended to prohibit conflicts of interest with the Trust that may arise from
personal trading. Personal trading, including personal trading involving
securities that may be purchased or held by a Fund, is permitted by persons
covered under the relevant Codes subject to certain restrictions; however those
persons are generally required to pre-clear all security transactions with the
Compliance Officer or his designee and to report all transactions on a regular
basis.
PROXY VOTING POLICIES
The Board of Trustees of the Trust has delegated responsibility for
decisions regarding proxy voting for securities held by each Fund to the Fund's
investment advisor. The investment advisor will vote such proxies in accordance
with its proxy policies and procedures, which have been reviewed by the Board of
Trustees, and which are found in Appendix D.
Any material changes to the proxy policies and procedures will be
submitted to the Board of Trustees of the Trust for approval. The Board of
Trustees will be supplied with a summary quarterly report of each Fund's proxy
voting record.
29
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Information about the ownership of each class of each Fund's shares by
beneficial or record owners of such Fund and by trustees and officers as a group
is found in Appendix E. A shareholder who owns beneficially 25% or more of the
outstanding shares of a Fund is presumed to "control" that Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
AIM, the Funds' investment advisor, was organized in 1976, and along with
its subsidiaries, manages or advises over 190 investment portfolios encompassing
a broad range of investment objectives. AIM is a direct, wholly owned subsidiary
of AIM Management, a holding company that has been engaged in the financial
services business since 1976. AIM Management is an indirect, wholly owned
subsidiary of AMVESCAP PLC. AMVESCAP PLC and its subsidiaries are an independent
global investment management group. Certain of the directors and officers of AIM
are also executive officers of the Trust and their affiliations are shown under
"Management Information" herein.
As investment advisor, AIM supervises all aspects of the Funds' operations
and provides investment advisory services to the Funds. AIM obtains and
evaluates economic, statistical and financial information to formulate and
implement investment programs for the Funds. The Master Investment Advisory
Agreement provides that, in fulfilling its responsibilities, AIM may engage the
services of other investment managers with respect to one or more of the Funds.
The investment advisory services of AIM and the investment sub-advisory services
of the sub-advisor(s) to the Funds are not exclusive and AIM and the
sub-advisor(s) are free to render investment advisory services to others,
including other investment companies.
AIM is also responsible for furnishing to the Funds, at AIM's expense, the
services of persons believed to be competent to perform all supervisory and
administrative services required by the Funds, in the judgment of the trustees,
to conduct their respective businesses effectively, as well as the offices,
equipment and other facilities necessary for their operations. Such functions
include the maintenance of each Fund's accounts and records, and the preparation
of all requisite corporate documents such as tax returns and reports to the SEC
and shareholders.
The Master Investment Advisory Agreement provides that each Fund will pay
or cause to be paid all expenses of such Fund not assumed by AIM, including,
without limitation: brokerage commissions, taxes, legal, auditing or
governmental fees, the cost of preparing share certificates, custodian, transfer
and shareholder service agent costs, expenses of issue, sale, redemption, and
repurchase of shares, expenses of registering and qualifying shares for sale,
expenses relating to trustee and shareholder meetings, the cost of preparing and
distributing reports and notices to shareholders, the fees and other expenses
incurred by the Trust on behalf of each Fund in connection with membership in
investment company organizations, and the cost of printing copies of
prospectuses and statements of additional information distributed to the Funds'
shareholders.
AIM, at its own expense, furnishes to the Trust office space and
facilities. AIM furnishes to the Trust all personnel for managing the affairs of
the Trust and each of its series of shares.
30
Pursuant to its advisory agreement with the Trust, AIM receives a monthly
fee from each Fund calculated at the following annual rates, based on the
average daily net assets of each Fund during the year:
FUND NAME NET ASSETS ANNUAL RATE
AIM Aggressive Growth Fund First $150 million 0.80%
Amount over $150 million 0.625%
AIM Blue Chip Fund First $350 million 0.75%
Amount over $350 million 0.625%
AIM Capital Development Fund First $350 million 0.75%
Amount over $350 million 0.625%
AIM Charter Fund First $30 million 1.00%
AIM Constellation Fund* Next $120 million 0.75%
Amount over $150 million 0.625%
AIM Basic Value II Fund First $1 billion 0.75%
AIM U.S. Growth Fund Next $1 billion 0.70%
Amount over $2 billion 0.65%
AIM Core Strategies Fund First $1 billion 0.75%
AIM Diversified Dividend Fund Next $1 billion 0.70%
Amount over $2 billion 0.625%
AIM Dent Demographic Trends Fund First $2 billion 0.85%
Amount over $2 billion 0.80%
AIM Emerging Growth Fund First $1 billion 0.85%
Amount over $1 billion 0.80%
AIM Large Cap Basic Value Fund First $1 billion 0.60%
Next $1 billion 0.575%
Amount over $2 billion 0.55%
AIM Large Cap Growth Fund First $1 billion 0.75%
Next $1 billion 0.70%
Amount over $2 billion 0.625%
AIM Mid Cap Growth Fund First $1 billion 0.80%
Amount over $1 billion 0.75%
AIM Weingarten Fund First $30 million 1.00%
Next $320 million 0.75%
Amount over $350 million 0.625%
* See currently effective fee disclosure below.
AIM has voluntarily agreed to waive advisory fees payable by AIM
Constellation Fund in an amount equal to 0.025% for each $5 billion increment in
net assets over $5 billion, up to a maximum waiver of 0.175% on net assets in
excess of $35 billion.
AIM may from time to time waive or reduce its fee. Voluntary fee waivers
or reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or
31
reductions, AIM will retain its ability to be reimbursed for such fee prior to
the end of each fiscal year. Contractual fee waivers or reductions set forth in
the Fee Table in a Prospectus may not be terminated or amended to the Funds'
detriment during the period stated in the agreement between AIM and the Fund.
AIM has voluntarily agreed to waive a portion of advisory fees payable by
each Fund. The amount of the waiver will equal 25% of the advisory fee AIM
receives from the Affiliated Money Market Funds as a result of each Fund's
Investment of uninvested cash in an Affiliated Money Market Fund. Termination of
this agreement requires approval by the Board of Trustees. See "Description of
the Funds and Their Investments and Risks - Investment Strategies and Risks -
Other Investments - Other Investment Companies."
AIM has contractually agreed through October 31, 2004 to waive fees and/or
reimburse expenses (excluding interest, taxes, dividends on short sales, fund
merger and reorganization expenses, including other items designated as such by
the Board of Trustees, and increases in expenses due to expense offset
arrangements, if any) for AIM Diversified Dividend Fund's Class A, Class B and
Class C shares to the extent necessary to limit the total operating expenses of
Class A shares to 1.50% (e.g., if AIM waives 2.76% of Class A expenses, AIM will
also waive 2.76% of Class B and Class C expenses).
INVESTMENT SUB-ADVISOR
AIM has entered into a Master Sub-Advisory contract with A I M Capital
Management, Inc. ("AIM Capital") to provide investment sub-advisory services to
AIM Charter Fund, AIM Constellation Fund and AIM Weingarten Fund. AIM Capital is
registered as an investment advisor under the Investment Advisers Act of 1940,
as amended (the "Advisers Act"). AIM Capital is a wholly owned subsidiary of
AIM.
For the services to be rendered by AIM Capital, under its Master
Sub-Advisory Contract, AIM will pay to AIM Capital a fee which will be computed
daily and paid as of the last day of each month on the basis of each Fund's
daily net asset value, using for each daily calculation the most recently
determined net asset value of the Fund. (See "Computation of Net Asset Value.")
On an annual basis, the sub-advisory fee is equal to 0.50% of AIM's compensation
of the sub-advised assets per year, for each of the AIM Charter Fund, AIM
Constellation Fund and AIM Weingarten Fund.
AIM has entered into a Master Sub-Advisory Agreement with H.S. Dent
Advisors, Inc. ("Dent Advisors") to provide investment sub-advisory services to
AIM Dent Demographic Trends Fund. Dent Advisors is registered as an investment
advisor under the Advisers Act. The Fund is managed by investment managers who
utilize Dent Advisors' research and analysis regarding economic and demographic
trends.
For the services to be rendered by Dent Advisors under its Master
Sub-Advisory Contract, the Advisor will pay to Dent Advisors a fee which will be
computed daily and paid as of the last day of each month on the basis of the AIM
Dent Demographic Trends Fund's daily net asset value, using for each daily
calculation the most recently determined net asset value of the Fund. (See
"Computation of Net Asset Value.") On an annual basis, the sub-advisory fee is
equal to 0.13% of the first $1 billion of AIM Dent Demographic Trends Fund's
average daily net assets, plus 0.10% of the Fund's average daily net assets in
excess of $1 billion to and including $2 billion of the Fund's average daily net
assets, plus 0.07% of the Fund's average daily net assets in excess of $2
billion.
The management fees payable by each Fund, the amounts waived by AIM and
the net fees paid by each Fund for the last three fiscal years ended October 31
are found in Appendix F.
SECURITIES LENDING ARRANGEMENTS. If a Fund engages in securities lending,
AIM will provide the Fund investment advisory services and related
administrative services. The advisory agreement describes the administrative
services to be rendered by AIM if a Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Services to be provided include: (a) overseeing participation in the
securities lending program to ensure compliance with
32
all applicable regulatory and investment guidelines; (b) assisting the
securities lending agent or principal (the "agent") in determining which
specific securities are available for loan; (c) monitoring the agent to ensure
that securities loans are effected in accordance with AIM's instructions and
with procedures adopted by the Board; (d) preparing appropriate periodic reports
for, and seeking appropriate approvals from, the Board with respect to
securities lending activities; (e) responding to agent inquiries; and (f)
performing such other duties as may be necessary.
AIM's compensation for advisory services rendered in connection with
securities lending is included in the advisory fee schedule. As compensation for
the related administrative services AIM will provide, a lending Fund will pay
AIM a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities. AIM currently intends to waive such fee,
and has agreed to seek Board approval prior to its receipt of all or a portion
of such fee.
SERVICE AGREEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. AIM and the Trust have entered into a
Master Administrative Services Agreement ("Administrative Services Agreement")
pursuant to which AIM may perform or arrange for the provision of certain
accounting and other administrative services to each Fund which are not required
to be performed by AIM under the advisory agreement. The Administrative Services
Agreement provides that it will remain in effect and continue from year to year
only if such continuance is specifically approved at least annually by the
Trust's Board of Trustees, including the independent trustees, by votes cast in
person at a meeting called for such purpose. Under the Administrative Services
Agreement, AIM is entitled to receive from the Funds reimbursement of its costs
or such reasonable compensation as may be approved by the Board of Trustees.
Currently, AIM is reimbursed for the services of the Trust's principal financial
officer and her staff, and any expenses related to fund accounting services.
Administrative services fees paid to AIM by each Fund for the last three
fiscal years ended October 31 are found in Appendix G.
OTHER SERVICE PROVIDERS
TRANSFER AGENT. A I M Fund Services, Inc. ("AFS"), 11 Greenway Plaza,
Suite 100, Houston, Texas 77046, a registered transfer agent and wholly owned
subsidiary of AIM, acts as transfer and dividend disbursing agent for the Funds.
The Transfer Agency and Service Agreement between the Trust and AFS
provides that AFS will perform certain shareholder services for the Funds. The
Transfer Agency and Service Agreement provides that AFS will receive a per
account fee plus out-of-pocket expenses to process orders for purchases,
redemptions and exchanges of shares; prepare and transmit payments for dividends
and distributions declared by the Funds; maintain shareholder accounts and
provide shareholders with information regarding the Funds and their accounts.
AFS may impose certain copying charges for requests for copies of shareholder
account statements and other historical account information older than the
current year and the immediately preceding year.
In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"), 800 Scudders Mill Road, Plainsboro, New Jersey 08536 has entered
into an agreement with the Trust (and certain other AIM Funds), PFPC Inc.
(formerly known as First Data Investor Service Group) and Financial Data
Services, Inc., pursuant to which MLPF&S is paid a per account fee to perform
certain shareholder sub-accounting services for its customers who beneficially
own shares of the Fund(s).
Primerica Shareholder Services, Inc. ("PSS"), 3120 Breckinridge Boulevard,
Duluth, Georgia 30099-0001 has also entered into an agreement with the Trust
(and certain other AIM Funds) and AFS pursuant to which PSS is paid a per
account fee to perform certain shareholder sub-accounting services for its
customers who beneficially own shares of the Fund(s).
33
CUSTODIAN. State Street Bank and Trust Company (the "Custodian"), 225
Franklin Street, Boston, Massachusetts 02110, is custodian of all securities and
cash of the Funds. Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002,
serves as sub-custodian for purchases of shares of the Funds. The Bank of New
York, 100 Church Street, New York, New York 10286, also serves as sub-custodian
to facilitate cash management.
The Custodian is authorized to establish separate accounts in foreign
countries and to cause foreign securities owned by the Funds to be held outside
the United States in branches of U.S. banks and, to the extent permitted by
applicable regulations, in certain foreign banks and securities depositories.
AIM is responsible for selecting eligible foreign securities depositories and
for assessing the risks associated with investing in foreign countries,
including the risk of using eligible foreign securities' depositories in a
country; the Custodian is responsible for monitoring eligible foreign securities
depositories.
Under its contract with the Trust, the Custodian maintains the portfolio
securities of the Funds, administers the purchases and sales of portfolio
securities, collects interest and dividends and other distributions made on the
securities held in the portfolios of the Funds and performs other ministerial
duties. These services do not include any supervisory function over management
or provide any protection against any possible depreciation of assets.
AUDITORS. The Funds' independent public accountants are responsible for
auditing the financial statements of the Funds. The Board of Trustees has
selected Ernst & Young LLP, 1401 McKinney, Suite 1200, Houston, Texas 77010, as
the independent public accountants to audit the financial statements of the
Funds.
COUNSEL TO THE TRUST. Legal matters for the Trust have been passed upon by
Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia,
Pennsylvania 19103-7599.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Each Sub-Advisor has adopted compliance procedures that cover, among other
items, brokerage allocation and other trading practices. Unless specifically
noted, each Sub-Advisor's procedures do not materially differ from AIM's
procedures as set forth below.
BROKERAGE TRANSACTIONS
AIM and/or the Sub-Advisor(s) makes decisions to buy and sell securities
for each Fund, selects broker-dealers, effects the Funds' investment portfolio
transactions, allocates brokerage fees in such transactions and, where
applicable, negotiates commissions and spreads on transactions. AIM's primary
consideration in effecting a security transaction is to obtain the most
favorable execution of the order, which includes the best price on the security
and a low commission rate. While AIM seeks reasonably competitive commission
rates, the Funds may not pay the lowest commission or spread available. See
"Brokerage Selection" below.
Some of the securities in which the Funds invest are traded in
over-the-counter markets. Portfolio transactions placed in such markets may be
effected at either net prices without commissions, but which include
compensation to the broker-dealer in the form of a mark up or mark down, or on
an agency basis, which involves the payment of negotiated brokerage commissions
to the broker-dealer, including electronic communication networks.
Traditionally, commission rates have not been negotiated on stock markets
outside the United States. Although in recent years many overseas stock markets
have adopted a system of negotiated rates, a number of markets maintain an
established schedule of minimum commission rates.
34
Brokerage commissions paid by each of the Funds during the last three
fiscal years ended October 31 are found in Appendix H.
COMMISSIONS
During the last three fiscal years ended October 31, none of the Funds
paid brokerage commissions to brokers affiliated with the Funds, AIM, AIM
Distributors, or any affiliates of such entities.
The Funds may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of an AIM Fund, provided the conditions of an exemptive order
received by the AIM Funds from the SEC are met. In addition, a Fund may purchase
or sell a security from or to another AIM Fund or account (and may invest in
Affiliated Money Market Funds) provided the Funds follow procedures adopted by
the Boards of Directors/Trustees of the various AIM Funds, including the Trust.
These inter-fund transactions do not generate brokerage commissions but may
result in custodial fees or taxes or other related expenses.
BROKERAGE SELECTION
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM,
under certain circumstances, lawfully may cause an account to pay a higher
commission than the lowest available. Under Section 28(e)(1), AIM must make a
good faith determination that the commissions paid are "reasonable in relation
to the value of the brokerage and research services provided ... viewed in terms
of either that particular transaction or [AIM's] overall responsibilities with
respect to the accounts as to which [it] exercises investment discretion." The
services provided by the broker also must lawfully and appropriately assist AIM
in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to it, a Fund may pay
a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Trust's trustees with respect to the
performance, investment activities, and fees and expenses of other mutual funds.
Broker-dealers may communicate such information electronically, orally, in
written form or on computer software. Research services may also include the
providing of electronic communications of trade information and the providing of
custody services, as well as the providing of equipment used to communicate
research information and the providing of specialized consultations with AIM
personnel with respect to computerized systems and data furnished to AIM as a
component of other research services, the arranging of meetings with management
of companies, and the providing of access to consultants who supply research
information.
The outside research assistance is useful to AIM since the broker-dealers
used by AIM tend to follow a broader universe of securities and other matters
than AIM's staff can follow. In addition, the research provides AIM with a
diverse perspective on financial markets. Research services provided to AIM by
broker-dealers are available for the benefit of all accounts managed or advised
by AIM or by its affiliates. Some broker-dealers may indicate that the provision
of research services is dependent upon the generation of certain specified
levels of commissions and underwriting concessions by AIM's clients, including
the Funds. However, the Funds are not under any obligation to deal with any
broker-dealer in the execution of transactions in portfolio securities.
In some cases, the research services are available only from the
broker-dealer providing them. In other cases, the research services may be
obtainable from alternative sources in return for cash payments. AIM believes
that the research services are beneficial in supplementing AIM's research and
35
analysis and that they improve the quality of AIM's investment advice. The
advisory fee paid by the Funds is not reduced because AIM receives such
services. However, to the extent that AIM would have purchased research services
had they not been provided by broker-dealers, the expenses to AIM could be
considered to have been reduced accordingly.
AIM may determine target levels of brokerage business with various brokers
on behalf of its clients (including the Funds) over a certain time period. The
target levels will be based upon the following factors, among others: (1) the
execution services provided by the broker; (2) the research services provided by
the broker; and (3) the broker's interest in mutual funds in general and in the
Funds and other mutual funds advised by AIM or A I M Capital Management, Inc.
(collectively, the "AIM Funds") in particular, including sales of the Funds and
of the other AIM Funds. In connection with (3) above, the Funds' trades may be
executed directly by dealers that sell shares of the AIM Funds or by other
broker-dealers with which such dealers have clearing arrangements, consistent
with obtaining best execution. AIM will not enter into a binding commitment with
brokers to place trades with such brokers involving brokerage commissions in
precise amounts.
DIRECTED BROKERAGE (RESEARCH SERVICES)
Directed brokerage (research services) paid by each of the Funds during
the last fiscal year ended October 31, 2002 are found in Appendix I.
REGULAR BROKERS OR DEALERS
Information concerning the Funds' acquisition of securities of their
regular brokers or dealers during the last fiscal year ended October 31, 2002 is
found in Appendix I.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage numerous other investment accounts. Some of
these accounts may have investment objectives similar to the Funds.
Occasionally, identical securities will be appropriate for investment by one of
the Funds and by another Fund or one or more of these investment accounts.
However, the position of each account in the same securities and the length of
time that each account may hold its investment in the same securities may vary.
The timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities is consistent with the
investment policies of the Fund(s) and one or more of these accounts, and is
considered at or about the same time, AIM will fairly allocate transactions in
such securities among the Fund(s) and these accounts. AIM may combine such
transactions, in accordance with applicable laws and regulations, to obtain the
most favorable execution. Simultaneous transactions could, however, adversely
affect a Fund's ability to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Sometimes the procedure for allocating portfolio transactions among the
various investment accounts advised by AIM results in transactions which could
have an adverse effect on the price or amount of securities available to a Fund.
In making such allocations, AIM considers the investment objectives and policies
of its advisory clients, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the judgments of the persons
responsible for recommending the investment. This procedure would apply to
transactions in both equity and fixed income securities.
ALLOCATION OF INITIAL PUBLIC OFFERING ("IPO") TRANSACTIONS
Certain of the AIM Funds or other accounts managed by AIM may become
interested in participating in IPOs. Purchases of IPOs by one AIM Fund or
account may also be considered for purchase by one or more other AIM Funds or
accounts. It shall be AIM's practice to specifically combine or otherwise bunch
indications of interest for IPOs for all AIM Funds and accounts participating in
purchase transactions for that IPO, and to allocate such transactions in
accordance with the following procedures:
36
AIM will determine the eligibility of each AIM Fund and account that seeks
to participate in a particular IPO by reviewing a number of factors, including
suitability of the investment with the AIM Fund's or account's investment
objective, policies and strategies, the liquidity of the AIM Fund or account if
such investment is purchased, and whether the portfolio manager intends to hold
the security as a long-term investment. The allocation of securities issued in
IPOs will be made to eligible AIM Funds and accounts in a manner designed to be
fair and equitable for the eligible AIM Funds and accounts, and so that there is
equal allocation of IPOs over the longer term. Where multiple funds or accounts
are eligible, rotational participation may occur, based on the extent to which
an AIM Fund or account has participated in previous IPOs as well as the size of
the AIM Fund or account. Each eligible AIM Fund and account will be placed in
one of four tiers, depending upon each AIM Fund's or account's asset level. The
AIM Funds and accounts in the tier containing funds and accounts with the
smallest asset levels will participate first, each receiving 40 basis point
allocation (founded to the nearest share round lot that approximates 40 basis
points) (the "Allocation"), based on that AIM Fund's or account's net assets.
This process continues until all of the AIM Funds and accounts in the four tiers
receive their Allocations, or until the shares are all allocated. Should
securities remain after this process, eligible AIM Funds and accounts will
receive their Allocations on a straight pro rata basis. In addition, Incubator
Funds, as described in AIM's Incubator and New Fund Investment Policy, will each
be limited to a 40 basis point allocation only. Such allocations will be
allocated to the nearest share round lot that approximates 40 basis points.
When any AIM funds and/or accounts with substantially identical investment
objectives and policies participate in IPOs, they will do so in amounts that are
substantially proportionate to each other. In these cases, the net assets of the
largest participating AIM Fund will be used to determine in which tier, as
described in the paragraph above, such group of AIM Funds or accounts will be
placed. If no AIM Fund is participating, then the net assets of the largest
account will be used to determine tier placement. The price per share of
securities purchased in such IPO transactions will be the same for each AIM Fund
and account.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASE AND REDEMPTION OF SHARES
Purchases of Class A Shares, Class A3 Shares of AIM Limited Maturity Treasury
Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve Shares of AIM Money
Market Fund
INITIAL SALES CHARGES. Each AIM Fund (other than AIM Tax-Exempt Cash Fund
and AIM Money Market Fund) is grouped into one of three categories to determine
the applicable initial sales charge for its Class A Shares. The sales charge is
used to compensate AIM Distributors and participating dealers for their expenses
incurred in connection with the distribution of the Funds' shares. You may also
be charged a transaction or other fee by the financial institution managing your
account.
Class A shares of AIM Tax-Exempt Cash Fund, Class A3 Shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve
Shares of AIM Money Market Fund are sold without an initial sales charge.
CATEGORY I FUNDS
AIM Aggressive Growth Fund AIM Diversified Dividend Fund
AIM Asia Pacific Growth Fund AIM Emerging Growth Fund
AIM Basic Value Fund AIM European Growth Fund
AIM Blue Chip Fund AIM European Small Company Fund
AIM Capital Development Fund AIM Global Utilities Fund
AIM Charter Fund AIM Global Value Fund
AIM Constellation Fund AIM International Core Equity Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund
37
AIM International Growth Fund AIM Opportunities II Fund
AIM Large Cap Basic Value Fund AIM Opportunities III Fund
AIM Large Cap Growth Fund AIM Premier Equity Fund
AIM Libra Fund AIM Premier Equity II Fund
AIM Mid Cap Basic Value Fund AIM Select Equity Fund
AIM Mid Cap Core Equity Fund AIM Small Cap Equity Fund
AIM Mid Cap Growth Fund AIM Small Cap Growth Fund
AIM New Technology Fund AIM Weingarten Fund
AIM Opportunities I Fund
Dealer
Investor's Sales Charge Concession
----------------------- ----------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction(1) Price Invested Price
----------------------- ----- -------- -----
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
(1) AIM Opportunities I Fund will not accept any single purchase in excess of
$250,000.
CATEGORY II FUNDS
AIM Balanced Fund AIM Global Trends Fund
AIM Basic Balanced Fund AIM High Income Municipal Fund
AIM Developing Markets Fund AIM High Yield Fund
AIM Global Aggressive Growth Fund AIM Income Fund
AIM Global Energy Fund AIM Intermediate Government Fund
AIM Global Financial Services Fund AIM Municipal Bond Fund
AIM Global Growth Fund AIM Real Estate Fund
AIM Global Health Care Fund AIM Total Return Bond Fund
AIM Global Science and Technology Fund
Dealer
Investor's Sales Charge Concession
----------------------- ----------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
----------------------- ----- -------- -----
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
38
CATEGORY III FUNDS
AIM Limited Maturity Treasury Fund
AIM Tax-Free Intermediate Fund
Dealer
Investor's Sales Charge Concession
----------------------- ----------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
------------------ ----- -------- -----
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
Beginning on October 31, 2002, Class A shares of AIM Limited Maturity
Treasury Fund and AIM Tax-Free Intermediate Fund were closed to new investors.
Current investors must maintain a share balance in order to continue to make
incremental purchases.
LARGE PURCHASES OF CLASS A SHARES. Investors who purchase $1,000,000 or
more of Class A Shares of a Category I, II or III Fund do not pay an initial
sales charge. In addition, investors who currently own Class A shares of
Category I, II, or III Funds and make additional purchases that result in
account balances of $1,000,000 or more do not pay an initial sales charge on the
additional purchases. The additional purchases, as well as initial purchases of
$1,000,000 or more, are referred to as Large Purchases. If an investor makes a
Large Purchase of Class A shares of a Category I or II Fund, however, each share
issued will generally be subject to a 1.00% contingent deferred sales charge
("CDSC") if the investor redeems those shares within 18 months after purchase.
Large Purchases of Class A shares of Category III Funds made on or after
November 15, 2001 and through October 30, 2002 will be subject to a 0.25% CDSC
if the investor redeems those shares within 12 months after purchase.
AIM Distributors may pay a dealer concession and/or advance a service fee
on Large Purchases, as set forth below. Exchanges between the AIM Funds may
affect total compensation paid.
AIM Distributors may make the following payments to dealers of record for
Large Purchases of Class A shares of Category I or II Funds by investors other
than (i) retirement plans that are maintained pursuant to Sections 401 and 457
of the Internal Revenue Code of 1986, as amended (the Code), and (ii) retirement
plans that are maintained pursuant to Section 403 of the Code if the employer or
plan sponsor is a tax-exempt organization operated pursuant to Section 501(c)(3)
of the Code:
PERCENT OF PURCHASE
1% of the first $2 million
plus 0.80% of the next $1 million
plus 0.50% of the next $17 million
plus 0.25% of amounts in excess of $20 million
If (i) the amount of any single purchase order plus (ii) the net asset
value of all other shares owned by the same customer submitting the purchase
order on the day on which the purchase order is received equals or exceeds
$1,000,000, the purchase will be considered a "jumbo accumulation
39
purchase." With regard to any individual jumbo accumulation purchase, AIM
Distributors may make payment to the dealer of record based on the cumulative
total of jumbo accumulation purchases made by the same customer over the life of
his or her account(s).
If an investor made a Large Purchase of Class A shares of a Category III
Fund on and after November 15, 2001 and through October 31, 2002 and exchanges
those shares for Class A shares of a Category I or II Fund, AIM Distributors
will pay an additional dealer concession of 0.75% upon exchange.
If an investor made a Large Purchase of Class A shares and a Category I or
II Fund on and after November 15, 2001 and through October 31, 2002 exchanges
those shares for Class A shares of a Category III Fund, AIM Distributors will
not pay any additional dealer compensation upon the exchange. Beginning February
17, 2003, Class A shares of a Category I or II Fund may not be exchanged for
Class A shares of a Category III Fund.
If an investor makes a Large Purchase of Class A3 shares of a Category III
Fund on and after October 31, 2002 and exchanges those shares for Class A shares
of a Category I or II Fund, AIM Distributors will pay 1.00% of such purchase as
dealer compensation upon the exchange. The Class A shares of the Category I or
II Fund received in exchange generally will be subject to a 1.00% CDSC if the
investor redeems such shares within 18 months from the date of exchange.
If an investor makes a Large Purchase of Class A shares of a Category III
Fund and exchanges those shares for Class A shares of another Category III Fund,
AIM Distributors will not pay any additional dealer concession upon the
exchange. Beginning February 17, 2003, Class A shares of a Category III Fund may
not be exchanged for Class A shares of another Category III Fund.
PURCHASES OF CLASS A SHARES BY CERTAIN RETIREMENT PLANS AT NAV. Effective
November 1, 2002, for purchases of Class A shares of Category I and II Funds,
AIM Distributors may make the following payments to investment dealers or other
financial service firms for sales of such shares at net asset value ("NAV") to
certain retirement plans provided that the applicable dealer of record is able
to establish that the retirement plan's purchase of Class A shares is a new
investment (as defined below):
PERCENT OF PURCHASE
0.50% of the first $20 million
plus 0.25% of amounts in excess of
$20 million
This payment schedule will be applicable to purchases of Class A shares at
NAV by the following types of retirement plans: (i) all plans maintained
pursuant to Sections 401 and 457 of the Code, and (ii) plans maintained pursuant
to Section 403 of the Code if the employer or plan sponsor is a tax-exempt
organization operated pursuant to Section 501(c)(3) of the Code.
A "new investment" means a purchase paid for with money that does not
represent (i) the proceeds of one or more redemptions of AIM Fund shares, (ii)
an exchange of AIM Fund shares, or (iii) the repayment of one or more retirement
plan loans that were funded through the redemption of AIM Fund shares. If AIM
Distributors pays a dealer concession in connection with a plan's purchase of
Class A shares at NAV, such shares may be subject to a CDSC of 1.00% of net
assets for 12 months, commencing on the date the plan first invests in Class A
shares of an AIM Fund. If the applicable dealer of record is unable to establish
that a plan's purchase of Class A shares at NAV is a new investment, AIM
Distributors will not pay a dealer concession in connection with such purchase
and such shares will not be subject to a CDSC.
With regard to any individual jumbo accumulation purchase, AIM
Distributors may make payment to the dealer of record based on the cumulative
total of jumbo accumulation purchases made by the same plan over the life of the
plan's account(s).
40
PURCHASERS QUALIFYING FOR REDUCTIONS IN INITIAL SALES CHARGES. As shown in
the tables above, purchases of certain amounts of AIM Fund shares may reduce the
initial sales charges. These reductions are available to purchasers that meet
the qualifications listed below. We will refer to purchasers that meet these
qualifications as "Qualified Purchasers."
INDIVIDUALS
- an individual (including his or her spouse or domestic partner, and
children);
- any trust established exclusively for the benefit of an individual;
and
- a retirement plan established exclusively for the benefit of an
individual, specifically including, but not limited to, a
Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, Solo 401(k), Keogh
plan, or a tax-sheltered 403(b)(7) custodial account; and
- a qualified tuition plan account, maintained pursuant to Section 529
of the Code, or a Coverdell Education Savings Account, maintained
pursuant to Section 530 of the Code (in either case, the account
must be established by an individual or have an individual named as
the beneficiary thereof).
EMPLOYER-SPONSORED RETIREMENT PLANS
- a retirement plan maintained pursuant to Section 401, 403 (only if
the employer or plan sponsor is a tax-exempt organization operated
pursuant to Section 501(c)(3) of the Code), 408 (includes SEP,
SARSEP and SIMPLE IRA plans) or 457 of the Code, if:
a. the employer or plan sponsor submits all contributions for all
participating employees in a single contribution transmittal
(the AIM Funds will not accept separate contributions
submitted with respect to individual participants);
b. each transmittal is accompanied by a single check or wire
transfer; and
c. if the AIM Funds are expected to carry separate accounts in
the names of each of the plan participants, (i) the employer
or plan sponsor notifies AIM Distributors in writing that the
separate accounts of all plan participants should be linked,
and (ii) all new participant accounts are established by
submitting an appropriate Account Application on behalf of
each new participant with the contribution transmittal.
TRUSTEES AND FIDUCIARIES
- a trustee or fiduciary purchasing for a single trust, estate or
fiduciary account.
OTHER GROUPS
- any organized group of persons, whether incorporated or not,
purchasing AIM Fund shares through a single account, provided that:
a. the organization has been in existence for at least six
months; and
b. the organization has some purpose other than the purchase at a
discount of redeemable securities of a registered investment
company.
41
HOW TO QUALIFY FOR REDUCTIONS IN INITIAL SALES CHARGES. The following
sections discuss different ways that a Qualified Purchaser can qualify for a
reduction in the initial sales charges for purchases of Class A shares of the
AIM Funds.
LETTERS OF INTENT
A Qualified Purchaser may pay reduced initial sales charges by (i)
indicating on the Account Application that he, she or it intends to provide a
Letter of Intent ("LOI"), and (ii) subsequently fulfilling the conditions of
that LOI.
The LOI confirms the total investment in shares of the AIM Funds that the
Qualified Purchaser intends to make within the next 13 months. By marking the
LOI section on the Account Application and by signing the Account Application,
the Qualified Purchaser indicates that he, she or it understands and agrees to
the terms of the LOI and is bound by the provisions described below:
Calculating the Initial Sales Charge
- Each purchase of fund shares normally subject to an initial sales charge
made during the 13-month period will be made at the public offering
price applicable to a single transaction of the total dollar amount
indicated by the LOI (to determine what the applicable public offering
price is, look at the sales charge table in the section on "Initial
Sales Charges" above).
- It is the purchaser's responsibility at the time of purchase to specify
the account numbers that should be considered in determining the
appropriate sales charge.
- The offering price may be further reduced as described below under
"Rights of Accumulation" if the Transfer Agent is advised of all other
accounts at the time of the investment.
- Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI.
Calculating the Number of Shares to be Purchased
- Purchases made within 90 days before signing an LOI will be applied
toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period.
- Purchases made more than 90 days before signing an LOI will be applied
toward the completion of the LOI based on the value of the shares
purchased that is calculated at the public offering price on the
effective date of the LOI.
- If a purchaser meets the original obligation at any time during the
13-month period, he or she may revise the intended investment amount
upward by submitting a written and signed request. This revision will
not change the original expiration date.
- The Transfer Agent will process necessary adjustments upon the
expiration or completion date of the LOI.
Fulfilling the Intended Investment
- By signing an LOI, a purchaser is not making a binding commitment to
purchase additional shares, but if purchases made within the 13-month
period do not total the amount specified, the purchaser will have to pay
the increased amount of sales charge.
- To assure compliance with the provisions of the 1940 Act, the Transfer
Agent will escrow in the form of shares an appropriate dollar amount
(computed to the nearest full share) out of the initial
42
purchase (or subsequent purchases if necessary). All dividends and any
capital gain distributions on the escrowed shares will be credited to
the purchaser. All shares purchased, including those escrowed, will be
registered in the purchaser's name. If the total investment specified
under this LOI is completed within the 13-month period, the escrowed
shares will be promptly released.
- If the intended investment is not completed, the purchaser will pay the
Transfer Agent the difference between the sales charge on the specified
amount and the sales charge on the amount actually purchased. If the
purchaser does not pay such difference within 20 days of the expiration
date, he or she irrevocably constitutes and appoints the Transfer Agent
as his attorney to surrender for redemption any or all shares, to make
up such difference within 60 days of the expiration date.
Canceling the LOI
- If at any time before completing the LOI Program, the purchaser wishes
to cancel the agreement, he or she must give written notice to AIM
Distributors.
- If at any time before completing the LOI Program the purchaser requests
the Transfer Agent to liquidate or transfer beneficial ownership of his
total shares, the LOI will be automatically canceled. If the total
amount purchased is less than the amount specified in the LOI, the
Transfer Agent will redeem an appropriate number of escrowed shares
equal to the difference between the sales charge actually paid and the
sales charge that would have been paid if the total purchases had been
made at a single time.
Other Persons Eligible for the LOI Privilege
The LOI privilege is also available to holders of the Connecticut General
Guaranteed Account, established for tax qualified group annuities, for contracts
purchased on or before June 30, 1992.
LOIs and Contingent Deferred Sales Charges
If an investor entered into an LOI to purchase $1,000,000 or more of Class
A shares of a Category III Fund on and after November 15, 2001 and through
October 30, 2002, such shares will be subject to a 12-month, 0.25% CDSC.
Purchases of Class A shares of a Category III Fund made pursuant to an LOI to
purchase $1,000,000 or more of shares entered into prior to November 15, 2001 or
after October 30, 2002 will not be subject to this CDSC. All LOIs to purchase
$1,000,000 or more of Class A shares of Category I and II Funds are subject to
an 18-month, 1% CDSC.
RIGHTS OF ACCUMULATION
A Qualified Purchaser may also qualify for reduced initial sales charges
based upon his, her or its existing investment in shares of any of the AIM Funds
at the time of the proposed purchase. To determine whether or not a reduced
initial sales charge applies to a proposed purchase, AIM Distributors takes into
account not only the money which is invested upon such proposed purchase, but
also the value of all shares of the AIM Funds owned by such purchaser,
calculated at their then current public offering price.
If a purchaser qualifies for a reduced sales charge, the reduced sales
charge applies to the total amount of money being invested, even if only a
portion of that amount exceeds the breakpoint for the reduced sales charge. For
example, if a purchaser already owns qualifying shares of any AIM Fund with a
value of $20,000 and wishes to invest an additional $20,000 in a fund with a
maximum initial sales charge of 5.50%, the reduced initial sales charge of 5.25%
will apply to the full $20,000 purchase and not just to the $15,000 in excess of
the $25,000 breakpoint.
To qualify for obtaining the discount applicable to a particular purchase,
the purchaser or his dealer must furnish the Transfer Agent with a list of the
account numbers and the names in which such accounts of the purchaser are
registered at the time the purchase is made.
43
Rights of Accumulation are also available to holders of the Connecticut
General Guaranteed Account, established for tax-qualified group annuities, for
contracts purchased on or before June 30, 1992.
If an investor's new purchase of Class A shares of a Category I or II Fund
is at net asset value, the newly purchased shares will be subject to a CDSC if
the investor redeems them prior to the 18 month holding period (12 months for
Category III Fund shares). For new purchases of Class A shares of Category III
Funds at net asset value made on and after November 15, 2001 and through October
30, 2002, the newly purchased shares will be subject to a CDSC if the investor
redeems them prior to the end of the 12 month holding period.
OTHER REQUIREMENTS FOR REDUCTIONS IN INITIAL SALES CHARGES. As discussed
above, investors or dealers seeking to qualify orders for a reduced initial
sales charge must identify such orders and, if necessary, support their
qualification for the reduced charge. AIM Distributors reserves the right to
determine whether any purchaser is entitled to the reduced sales charge based on
the definition of a Qualified Purchaser listed above. No person or entity may
distribute shares of the AIM Funds without payment of the applicable sales
charge other than to Qualified Purchasers.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares
of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM
Cash Reserve Shares of AIM Money Market Fund, and Class B and Class C shares of
AIM Floating Rate Fund and Investor Class shares will not be taken into account
in determining whether a purchase qualifies for a reduction in initial sales
charges.
PURCHASES OF CLASS A SHARES AT NET ASSET VALUE. AIM Distributors permits
certain categories of persons to purchase Class A shares of AIM Funds without
paying an initial sales charge. These are typically categories of persons whose
transactions involve little expense, such as:
- Persons who have a relationship with the funds or with AIM and its
affiliates, and are therefore familiar with the funds, and who place
unsolicited orders directly with AIM Distributors; or
- Programs for purchase that involve little expense because of the size of
the transaction and shareholder records required.
AIM Distributors believes that it is appropriate and in the Funds' best
interests that such persons, and certain other persons whose purchases result in
relatively low expenses of distribution, be permitted to purchase shares through
AIM Distributors without payment of a sales charge.
Accordingly, the following purchasers will not pay initial sales charges
on purchases of Class A shares because there is a reduced sales effort involved
in sales to these purchasers:
- AIM Management and its affiliates, or their clients;
- Any current or retired officer, director or employee (and members of
their immediate family) of AIM Management, its affiliates or The AIM
Family of Funds(R), and any foundation, trust or employee benefit plan
established exclusively for the benefit of, or by, such persons;
- Any current or retired officer, director, or employee (and members of
their immediate family) of DST Systems, Inc. or Personix, a division of
Fiserv Solutions, Inc.;
- Sales representatives and employees (and members of their immediate
family) of selling group members of financial institutions that have
arrangements with such selling group members;
- Purchases through approved fee-based programs;
44
- Employer-sponsored retirement plans that are Qualified Purchasers, as
defined above provided that:
a. a plan's initial investment is at least $1 million;
b. the employer or plan sponsor signs a $1 million LOI;
c. there are at least 100 employees eligible to participate in the
plan; or
d. all plan transactions are executed through a single omnibus
account per AIM Fund and the financial institution or service
organization has entered into the appropriate agreement with the
distributor; further provided that
e. retirement plans maintained pursuant to Section 403(b) of the Code
are not eligible to purchase shares at NAV based on the aggregate
investment made by the plan or the number of eligible employees
unless the employer or plan sponsor is a tax-exempt organization
operated pursuant to Section 501(c)(3) of the Code; and
f. purchases of AIM Opportunities I Fund by all retirement plans are
subject to initial sales charges;
- Shareholders of record of Advisor Class shares of AIM International
Growth Fund or AIM Worldwide Growth Fund on February 12, 1999 who have
continuously owned shares of the AIM Funds;
- Shareholders of record or discretionary advised clients of any
investment advisor holding shares of AIM Weingarten Fund or AIM
Constellation Fund on September 8, 1986, or of AIM Charter Fund on
November 17, 1986, who have continuously owned shares having a market
value of at least $500 and who purchase additional shares of the same
Fund;
- Unitholders of G/SET series unit investment trusts investing proceeds
from such trusts in shares of AIM Weingarten Fund or AIM Constellation
Fund; provided, however, prior to the termination date of the trusts, a
unitholder may invest proceeds from the redemption or repurchase of his
units only when the investment in shares of AIM Weingarten Fund and AIM
Constellation Fund is effected within 30 days of the redemption or
repurchase;
- A shareholder of a fund that merges or consolidates with an AIM Fund or
that sells its assets to an AIM Fund in exchange for shares of an AIM
Fund;
- Shareholders of the GT Global funds as of April 30, 1987 who since that
date continually have owned shares of one or more of these funds;
- Certain former AMA Investment Advisers' shareholders who became
shareholders of the AIM Global Health Care Fund in October 1989, and who
have continuously held shares in the GT Global funds since that time;
- Shareholders of record of Advisor Class shares of an AIM Fund on
February 11, 2000 who have continuously owned shares of that AIM Fund,
and who purchase additional shares of that AIM Fund;
- Shareholders of Investor Class shares of an AIM Fund;
- Qualified Tuition Programs created and maintained in accordance with
Section 529 of the Code;
45
- Initial purchases made by Qualified Purchasers, as defined above, within
one (1) year after the registered representative who services their
account(s) has become affiliated with a selling group member with which
AIM Distributors has entered into a written agreement; and
- Participants in select brokerage programs for retirement plans and
rollover IRAs who purchase shares through an electronic brokerage
platform offered by entities with which AIM Distributors has entered
into a written agreement.
As used above, immediate family includes an individual and his or her
spouse or domestic partner, children, parents and parents of spouse or domestic
partner.
In addition, an investor may acquire shares of any of the AIM Funds at net
asset value in connection with:
- the reinvestment of dividends and distributions from a Fund;
- exchanges of shares of certain Funds;
- use of the reinstatement privilege; or
- a merger, consolidation or acquisition of assets of a Fund.
PAYMENTS TO DEALERS. AIM Distributors may elect to re-allow the entire
initial sales charge to dealers for all sales with respect to which orders are
placed with AIM Distributors during a particular period. Dealers to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the 1933 Act.
In addition to, or instead of, amounts paid to dealers as a sales
commission, AIM Distributors may, from time to time, at its expense or as an
expense for which it may be compensated under a distribution plan, if
applicable, pay a bonus or other consideration or incentive to dealers. The
total amount of such additional bonus payments or other consideration shall not
exceed 0.25% of the public offering price of the shares sold or of average daily
net assets of the AIM Fund attributable to that particular dealer. At the option
of the dealer, such incentives may take the form of payment for travel expenses,
including lodging, incurred in connection with trips taken by qualifying
registered representatives and their families to places within or outside the
United States. Any such bonus or incentive programs will not change the price
paid by investors for the purchase of the applicable AIM Fund's shares or the
amount that any particular AIM Fund will receive as proceeds from such sales.
Dealers may not use sales of the AIM Funds' shares to qualify for any incentives
to the extent that such incentives may be prohibited by the laws of any state.
Purchases of Class B Shares
Class B shares are sold at net asset value, and are not subject to an
initial sales charge. Instead, investors may pay a CDSC if they redeem their
shares within six years after purchase. See the Prospectus for additional
information regarding contingent deferred sales charges. AIM Distributors may
pay sales commissions to dealers and institutions who sell Class B shares of the
AIM Funds at the time of such sales. Payments will equal 4.00% of the purchase
price and will consist of a sales commission equal to 3.75% plus an advance of
the first year service fee of 0.25%.
Purchases of Class C Shares
Class C shares are sold at net asset value, and are not subject to an
initial sales charge. Instead, investors may pay a CDSC if they redeem their
shares within the first year after purchase (no CDSC applies to Class C shares
of AIM Short Term Bond Fund unless you exchange shares of another AIM Fund that
are subject to a CDSC into AIM Short Term Bond Fund). See the Prospectus for
additional
46
information regarding this CDSC. AIM Distributors may pay sales commissions to
dealers and institutions who sell Class C shares of the AIM Funds (except for
Class C shares of AIM Short Term Bond Fund) at the time of such sales. Payments
will equal 1.00% of the purchase price and will consist of a sales commission of
0.75% plus an advance of the first year service fee of 0.25%. These commissions
are not paid on sales to investors exempt from the CDSC, including shareholders
of record of AIM Advisor Funds, Inc. on April 30, 1995, who purchase additional
shares in any of the Funds on or after May 1, 1995, and in circumstances where
AIM Distributors grants an exemption on particular transactions.
AIM Distributors may pay dealers and institutions who sell Class C shares
of AIM Short Term Bond Fund an annual fee of 0.50% of average daily net assets.
These payments will consist of an asset-based fee of 0.25% and a service fee of
0.25% and will commence immediately.
Purchases of Class R Shares
Class R shares are sold at net asset value, and are not subject to an
initial sales charge. If AIM Distributors pays a concession to the dealer of
record, however, the Class R shares are subject to a 0.75% CDSC at the time of
redemption if all retirement plan assets are redeemed within one year from the
date of the retirement plan's initial purchase. For purchases of Class R shares
of Category I or II Funds, AIM Distributors may make the following payments to
dealers of record provided that the applicable dealer of record is able to
establish that the purchase of Class R shares is a new investment or a rollover
from a retirement plan in which an AIM Fund was offered as an investment option:
PERCENT OF CUMULATIVE PURCHASES
0.75% of the first $5 million
plus 0.50% of amounts in excess of $5 million
With regard to any individual purchase of Class R shares, AIM Distributors
may make payment to the dealer of record based on the cumulative total of
purchases made by the same plan over the life of the plan's account(s).
Purchases of Investor Class Shares
Investor Class shares are sold at net asset value, and are not subject to
an initial sales charge or to a CDSC. AIM Distributors may pay dealers and
institutions an annual fee of 0.25% of average daily net assets and such
payments will commence immediately.
Exchanges
TERMS AND CONDITIONS OF EXCHANGES. Normally, shares of an AIM Fund to be
acquired by exchange are purchased at their net asset value or applicable
offering price, as the case may be, determined on the date that such request is
received, but under unusual market conditions such purchases may be delayed for
up to five business days if it is determined that a fund would be materially
disadvantaged by an immediate transfer of the proceeds of the exchange. If a
shareholder is exchanging into a fund paying daily dividends, and the release of
the exchange proceeds is delayed for the foregoing five-day period, such
shareholder will not begin to accrue dividends until the sixth business day
after the exchange.
EXCHANGES BY TELEPHONE. AIM Distributors has made arrangements with
certain dealers and investment advisory firms to accept telephone instructions
to exchange shares between any of the AIM Funds. AIM Distributors reserves the
right to impose conditions on dealers or investment advisors who make telephone
exchanges of shares of the funds, including the condition that any such dealer
or investment advisor enter into an agreement (which contains additional
conditions with respect to exchanges of shares) with AIM Distributors. To
exchange shares by telephone, a shareholder, dealer or investment advisor who
has satisfied the foregoing conditions must call AFS at (800) 959-4246. If a
47
shareholder is unable to reach AFS by telephone, he may also request exchanges
by fax, telegraph or use overnight courier services to expedite exchanges by
mail, which will be effective on the business day received by AFS as long as
such request is received prior to the close of the customary trading session of
the New York Stock Exchange ("NYSE"). AFS and AIM Distributors may in certain
cases be liable for losses due to unauthorized or fraudulent transactions if
they do not follow reasonable procedures for verification of telephone
transactions. Such reasonable procedures may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transaction.
Redemptions
GENERAL. Shares of the AIM Funds may be redeemed directly through AIM
Distributors or through any dealer who has entered into an agreement with AIM
Distributors. In addition to the Funds' obligation to redeem shares, AIM
Distributors may also repurchase shares as an accommodation to shareholders. To
effect a repurchase, those dealers who have executed Selected Dealer Agreements
with AIM Distributors must phone orders to the order desk of the Funds at (800)
959-4246 and guarantee delivery of all required documents in good order. A
repurchase is effected at the net asset value per share of the applicable Fund
next determined after the repurchase order is received. Such an arrangement is
subject to timely receipt by AFS, the Funds' transfer agent, of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation. While
there is no charge imposed by a Fund or by AIM Distributors (other than any
applicable contingent deferred sales charge) when shares are redeemed or
repurchased, dealers may charge a fair service fee for handling the transaction.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or the
date of payment postponed when (a) trading on the NYSE is restricted, as
determined by applicable rules and regulations of the SEC, (b) the NYSE is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposition of portfolio securities or the valuation of the net
assets of a Fund not reasonably practicable.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an
investor appoints AFS as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by AFS in the designated account(s),
present or future, with full power of substitution in the premises. AFS and AIM
Distributors are thereby authorized and directed to accept and act upon any
telephone redemptions of shares held in any of the account(s) listed, from any
person who requests the redemption. An investor acknowledges by signing the form
that he understands and agrees that AFS and AIM Distributors may not be liable
for any loss, expense or cost arising out of any telephone redemption requests
effected in accordance with the authorization set forth in these instructions if
they reasonably believe such request to be genuine, but may in certain cases be
liable for losses due to unauthorized or fraudulent transactions. Procedures for
verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transactions. AFS reserves the right to cease
to act as attorney-in-fact subject to this appointment, and AIM Distributors
reserves the right to modify or terminate the telephone redemption privilege at
any time without notice. An investor may elect not to have this privilege by
marking the appropriate box on the application. Then any redemptions must be
effected in writing by the investor.
SYSTEMATIC REDEMPTION PLAN. A Systematic Redemption Plan permits a
shareholder of an AIM Fund to withdraw on a regular basis at least $50 per
withdrawal. Under a Systematic Redemption Plan, all shares are to be held by AFS
and all dividends and distributions are reinvested in shares of the applicable
AIM Fund by AFS. To provide funds for payments made under the Systematic
Redemption Plan, AFS redeems sufficient full and fractional shares at their net
asset value in effect at the time of each such redemption.
48
Payments under a Systematic Redemption Plan constitute taxable events.
Since such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B, Class C or Class R Shares of the Funds), it is
disadvantageous to effect such purchases while a Systematic Redemption Plan is
in effect.
Each AIM Fund bears its share of the cost of operating the Systematic
Redemption Plan.
Contingent Deferred Sales Charges Imposed upon Redemption of Shares
A CDSC may be imposed upon the redemption of Large Purchases of Class A
shares of Category I and II Funds, or upon the redemption of Class B shares or
Class C shares (no CDSC applies to Class C shares of AIM Short Term Bond Fund
unless you exchange shares of another AIM Fund that are subject to a CDSC into
AIM Short Term Bond Fund) and, in certain circumstances, upon the redemption of
Class R shares. On and after November 15, 2001 and through October 30, 2002, a
CDSC also may be imposed upon the redemption of Large Purchases of Class A
shares of Category III Funds. See the Prospectus for additional information
regarding CDSCs.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR LARGE PURCHASES OF CLASS A
SHARES. An investor who has made a Large Purchase of Class A shares of a
Category I, II or III Fund will not be subject to a CDSC upon the redemption of
those shares in the following situations:
- Redemptions of shares of Category I or II Funds held more than 18
months;
- Redemptions of shares of Category III Funds purchased prior to November
15, 2001 or after October 30, 2002;
- Redemptions of shares of Category III Funds purchased on or after
November 15, 2001 and through October 30, 2002 and held for more than 12
months;
- Redemptions of shares held by retirement plans in cases where (i) the
plan has remained invested in Class A shares of an AIM Fund for at least
12 months, or (ii) the redemption is not a complete redemption of shares
held by the plan;
- Redemptions from private foundations or endowment funds;
- Redemptions of shares by the investor where the investor's dealer waives
the amounts otherwise payable to it by the distributor and notifies the
distributor prior to the time of investment;
- Redemptions of shares of Category I, II or III Funds or AIM Cash Reserve
Shares of AIM Money Market Fund acquired by exchange from Class A shares
of a Category I or II Fund, unless the shares acquired by exchange (on
or after November 15, 2001 and through October 30, 2002 with respect to
Category III Funds) are redeemed within 18 months of the original
purchase of the exchange of Category I or II Fund shares;
- Redemptions of shares of Category III Funds, shares of AIM Tax-Exempt
Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund acquired
by exchange from Class A shares of a Category III Fund purchased prior
to November 15, 2001;
- Redemptions of shares of Category I or II Funds acquired by exchange
from Class A shares of a Category III Fund purchased on and after
November 15, 2001 and through October 30, 2002, unless the shares
acquired by exchange are redeemed within 18 months of the original
purchase of the exchanged Category III Fund shares;
49
- Redemption of shares of Category III Funds, shares of AIM Tax-Exempt
Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund acquired
by exchange from Class A shares of a Category III Fund purchased on and
after November 15, 2001 and through October 30, 2002 with respect to
Category III Funds unless the shares acquired by exchange are redeemed
within 12 months of the original purchase of the exchanged Category III
Fund shares;
- Redemptions of shares of Category I or II Funds acquired by exchange on
and after November 15, 2001 from AIM Cash Reserve Shares of AIM Money
Market Fund if the AIM Cash Reserve Shares were acquired by exchange
from a Category I or II Fund, unless the Category I or II Fund shares
acquired by exchange are redeemed within 18 months of the original
purchase of the exchanged Category I or II Funds shares;
- Redemptions of Category I or II Funds by retirement plan participants
resulting from a total redemption of the plan assets that occurs more
than one year from the date of the plan's initial purchase; and
- Redemptions of shares of Category I or II Funds held by an Investor
Class shareholder.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR CLASS B AND C SHARES.
Investors who purchased former GT Global funds Class B shares before June 1,
1998 are subject to the following waivers from the CDSC otherwise due upon
redemption:
- Total or partial redemptions resulting from a distribution following
retirement in the case of a tax-qualified employer-sponsored retirement;
- Minimum required distributions made in connection with an IRA, Keogh
Plan or custodial account under Section 403(b) of the Code or other
retirement plan following attainment of age 70-1/2;
- Redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the former GT
Global funds, which are permitted to be made without penalty pursuant to
the Code, other than tax-free rollovers or transfers of assets, and the
proceeds of which are reinvested in the former GT Global funds;
- Redemptions made in connection with participant-directed exchanges
between options in an employer-sponsored benefit plan;
- Redemptions made for the purpose of providing cash to fund a loan to a
participant in a tax-qualified retirement plan;
- Redemptions made in connection with a distribution from any retirement
plan or account that is permitted in accordance with the provisions of
Section 72(t)(2) of the Code, and the regulations promulgated
thereunder;
- Redemptions made in connection with a distribution from a qualified
profit-sharing or stock bonus plan described in Section 401(k) of the
Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of
the Code upon hardship of the covered employee (determined pursuant to
Treasury Regulation Section 1.401(k)-1(d)(2)); and
- Redemptions made by or for the benefit of certain states, counties or
cities, or any instrumentalities, departments or authorities thereof
where such entities are prohibited or limited by applicable law from
paying a sales charge or commission.
CDSCs will not apply to the following redemptions of Class B or Class C
shares, as applicable:
50
- Additional purchases of Class C shares of AIM International Core Equity
Fund (formerly known as AIM International Value Fund) and AIM Real
Estate Fund by shareholders of record on April 30, 1995, of these Funds,
except that shareholders whose broker-dealers maintain a single omnibus
account with AFS on behalf of those shareholders, perform sub-accounting
functions with respect to those shareholders, and are unable to
segregate shareholders of record prior to April 30, 1995, from
shareholders whose accounts were opened after that date will be subject
to a CDSC on all purchases made after March 1, 1996;
- Redemptions following the death or post-purchase disability of (1) any
registered shareholders on an account or (2) a settlor of a living
trust, of shares held in the account at the time of death or initial
determination of post-purchase disability;
- Certain distributions from individual retirement accounts, Section
403(b) retirement plans, Section 457 deferred compensation plans and
Section 401 qualified plans, where redemptions result from (i) required
minimum distributions to plan participants or beneficiaries who are age
70-1/2 or older, and only with respect to that portion of such
distributions that does not exceed 12% annually of the participant's or
beneficiary's account value in a particular AIM Fund; (ii) in kind
transfers of assets where the participant or beneficiary notifies the
distributor of the transfer no later than the time the transfer occurs;
(iii) tax-free rollovers or transfers of assets to another plan of the
type described above invested in Class B or Class C shares of one or
more of the AIM Funds; (iv) tax-free returns of excess contributions or
returns of excess deferral amounts; and (v) distributions on the death
or disability (as defined in the Code) of the participant or
beneficiary;
- Amounts from a Systematic Redemption Plan of up to an annual amount of
12% of the account value on a per fund basis, at the time the withdrawal
plan is established, provided the investor reinvests his dividends;
- Liquidation by the AIM Fund when the account value falls below the
minimum required account size of $500; and
- Investment account(s) of AIM.
CDSCs will not apply to the following redemptions of Class C shares:
- A total or partial redemption of shares where the investor's dealer of
record notified the distributor prior to the time of investment that the
dealer would waive the upfront payment otherwise payable to him;
- A total or partial redemption which is necessary to fund a distribution
requested by a participant in a retirement plan maintained pursuant to
Section 401, 403, or 457 of the Code;
- Redemptions of Class C shares of an AIM Fund other than AIM Short Term
Bond Fund if you received such Class C shares by exchanging Class C
shares of AIM Short Term Bond Fund; and
- Redemptions of Class C shares of AIM Short Term Bond Fund unless you
received such Class C shares by exchanging Class C shares of another AIM
Fund and the original purchase was subject to a CDSC.
CDSCs will not apply to the following redemptions of Class R shares:
51
- Class R shares where the retirement plan's dealer of record notifies the
distributor prior to the time of investment that the dealer waives the
upfront payment otherwise payable to him; and
- Redemptions of shares held by retirement plans in cases where (i) the
plan has remained invested in Class R shares of an AIM Fund for at least
12 months, or (ii) the redemption is not a complete redemption of all
Class R shares held by the plan.
General Information Regarding Purchases, Exchanges and Redemptions
GOOD ORDER. Purchase, exchange and redemption orders must be received in
good order. To be in good order, an investor must supply AFS with all required
information and documentation, including signature guarantees when required. In
addition, if a purchase of shares is made by check, the check must be received
in good order. This means that the check must be properly completed and signed,
and legible to AFS in its sole discretion.
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer or other
financial intermediary to ensure that all orders are transmitted on a timely
basis to AFS. Any loss resulting from the failure of the dealer or financial
intermediary to submit an order within the prescribed time frame will be borne
by that dealer or financial intermediary. If a check used to purchase shares
does not clear, or if any investment order must be canceled due to nonpayment,
the investor will be responsible for any resulting loss to an AIM Fund or to AIM
Distributors.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's prospectus, signature
guarantees are required in the following situations: (1) requests to transfer
the registration of shares to another owner; (2) telephone exchange and
telephone redemption authorization forms; (3) changes in previously designated
wiring or electronic funds transfer instructions; and (4) written redemptions or
exchanges of shares previously reported as lost, whether or not the redemption
amount is under $250,000 or the proceeds are to be sent to the address of
record. AIM Funds may waive or modify any signature guarantee requirements at
any time.
Acceptable guarantors include banks, broker-dealers, credit unions,
national securities exchanges, savings associations and any other organization,
provided that such institution or organization qualifies as an "eligible
guarantor institution" as that term is defined in rules adopted by the SEC, and
further provided that such guarantor institution is listed in one of the
reference guides contained in AFS' current Signature Guarantee Standards and
Procedures, such as certain domestic banks, credit unions, securities dealers,
or securities exchanges. AFS will also accept signatures with either: (1) a
signature guaranteed with a medallion stamp of the STAMP Program, or (2) a
signature guaranteed with a medallion stamp of the NYSE Medallion Signature
Program, provided that in either event, the amount of the transaction involved
does not exceed the surety coverage amount indicated on the medallion. For
information regarding whether a particular institution or organization qualifies
as an "eligible guarantor institution," an investor should contact the Client
Services Department of AFS.
TRANSACTIONS BY TELEPHONE. By signing an account application form, an
investor appoints AFS as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by AFS in the designated account(s),
or in any other account with any of the AIM Funds, present or future, which has
the identical registration as the designated account(s), with full power of
substitution in the premises. AFS and AIM Distributors are thereby authorized
and directed to accept and act upon any telephone redemptions of shares held in
any of the account(s) listed, from any person who requests the redemption
proceeds to be applied to purchase shares in any one or more of the AIM Funds,
provided that such fund is available for sale and provided that the registration
and mailing address of the shares to be purchased are identical to the
registration of the shares being redeemed. An investor acknowledges by signing
the form that he understands and agrees that AFS and AIM Distributors may not be
liable for any loss, expense or cost arising out of any telephone exchange
requests effected in accordance with the authorization set forth in these
instructions if they reasonably believe such request to be genuine, but may
52
in certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transactions. AFS reserves the
right to modify or terminate the telephone exchange privilege at any time
without notice. An investor may elect not to have this privilege by marking the
appropriate box on the application. Then any exchanges must be effected in
writing by the investor.
INTERNET TRANSACTIONS. An investor may effect transactions in his account
through the internet by establishing a Personal Identification Number (PIN). By
establishing a PIN, the investor acknowledges and agrees that neither AFS nor
AIM Distributors will be liable for any loss, expense or cost arising out of any
internet transaction effected by them in accordance with any instructions
submitted by a user who transmits the PIN as authentication of his or her
identity. Procedures for verification of internet transactions include requests
for confirmation of the shareholder's personal identification number and mailing
of confirmations promptly after the transactions. The investor also acknowledges
that the ability to effect internet transactions may be terminated at any time
by the AIM Funds.
ABANDONED PROPERTY. It is the responsibility of the investor to ensure
that AFS maintains a correct address for his account(s). An incorrect address
may cause an investor's account statements and other mailings to be returned to
AFS. Upon receiving returned mail, AFS will attempt to locate the investor or
rightful owner of the account. If unsuccessful, AFS will retain a shareholder
locator service with a national information database to conduct periodic
searches for the investor. If the search firm is unable to locate the investor,
the search firm will determine whether the investor's account has legally been
abandoned. AFS is legally obligated to escheat (or transfer) abandoned property
to the appropriate state's unclaimed property administrator in accordance with
statutory requirements. The investor's last known address of record determines
which state has jurisdiction.
OFFERING PRICE
The following formula may be used to determine the public offering price
per Class A share of an investor's investment:
Net Asset Value / (1 - Sales Charge as % of Offering Price ) = Offering
Price.
For example, at the close of business on October 31, 2002, AIM Aggressive
Growth Fund - Class A shares had a net asset value per share of $7.30. The
offering price, assuming an initial sales charge of 5.50%, therefore was $7.72.
Calculation of Net Asset Value
Each Fund determines its net asset value per share once daily as of the
close of the customary trading session of the NYSE (generally 4:00 p.m. Eastern
time) on each business day of the Fund. In the event the NYSE closes early
(i.e., before 4:00 p.m. Eastern time) on a particular day, each Fund determines
its net asset value per share as of the close of the NYSE on such day. For
purposes of determining net asset value per share, the Fund will generally use
futures and options contract closing prices which are available fifteen (15)
minutes after the close of the customary trading session of the NYSE. The Funds
determine net asset value per share by dividing the value of a Fund's
securities, cash and other assets (including interest accrued but not collected)
attributable to a particular class, less all its liabilities (including accrued
expenses and dividends payable) attributable to that class, by the total number
of shares outstanding of that class. Determination of a Fund's net asset value
per share is made in accordance with generally accepted accounting principles.
Each security (excluding convertible bonds) held by a Fund is valued at
its last sales price on the exchange where the security is principally traded
or, lacking any sales on a particular day, the security is valued at the closing
bid price on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued on the basis of prices
53
furnished by independent pricing services or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ Official
Closing Price ("NOCP") or absent a NOCP, at the closing bid price on that day;
option contracts are valued at the mean between the closing bid and asked prices
on the exchange where the contracts are principally traded; futures contracts
are valued at final settlement price quotations from the primary exchange on
which they are traded. Debt securities (including convertible bonds) are valued
on the basis of prices provided by an independent pricing service. Prices
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 special
securities, dividend rate, yield, quality, coupon rate, maturity, type of issue,
individual trading characteristics and other market data.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued at the last bid price in the case of equity securities and in the case of
debt obligations, the mean between the last bid and ask prices. Securities for
which market quotations are not readily available or are questionable are valued
at fair value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of Trustees.
Short-term investments are valued at amortized cost when the security has 60
days or less to maturity.
Foreign securities are converted into U.S. dollars using exchange rates as
of the close of the NYSE. Generally, trading in foreign securities, corporate
bonds, U.S. Government securities and money market instruments is substantially
completed each day at various times prior to the close of the customary trading
session of the NYSE. The values of such securities used in computing the net
asset value of each Fund's shares are determined as of the close of the
respective markets. Occasionally, events affecting the values of such securities
may occur between the times at which such values are determined and the close of
the customary trading session of the NYSE which will not be reflected in the
computation of a Fund's net asset value. If a development/event has actually
caused that closing price to no longer reflect actual value, the closing price,
as of the close of the applicable market, may be adjusted to reflect the fair
value of the affected securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
Fund securities primarily traded in foreign markets may be traded in such
markets on days which are not business days of the Fund. Because the net asset
value per share of each Fund is determined only on business days of the Fund,
the net asset value per share of a Fund may be significantly affected on days
when an investor cannot exchange or redeem shares of the Fund.
REDEMPTION IN KIND
AIM intends to redeem all shares of the Funds in cash. It is possible that
future conditions may make it undesirable for a Fund to pay for redeemed shares
in cash. In such cases, the Fund may make payment in securities or other
property. If a Fund has made an election under Rule 18f-1 under the 1940 Act,
the Fund is obligated to redeem for cash all shares presented to such Fund for
redemption by any one shareholder in an amount up to the lesser of $250,000 or
1% of that Fund's net assets in any 90-day period. Securities delivered in
payment of redemptions are valued at the same value assigned to them in
computing the applicable Fund's net asset value per share. Shareholders
receiving such securities are likely to incur brokerage costs on their
subsequent sales of such securities.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification
number or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8
(for non-resident aliens) or Form W-9 (certifying exempt status) accompanying
the registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, generally must withhold, 28% of
redemption payments and reportable dividends (whether paid or accrued) in the
case of any shareholder who fails to provide the
54
Fund with a taxpayer identification number ("TIN") and a certification that he
is not subject to backup withholding.
An investor is subject to backup withholding if:
1. the investor fails to furnish a correct TIN to the Fund;
2. the IRS notifies the Fund that the investor furnished an incorrect
TIN;
3. the investor or the Fund is notified by the IRS that the investor is
subject to backup withholding because the investor failed to report
all of the interest and dividends on such investor's tax return (for
reportable interest and dividends only);
4. the investor fails to certify to the Fund that the investor is not
subject to backup withholding under (3) above (for reportable
interest and dividend accounts opened after 1983 only); or
5. the investor does not certify his TIN. This applies only to
non-exempt mutual fund accounts opened after 1983.
Interest and dividend payments are subject to backup withholding in all
five situations discussed above. Redemption proceeds and long-term gain
distributions are subject to backup withholding only if (1), (2) or (5) above
applies.
Certain payees and payments are exempt from backup withholding and
information reporting. AIM or AFS will not provide Form 1099 to those payees.
Investors should contact the IRS if they have any questions concerning
withholding.
IRS PENALTIES - Investors who do not supply the AIM Funds with a correct
TIN will be subject to a $50 penalty imposed by the IRS unless such failure is
due to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS - Nonresident alien individuals and foreign entities
are not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
generally remains in effect for a period starting on the date the Form is signed
and ending on the last day of the third succeeding calendar year. Such
shareholders may, however, be subject to federal income tax withholding at a 30%
rate on ordinary income dividends and other distributions. Under applicable
treaty law, residents of treaty countries may qualify for a reduced rate of
withholding or a withholding exemption.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
It is the present policy of each Fund, except for AIM Diversified Dividend
Fund, to declare and pay annually net investment income dividends and capital
gain distributions. It is each Fund's intention to distribute substantially all
of its net investment income and realized net capital gains, except for AIM
Diversified Dividend Fund as noted below. In the case of AIM Diversified
Dividend Fund, it is the policy to declare and pay quarterly net investment
income dividends and declare and pay annually any capital gain distributions. In
determining the amount of capital gains, if any, available for distribution,
capital gains will be offset against available net capital loss, if any, carried
forward from previous fiscal periods. All dividends and distributions will be
automatically reinvested in additional shares of the same class of each Fund
unless the shareholder has requested in writing to receive such dividends and
distributions in cash or that they be invested in shares of another AIM Fund,
subject to the terms and conditions set forth in the
55
Prospectus under the caption "Special Plans - Automatic Dividend Investment."
Such dividends and distributions will be reinvested at the net asset value per
share determined on the ex-dividend date. If a shareholder's account does not
have any shares in it on a dividend or capital gain distribution payment date,
the dividend or distribution will be paid in cash whether or not the shareholder
has elected to have such dividends or distributions reinvested.
Distributions paid by a fund, other than daily dividends, have the effect
of reducing the net asset value per share on the ex-dividend date by the amount
of the dividend or distribution. Therefore, a dividend or distribution declared
shortly after a purchase of shares by an investor would represent, in substance,
a return of capital to the shareholder with respect to such shares even though
it would be subject to income taxes.
Dividends on Class B and Class C shares are expected to be lower than those for
Class A shares because of higher distribution fees paid by Class B and Class C
shares. Dividends on Class R shares may be lower than those for Class A shares,
depending on whether the Class R shares pay higher distribution fees than those
for Class A shares. Other class-specific expenses may also affect dividends on
shares of those classes. Expenses attributable to a particular class ("Class
Expenses") include distribution plan expenses, which must be allocated to the
class for which they are incurred. Other expenses may be allocated as Class
Expenses, consistent with applicable legal principles under the 1940 Act and the
Code.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of each Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. Each Fund has elected to
be taxed under Subchapter M of the Code as a regulated investment company and
intends to maintain its qualifications as such in each of its taxable years. As
a regulated investment company, each Fund is not subject to federal income tax
on the portion of its net investment income (i.e., taxable interest, dividends
and other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes (i) at least 90% of its investment
company taxable income (i.e., net investment income, net foreign currency
ordinary gain or loss and the excess of net short-term capital gain over net
long-term capital loss) and (ii) at least 90% of the excess of its tax-exempt
interest income under Code Section 103(a) over its deductions disallowed under
Code Sections 265 and 171(a)(2) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below. Distributions by a Fund made during the taxable year or, under
specified circumstances, within twelve months after the close of the taxable
year, will be considered distributions of income and gains of the taxable year
and can therefore satisfy the Distribution Requirement.
Each Fund may use "equalization accounting" in determining the portion of
its net investment income and capital gain net income that has been distributed.
A Fund that elects to use equalization accounting will allocate a portion of its
realized investment income and capital gain to redemptions of Fund shares and
will reduce the amount of such income and gain that it distributes in cash.
However, each Fund intends to make cash distributions for each taxable year in
an aggregate amount that is sufficient to satisfy the Distribution Requirement
without taking into account its use of equalization accounting. The Internal
Revenue Service has not published any guidance concerning the methods to be used
in allocating investment income and capital gain to redemptions of shares. In
the event that the Internal Revenue Service determines that a Fund is using an
improper method of allocation and has underdistributed its net investment income
and capital gain net income for any taxable year, such Fund may be liable for
additional federal income tax.
56
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including, but not limited to, gain from options, futures or forward contracts)
derived from its business of investing in such stock, securities or currencies
(the "Income Requirement"). Under certain circumstances, a Fund may be required
to sell portfolio holdings to meet this requirement.
In addition to satisfying the requirements described above, each Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company (the "Asset Diversification Test"). Under this test, at the
close of each quarter of each Fund's taxable year, at least 50% of the value of
the Fund's assets must consist of cash and cash items, U.S. Government
securities, securities of other regulated investment companies, and securities
of other issuers, as to which the Fund has not invested more than 5% of the
value of the Fund's total assets in securities of such issuer and as to which
the Fund does not hold more than 10% of the outstanding voting securities of
such issuer, and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or of two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses.
For purposes of the Asset Diversification Test, the IRS has ruled that the
issuer of a purchased listed call option on stock is the issuer of the stock
underlying the option. The IRS has also informally ruled that, in general, the
issuers of purchased or written call and put options on securities, of long and
short positions on futures contracts on securities and of options on such future
contracts are the issuers of the securities underlying such financial
instruments where the instruments are traded on an exchange.
Where the writer of a listed call option owns the underlying securities,
the IRS has ruled that the Asset Diversification Test will be applied solely to
such securities and not to the value of the option itself. With respect to
options on securities indexes, futures contracts on securities indexes and
options on such futures contracts, the IRS has informally ruled that the issuers
of such options and futures contracts are the separate entities whose securities
are listed on the index, in proportion to the weighing of securities in the
computation of the index. It is unclear under present law who should be treated
as the issuer of forward foreign currency exchange contracts, of options on
foreign currencies, or of foreign currency futures and related options. It has
been suggested that the issuer in each case may be the foreign central bank or
the foreign government backing the particular currency. Due to this uncertainty
and because the Funds may not rely on informal rulings of the IRS, the Funds may
find it necessary to seek a ruling from the IRS as to the application of the
Asset Diversification Test to certain of the foregoing types of financial
instruments or to limit its holdings of some or all such instruments in order to
stay within the limits of such test.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction in the case of corporate shareholders and will be included in
the qualified dividend income of noncorporate shareholders. See "Fund
Distributions" below.
DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY. In
general, gain or loss recognized by a Fund on the disposition of an asset will
be a capital gain or loss. However, gain recognized on the disposition of a debt
obligation purchased by a Fund at a market discount (generally, at a price less
than its principal amount) will be treated as ordinary income to the extent of
the portion of the market discount which accrued during the period of time the
Fund held the debt obligation unless the Fund made an election to accrue market
discount into income. If a Fund purchases a debt obligation that was originally
issued at a discount, the Fund is generally required to include in gross income
each year the portion of the original issue discount which accrues during such
year. In addition, under the rules of Code Section 988, gain or loss recognized
on the disposition of a debt obligation denominated in a
57
foreign currency or an option with respect thereto (but only to the extent
attributable to changes in foreign currency exchange rates), and gain or loss
recognized on the disposition of a foreign currency forward contract or of
foreign currency itself, will generally be treated as ordinary income or loss.
Certain hedging transactions that may be engaged in by certain of the
Funds (such as short sales "against the box") may be subject to special tax
treatment as "constructive sales" under Section 1259 of the Code if a Fund holds
certain "appreciated financial positions" (defined generally as any interest
(including a futures or forward contract, short sale or option) with respect to
stock, certain debt instruments, or partnership interests if there would be a
gain were such interest sold, assigned, or otherwise terminated at its fair
market value). Upon entering into a constructive sales transaction with respect
to an appreciated financial position, a Fund will generally be deemed to have
constructively sold such appreciated financial position and will recognize gain
as if such position were sold, assigned, or otherwise terminated at its fair
market value on the date of such constructive sale (and will take into account
any gain for the taxable year which includes such date).
Some of the forward foreign currency exchange contracts, options and
futures contracts that certain of the Funds may enter into will be subject to
special tax treatment as "Section 1256 contracts." Section 1256 contracts that a
Fund holds are treated as if they are sold for their fair market value on the
last business day of the taxable year, regardless of whether a taxpayer's
obligations (or rights) under such contracts have terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date. Any
gain or loss recognized as a consequence of the year-end deemed disposition of
Section 1256 contracts is combined with any other gain or loss that was
previously recognized upon the termination of Section 1256 contracts during that
taxable year. The net amount of such gain or loss for the entire taxable year
(including gain or loss arising as a consequence of the year-end deemed sale of
such contracts) is deemed to be 60% long-term and 40% short-term gain or loss.
However, in the case of Section 1256 contracts that are forward foreign currency
exchange contracts, the net gain or loss is separately determined and (as
discussed above) generally treated as ordinary income or loss. If such a future
or option is held as an offsetting position and can be considered a straddle
under Section 1092 of the Code, such a straddle will constitute a mixed
straddle. A mixed straddle will be subject to both Section 1256 and Section 1092
unless certain elections are made by the Fund.
Other hedging transactions in which the Funds may engage may result in
"straddles" or "conversion transactions" for U.S. federal income tax purposes.
The straddle and conversion transaction rules may affect the character of gains
(or in the case of the straddle rules, losses) realized by the Funds. In
addition, losses realized by the Funds on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules and the
conversion transaction rules have been promulgated, the tax consequences to the
Funds of hedging transactions are not entirely clear. The hedging transactions
may increase the amount of short-term capital gain realized by the Funds (and,
if they are conversion transactions, the amount of ordinary income) which is
taxed as ordinary income when distributed to shareholders.
Because application of any of the foregoing rules governing Section 1256
contracts, constructive sales, straddle and conversion transactions may affect
the character of gains or losses, defer losses and/or accelerate the recognition
of gains or losses from the affected investment or straddle positions, the
taxable income of a Fund may exceed its book income. Accordingly, the amount
which must be distributed to shareholders and which will be taxed to
shareholders as ordinary income, qualified dividend income, or long-term capital
gain may also differ from the book income of the Fund and may be increased or
decreased as compared to a fund that did not engage in such transactions.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES. A 4% non-deductible excise
tax is imposed on a regulated investment company that fails to distribute in
each calendar year an amount equal to 98% of ordinary taxable income for the
calendar year and 98% of capital gain net income (excess of capital gains over
capital losses) for the one-year period ended on October 31 of such calendar
year (or, at the election of a regulated investment company having a taxable
year ending November 30 or December 31, for its taxable year (a "taxable year
election")). The balance of such income must be distributed during the
58
next calendar year. For the foregoing purposes, a regulated investment company
is treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year and (2) exclude Section
988 foreign currency gains and losses incurred after October 31 (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
Each Fund generally intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
in the event that the Internal Revenue Service determines that a Fund is using
an improper method of allocation for purposes of equalization accounting (as
discussed above), such Fund may be liable for excise tax. Moreover, investors
should note that a Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability. In addition, under certain circumstances, a Fund may elect to pay a
minimal amount of excise tax.
PFIC INVESTMENTS. The Funds are permitted to invest in foreign equity
securities and thus may invest in stocks of foreign companies that are
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign company is classified as a PFIC if at least one-half of its
assets constitute investment-type assets or 75% or more of its gross income is
investment-type income.
The application of the PFIC rules may affect, among other things, the
character of gain, the amount of gain or loss and the timing of the recognition
and character of income with respect to PFIC stock, as well as subject the Funds
themselves to tax on certain income from PFIC stock. For these reasons the
amount that must be distributed to shareholders, and which will be taxed to
shareholders as ordinary income or long-term capital gain, may be increased or
decreased substantially as compared to a fund that did not invest in PFIC stock.
SWAP AGREEMENTS. Each Fund may enter into swap agreements. The rules
governing the tax aspects of swap agreements are in a developing stage and are
not entirely clear in certain respects. Accordingly, while a Fund intends to
account for such transactions in a manner deemed to be appropriate, the IRS
might not accept such treatment. If it did not, the status of a Fund as a
regulated investment company might be affected. Each Fund intends to monitor
developments in this area. Certain requirements that must be met under the Code
in order for a Fund to qualify as a regulated investment company may limit the
extent to which a Fund will be able to engage in swap agreements.
FUND DISTRIBUTIONS. Each Fund anticipates distributing substantially all
of its investment company taxable income for each taxable year. Such
distributions will be taxable to shareholders as ordinary income and treated as
dividends for federal income tax purposes, but they will qualify for the 70%
dividends received deduction for corporations and as qualified dividend income
for individuals and other noncorporate taxpayers to the extent discussed below.
A Fund may either retain or distribute to shareholders its net capital
gain (net long-term capital gain over net short-term capital loss) for each
taxable year. Each Fund currently intends to distribute any such amounts. If net
capital gain is distributed and designated as a capital gain dividend, it will
be taxable to shareholders as long-term capital gain (currently taxable at a
maximum rate of 15% for noncorporate shareholders) regardless of the length of
time the shareholder has held his shares or whether such gain was recognized by
the Fund prior to the date on which the shareholder acquired his shares.
However, certain capital gain dividends distributed to noncorporate shareholders
for the Fund's fiscal year ending October 31, 2003 may be taxable at a maximum
rate of 20%. Conversely, if a Fund elects to retain its net capital gain, the
Fund will be taxed thereon (except to the extent of any available capital loss
carry forwards) at the 35% corporate tax rate. If a Fund elects to retain its
net capital gain, it is expected that
59
the Fund also will elect to have shareholders treated as if each received a
distribution of its pro rata share of such gain, with the result that each
shareholder will be required to report its pro rata share of such gain on its
tax return as long-term capital gain, will receive a refundable tax credit for
its pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for its shares by an amount equal to the deemed distribution less the
tax credit.
Ordinary income dividends paid by a Fund with respect to a taxable year
will qualify for the 70% dividends received deduction generally available to
corporations (other than corporations, such as "S" corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.
Ordinary income dividends paid by a Fund to individuals and other noncorporate
taxpayers will be treated as qualified dividend income that is subject to tax at
a maximum rate of 15% to the extent of the amount of qualifying dividends
received by the Fund from domestic corporations and from foreign corporations
that are either incorporated in a possession of the United States, eligible for
benefits under certain income tax treaties with the United States that include
an exchange of information program, or have stock of the same class with respect
to which the dividends are paid that is readily tradable on an established
securities market within the United States. However, dividends received by the
Fund from foreign personal holding companies, foreign investment companies or
PFICs are not qualifying dividends. If the qualifying dividend income received
by a Fund is equal to 95% (or a greater percentage) of the Fund's gross income
(exclusive net capital gain) in any taxable year, all of the ordinary income
dividends paid by the Fund will be qualifying dividend income.
Alternative minimum tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum rate of 28% for
non-corporate taxpayers and 20% for corporate taxpayers on the excess of the
taxpayer's alternative minimum taxable income ("AMTI") over an exemption amount.
However, the AMT on capital gain dividends and qualified dividend income paid by
a Fund to a noncorporate shareholder may not exceed a maximum rate of 15%. The
corporate dividends received deduction is not itself an item of tax preference
that must be added back to taxable income or is otherwise disallowed in
determining a corporation's AMTI. However, corporate shareholders will generally
be required to take the full amount of any dividend received from the Fund into
account (without a dividends received deduction) in determining their adjusted
current earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMTI net
operating loss deduction)) that is includable in AMTI. However, certain small
corporations are wholly exempt from the AMT.
Distributions by a Fund that do not constitute earnings and profits will
be treated as a return of capital to the extent of (and in reduction of) the
shareholder's tax basis in his shares; any excess will be treated as gain from
the sale of his shares.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually
60
as to the U.S. federal income tax consequences of distributions made (or deemed
made) during the year in accordance with the guidance that has been provided by
the IRS.
If the net asset value of shares is reduced below a shareholder's cost as
a result of a distribution by a Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of a Fund just
prior to a distribution. The price of shares purchased at this time may reflect
the amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
SALE OR REDEMPTION OF SHARES. A shareholder will recognize gain or loss on
the sale or redemption of shares of a Fund in an amount equal to the difference
between the proceeds of the sale or redemption and the shareholder's adjusted
tax basis in the shares. All or a portion of any loss so recognized may be
deferred under the wash sale rules if the shareholder purchases other shares of
the Fund within 30 days before or after the sale or redemption. In general, any
gain or loss arising from (or treated as arising from) the sale or redemption of
shares of a Fund will be considered capital gain or loss and will be long-term
capital gain or loss if the shares were held for longer than one year.
Currently, any long-term capital gain recognized by a non-corporate shareholder
will be subject to tax at a maximum rate of 15%. However, any capital loss
arising from the sale or redemption of shares held for six months or less will
be treated as a long-term capital loss to the extent of the amount of capital
gain dividends received on such shares. Capital losses in any year are
deductible only to the extent of capital gains plus, in the case of a
non-corporate taxpayer, $3,000 of ordinary income.
If a shareholder (a) incurs a sales load in acquiring shares of a Fund,
(b) disposes of such shares less than 91 days after they are acquired, and (c)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of, but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
BACKUP WITHHOLDING. The Funds may be required to withhold 28% of
distributions and/or redemption payments. For more information refer to
"Purchase, Redemption and Pricing of Shares - Backup Withholding".
FOREIGN SHAREHOLDERS. Taxation of a shareholder who, as to the United
States, is a nonresident alien individual, foreign trust or estate, foreign
corporation, or foreign partnership ("foreign shareholder"), depends on whether
the income from a Fund is "effectively connected" with a U.S. trade or business
carried on by such shareholder. If the income from a Fund is not effectively
connected with a U.S. trade or business carried on by a foreign shareholder,
distributions (other than distributions of long-term capital gain) will be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon
the gross amount of the distribution. Such a foreign shareholder would generally
be exempt from U.S. federal income tax on gain realized on the redemption of
shares of a Fund, capital gain dividends and amounts retained by a Fund that are
designated as undistributed net capital gain.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale or redemption of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be required
to withhold U.S. federal income tax at a rate of 28% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
61
Foreign shareholders may be subject to U.S. withholding tax at a rate of
30% on the income resulting from a Fund's election to treat any foreign income
tax paid by it as paid by its shareholders, but may not be able to claim a
credit or deduction with respect to the withholding tax for the foreign tax
treated as having been paid by them.
Foreign persons who file a United States tax return to obtain a U.S. tax
refund and who are not eligible to obtain a social security number must apply to
the IRS for an individual taxpayer identification number, using IRS Form W-7.
For a copy of the IRS Form W-7 and accompanying instructions, please contact
your tax advisor or the IRS.
Transfers by gift of shares of a Fund by a foreign shareholder who is a
nonresident alien individual will not be subject to U.S. federal gift tax. An
individual who, at the time of death, is a foreign shareholder will nevertheless
be subject to U.S. federal estate tax with respect to shares at the graduated
rates applicable to U.S. citizens and residents, unless a treaty exception
applies. In the absence of a treaty, there is a $13,000 statutory estate tax
credit.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign tax.
FOREIGN INCOME TAX. Investment income received by each Fund from sources
within foreign countries may be subject to foreign income tax withheld at the
source. The United States has entered into tax treaties with many foreign
countries which entitle the Funds to a reduced rate of, or exemption from, tax
on such income. It is impossible to determine the effective rate of foreign tax
in advance since the amount of a Fund's assets to be invested in various
countries is not known.
If more than 50% of the value of a Fund's total assets at the close of
each taxable year consists of the stock or securities of foreign corporations,
the Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign income tax paid by the Fund (the "Foreign Tax Election"). Pursuant to
the Foreign Tax Election, shareholders will be required (i) to include in gross
income, even though not actually received, their respective pro-rata shares of
the foreign income tax paid by the Fund that are attributable to any
distributions they receive; and (ii) either to deduct their pro-rata share of
foreign tax in computing their taxable income, or to use it (subject to various
Code limitations) as a foreign tax credit against Federal income tax (but not
both). No deduction for foreign tax may be claimed by a non-corporate
shareholder who does not itemize deductions or who is subject to alternative
minimum tax.
Unless certain requirements are met, a credit for foreign tax is subject
to the limitation that it may not exceed the shareholder's U.S. tax (determined
without regard to the availability of the credit) attributable to the
shareholder's foreign source taxable income. In determining the source and
character of distributions received from a Fund for this purpose, shareholders
will be required to allocate Fund distributions according to the source of the
income realized by the Fund. Each Fund's gain from the sale of stock and
securities and certain currency fluctuation gain and loss will generally be
treated as derived from U.S. sources. In addition, the limitation on the foreign
tax credit is applied separately to foreign source "passive" income, such as
dividend income, and the portion of foreign source income consisting of
qualified dividend income is reduced by approximately 57% to account for the tax
rate differential. Individuals who have no more than $300 ($600 for married
persons filing jointly) of creditable foreign tax included on Form 1099 and
whose foreign source income is all "qualified passive income" may elect each
year to be exempt from the foreign tax credit limitation and will be able to
claim a foreign tax credit without filing Form 1116 with its corresponding
requirement to report income and tax by country. Moreover, no foreign tax credit
will be allowable to any shareholder who has not held his shares of the Fund for
at least 16 days during the 30-day period beginning 15 days before the day such
shares become ex-dividend with respect to any Fund distribution to which foreign
income taxes are attributed (taking into account certain holding period
reduction requirements of the Code). Because of these limitations, shareholders
may be unable to claim a credit for the full amount of their proportionate
shares of the foreign income tax paid by a Fund.
62
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS. The foregoing
general discussion of U.S. federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on June 10, 2003. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income, qualified dividend
income and capital gain dividends may differ from the rules for U.S. federal
income taxation described above. Distributions may also be subject to additional
state, local and foreign taxes depending on each shareholder's particular
situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ
significantly from those summarized above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting investment in the Funds.
DISTRIBUTION OF SECURITIES
DISTRIBUTION PLANS
The Trust has adopted distribution plans pursuant to Rule 12b-1 under the
1940 Act with respect to each Fund's Class A shares, Class B shares, Class C
shares, Class R shares and Investor Class shares, if applicable (collectively
the "Plans"). Each Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate, shown immediately below, of the Fund's average
daily net assets of the applicable class.
INVESTOR
FUND CLASS A CLASS B CLASS C CLASS R CLASS
- ---- ------- ------- ------- -------- ------
AIM Aggressive Growth Fund 0.25% 1.00% 1.00% 0.50% N/A
AIM Basic Value II Fund 0.35% 1.00% 1.00% N/A N/A
AIM Blue Chip Fund 0.35% 1.00% 1.00% 0.50% 0.25%
AIM Capital Development Fund 0.35% 1.00% 1.00% 0.50% N/A
AIM Charter Fund 0.30% 1.00% 1.00% 0.50% N/A
AIM Constellation Fund 0.30% 1.00% 1.00% 0.50% N/A
AIM Core Strategies Fund 0.35% 1.00% 1.00% N/A N/A
AIM Dent Demographic Trends Fund 0.35% 1.00% 1.00% N/A N/A
AIM Diversified Dividend Fund 0.35% 1.00% 1.00% N/A N/A
AIM Emerging Growth Fund 0.35% 1.00% 1.00% N/A N/A
AIM Large Cap Basic Value Fund 0.35% 1.00% 1.00% 0.50% 0.25%
AIM Large Cap Growth Fund 0.35% 1.00% 1.00% 0.50% 0.25%
AIM Mid Cap Growth Fund 0.35% 1.00% 1.00% 0.50% N/A
AIM U.S. Growth Fund 0.35% 1.00% 1.00% N/A N/A
AIM Weingarten Fund 0.30% 1.00% 1.00% 0.50% N/A
All of the Plans compensate AIM Distributors for the purpose of financing
any activity which is primarily intended to result in the sale of shares of the
Funds. Such activities include, but are not limited to, the following: printing
of prospectuses and statements of additional information and reports for other
than existing shareholders; overhead; preparation and distribution of
advertising material and sales literature; expenses of organizing and conducting
sales seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering each Plan.
Amounts payable by a Fund under the Plans need not be directly related to
the expenses actually incurred by AIM Distributors on behalf of each Fund. The
Plans do not obligate the Funds to reimburse AIM Distributors for the actual
expenses AIM Distributors may incur in fulfilling its obligations under the
Plans. Thus, even if AIM Distributors' actual expenses exceed the fee payable to
AIM Distributors at any
63
given time, the Funds will not be obligated to pay more than that fee. If AIM
Distributors' expenses are less than the fee it receives, AIM Distributors will
retain the full amount of the fee.
AIM Distributors may from time to time waive or reduce any portion of its
12b-1 fee for Class A, Class C, Class R or Investor Class shares. Voluntary fee
waivers or reductions may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM
Distributors will retain its ability to be reimbursed for such fee prior to the
end of each fiscal year. Contractual fee waivers or reductions set forth in the
Fee Table in a Prospectus may not be terminated or amended to the Funds'
detriment during the period stated in the agreement between AIM Distributors and
the Fund.
The Funds may pay a service fee of 0.25% of the average daily net assets
of the Class A, Class B, Class C, Class R and Investor Class shares attributable
to the customers of selected dealers and financial institutions to such dealers
and financial institutions, including AIM Distributors, acting as principal, who
furnish continuing personal shareholder services to their customers who purchase
and own the applicable class of shares of the Fund. Under the terms of a
shareholder service agreement, such personal shareholder services include
responding to customer inquiries and providing customers with information about
their investments. Any amounts not paid as a service fee under each Plan would
constitute an asset-based sales charge.
AIM Distributors may pay dealers and institutions who sell Class R shares
an annual fee of 0.50% of average daily net assets. These payments will consist
of an asset-based fee of 0.25% and a service fee of 0.25% and will commence
either on the thirteenth month after the first purchase, on accounts on which a
dealer concession was paid, or immediately, on accounts on which a dealer
concession was not paid. If AIM Distributors pays a dealer concession, it will
retain all payments received by it relating to Class R shares for the first year
after they are purchased. AIM Distributors will make quarterly payments to
dealers and institutions based on the average net asset value of Class R shares
which are attributable to shareholders for whom the dealers and institutions are
designated as dealers of record.
Under a Shareholder Service Agreement, a Fund agrees to pay periodically
fees to selected dealers and other institutions who render the foregoing
services to their customers. The fees payable under a Shareholder Service
Agreement will be calculated at the end of each payment period for each business
day of the Funds during such period at the annual rate specified in each
agreement based on the average daily net asset value of the Funds' shares
purchased or acquired through exchange. Fees shall be paid only to those
selected dealers or other institutions who are dealers or institutions of record
at the close of business on the last business day of the applicable payment
period for the account in which such Fund's shares are held.
Selected dealers and other institutions entitled to receive compensation
for selling Fund shares may receive different compensation for selling shares of
one particular class over another. Under the Plans, certain financial
institutions which have entered into service agreements and which sell shares of
the Funds on an agency basis, may receive payments from the Funds pursuant to
the respective Plans. AIM Distributors does not act as principal, but rather as
agent for the Funds, in making dealer incentive and shareholder servicing
payments to dealers and other financial institutions under the Plans. These
payments are an obligation of the Funds and not of AIM Distributors.
Payments pursuant to the Plans are subject to any applicable
limitations imposed by rules of the National Association of Securities
Dealers, Inc. ("NASD").
See Appendix J for a list of the amounts paid by each class of shares of
each Fund to AIM Distributors pursuant to the Plans for the year, or period,
ended October 31, 2002 and Appendix K for an estimate by category of the
allocation of actual fees paid by each class of shares of each Fund pursuant to
its respective distribution plan for the year or period ended October 31, 2002.
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board of Trustees, including a majority
of the trustees who are not "interested persons"
64
(as defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the operation of the Plans or in any agreements related to
the Plans (the "Rule 12b-1 Trustees"). In approving the Plans in accordance with
the requirements of Rule 12b-1, the trustees considered various factors and
determined that there is a reasonable likelihood that the Plans would benefit
each class of the Funds and its respective shareholders.
The anticipated benefits that may result from the Plans with respect to
each Fund and/or the classes of each Fund and its shareholders include but are
not limited to the following: (1) rapid account access; (2) relatively
predictable flow of cash; and (3) a well-developed, dependable network of
shareholder service agents to help to curb sharp fluctuations in rates of
redemptions and sales, thereby reducing the chance that an unanticipated
increase in net redemptions could adversely affect the performance of each Fund.
Unless terminated earlier in accordance with their terms, the Plans
continue from year to year as long as such continuance is specifically approved,
in person, at least annually by the Board of Trustees, including a majority of
the Rule 12b-1 Trustees. A Plan may be terminated as to any Fund or class by the
vote of a majority of the Rule 12b-1 Trustees or, with respect to a particular
class, by the vote of a majority of the outstanding voting securities of that
class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
the Plans may be amended by the trustees, including a majority of the Rule 12b-1
Trustees, by votes cast in person at a meeting called for the purpose of voting
upon such amendment. As long as the Plans are in effect, the selection or
nomination of the Independent Trustees is committed to the discretion of the
Independent Trustees.
The Class B Plan obligates Class B shares to continue to make payments to
AIM Distributors following termination of the Class B shares Distribution
Agreement with respect to Class B shares sold by or attributable to the
distribution efforts of AIM Distributors or its predecessors, unless there has
been a complete termination of the Class B Plan (as defined in such Plan) and
the Class B Plan expressly authorizes AIM Distributors to assign, transfer or
pledge its rights to payments pursuant to the Class B Plan.
DISTRIBUTOR
The Trust has entered into master distribution agreements, as amended,
relating to the Funds (the "Distribution Agreements") with AIM Distributors, a
registered broker-dealer and a wholly owned subsidiary of AIM, pursuant to which
AIM Distributors acts as the distributor of shares of the Funds. The address of
AIM Distributors is P.O. Box 4739, Houston, Texas 77210-4739. Certain trustees
and officers of the Trust are affiliated with AIM Distributors. See "Management
of the Trust."
The Distribution Agreements provide AIM Distributors with the exclusive
right to distribute shares of the Funds on a continuous basis directly and
through other broker-dealers with whom AIM Distributors has entered into
selected dealer agreements. AIM Distributors has not undertaken to sell any
specified number of shares of any classes of the Funds.
AIM Distributors expects to pay sales commissions from its own resources
to dealers and institutions who sell Class B and Class C shares of the Funds at
the time of such sales.
Payments with respect to Class B shares will equal 4.00% of the purchase
price of the Class B shares sold by the dealer or institution, and will consist
of a sales commission equal to 3.75% of the purchase price of the Class B shares
sold plus an advance of the first year service fee of 0.25% with respect to such
shares. The portion of the payments to AIM Distributors under the
Class B Plan which constitutes an asset-based sales charge (0.75%) is intended
in part to permit AIM Distributors to recoup a portion of such sales commissions
plus financing costs. In the future, if multiple distributors serve a Fund, each
such distributor (or its assignee or transferee) would receive a share of the
payments under the
65
Class B Plan based on the portion of the Fund's Class B shares sold by or
attributable to the distribution efforts of that distributor.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price of the Class C
shares sold by the dealer or institution, and will consist of a sales commission
of 0.75% of the purchase price of the Class C shares sold plus an advance of the
first year service fee of 0.25% with respect to such shares. AIM Distributors
will retain all payments received by it relating to Class C shares for the first
year after they are purchased. The portion of the payments to AIM Distributors
under the Class A, Class C and Class R Plan attributable to Class C shares which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of the sales commissions to dealers plus
financing costs, if any. After the first full year, AIM Distributors will make
quarterly payments to dealers and institutions based on the average net asset
value of Class C shares which are attributable to shareholders for whom the
dealers and institutions are designated as dealers of record. These payments
will consist of an asset-based sales charge of 0.75% and a service fee of 0.25%.
The Trust (on behalf of any class of any Fund) or AIM Distributors may
terminate the Distribution Agreements on 60 days' written notice without
penalty. The Distribution Agreements will terminate automatically in the event
of their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors or its predecessors; provided,
however that a complete termination of the Class B Plan (as defined in such
Plan) would terminate all payments to AIM Distributors. Termination of the Class
B Plan or the Distribution Agreement for Class B shares would not affect the
obligation of Class B shareholders to pay CDSCs.
Total sales charges (front end and CDSCs) paid in connection with the sale
of shares of each class of each Fund, if applicable, for the last three fiscal
years ended October 31 are found in Appendix L.
CALCULATION OF PERFORMANCE DATA
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other funds and other potential investments,
investors should note that the methods of computing performance of other
potential investments are not necessarily comparable to the methods employed by
a Fund.
Average Annual Total Return Quotation
The standard formula for calculating average annual total return is as
follows:
n
P(1+T) =ERV
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (assuming the applicable
maximum sales load is deducted at the beginning of the
one, five, or ten year periods);
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000 payment
at the end of the one, five, or ten year periods (or
fractional portion of such period).
The average annual total returns for each Fund, with respect to its Class
A, Class B, Class C, Class R and Investor Class shares, if applicable, for the
one, five and ten year periods (or since inception if less than ten years) ended
April 30, 2003 are found in Appendix M.
66
Total returns quoted in advertising reflect all aspects of a Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value per share over the
period. Cumulative total return reflects the performance of a Fund over a stated
period of time. Average annual total returns are calculated by determining the
growth or decline in value of a hypothetical investment in a Fund over a stated
period of time, and then calculating the annually compounded percentage rate
that would have produced the same result if the rate of growth or decline in
value had been constant over the period.
Each Fund's total return is calculated in accordance with a standardized
formula for computation of annualized total return. Standardized total return
for: (1) Class A shares reflects the deduction of a Fund's maximum front-end
sales charge at the time of purchase; (2) Class B and Class C shares reflects
the deduction of the maximum applicable CDSC on a redemption of shares held for
the period; (3) Class R shares does not reflect a deduction of any sales charge
since that class is generally sold and redeemed at net asset value and (4)
Investor Class shares does not reflect a deduction of any sales charge since
that class is sold and redeemed at net asset value.
A Fund's total return shows its overall change in value, including changes
in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflects the Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period. Because average annual returns tend to even out
variations in the Fund's return, investors should recognize that such returns
are not the same as actual year-by-year results. To illustrate the components of
overall performance, a Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
Alternative Total Return Quotations
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, average annual total return may
be calculated without assuming payment of the full sales load according to the
following formula:
n
P(1+U)=ERV
Where P = a hypothetical initial payment of $1,000;
U = average annual total return assuming payment of only a
stated portion of, or none of, the applicable maximum
sales load at the beginning of the stated period;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000 payment
at the end of the stated period.
Cumulative total return across a stated period may be calculated as
follows:
P(1+V)=ERV
Where P = a hypothetical initial payment of $1,000;
V = cumulative total return assuming payment of all of, a
stated portion of, or none of, the applicable maximum
sales load at the beginning of the stated period; and
ERV = ending redeemable value of a hypothetical $1,000 payment
at the end of the stated period.
The cumulative total returns for each Fund, with respect to its Class A,
Class B, Class C and Class R and Investor Class shares, if applicable, for the
one, five and ten year periods (or since inception if less than ten years) ended
April 30, 2003 are found in Appendix M.
67
Calculation of Certain Performance Data
Funds offering Class R shares may use a restated or a blended performance
calculation to derive certain performance data shown in this Statement of
Additional Information and in each Fund's advertisements and other sales
material. If the Fund's Class R shares were not offered to the public during the
performance period covered, the performance data shown will be the restated
historical performance of the Fund's Class A shares at net asset value, adjusted
to reflect the higher Rule 12b-1 fees applicable to the Class R shares. If the
Fund's Class R shares were offered to the public only during a portion of the
performance period covered, the performance data shown will be the blended
returns of the historical performance of the Fund's Class R shares since their
inception and the restated historical performance of the Fund's Class A shares
(for periods prior to inception of the Class R shares) at net asset value,
adjusted to reflect the higher Rule 12b-1 fees applicable to the Class R shares.
If the Fund's Class R shares were offered to the public during the entire
performance period covered, the performance data shown will be the historical
performance of the Fund's Class R shares.
AIM Blue Chip Fund, AIM Large Cap Basic Value Fund and AIM Large Cap
Growth Fund may also use a restated or a blended performance calculation to
derive certain performance data shown for each Fund's Investor class shares in
this Statement of Additional Information and in each Fund's advertisements and
other sales material. If each Fund's Investor Class shares were not offered to
the public during the performance period covered, the performance data shown
will be the restated historical performance of each Fund's Class A shares at net
asset value and reflecting the Rule 12b-1 fees applicable to the Class A shares.
If each Fund's Investor Class shares were offered to the public only during a
portion of the performance period covered, the performance data shown will be
the blended returns of the historical performance of each Fund's Investor Class
shares since their inception and the restated historical performance of each
Fund's Class A shares (for periods prior to inception of the Investor Class
shares) at net asset value and reflecting the Rule 12b-1 fees applicable to the
Class A shares. If each Fund's Investor Class shares were offered to the public
during the entire performance period covered, the performance data shown will be
the historical performance of each Fund's Investor Class shares.
A restated or blended performance calculation may be used to derive (i)
each Fund's standardized average annual total returns over a stated period and
(ii) each Fund's non-standardized cumulative total returns over a stated period.
Average Annual Total Return (After Taxes on Distributions) Quotation
A Fund's average annual total return (after taxes on distributions) shows
its overall change in value, including changes in share price and assuming all
the Fund's dividends and capital gain distributions are reinvested. It reflects
the deduction of federal income taxes on distributions, but not on redemption
proceeds. Average annual total returns (after taxes on distributions) are
calculated by determining the after-tax growth or decline in value of a
hypothetical investment in a Fund over a stated period of time, and then
calculating the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. Because average annual total returns (after taxes on distributions) tend
to even out variations in the Fund's return, investors should recognize that
such returns are not the same as actual year-by-year results. To illustrate the
components of overall performance, a Fund may separate its average annual total
returns (after taxes on distributions) into income results and capital gains or
losses.
68
The standard formula for calculating average annual total return (after
taxes on distributions) is:
n
P(1+T) = ATV
D
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (after taxes on distributions);
n = number of years; and
ATV = ending value of a hypothetical $1,000 payment made at the
D beginning of the one, five, or ten year periods (or since
inception, if applicable) at the end of the one, five, or
ten year periods (or since inception, if applicable), after
taxes on fund distributions but not after taxes on
redemption.
Standardized average annual total return (after taxes on distributions)
for: (1) Class A shares reflects the deduction of a Fund's maximum front-end
sales charge at the time of purchase; (2) Class B and Class C shares reflect the
deduction of the maximum applicable CDSC on a redemption of shares held for the
period; and (3) Investor Class shares does not reflect a deduction of any sales
charge since that class is sold and redeemed at net asset value.
The after-tax returns assume all distributions by a Fund, less the taxes
due on such distributions, are reinvested at the price calculated as stated in
the prospectus on the reinvestment dates during the period. Taxes on a Fund's
distributions are calculated by applying to each component of the distribution
(e.g., ordinary income and long-term capital gain) the highest corresponding
individual marginal federal income tax rates in effect on the reinvestment date.
The taxable amount and tax character of each distribution is as specified by the
Fund on the dividend declaration date, but reflects any subsequent
recharacterizations of distributions. The effect of applicable tax credits, such
as the foreign tax credit, are also taken into account. The calculations only
reflect federal taxes, and thus do not reflect state and local taxes or the
impact of the federal alternative minimum tax.
The average annual total returns (after taxes on distributions) for each
Fund, with respect to its Class A, Class B, Class C and Investor Class shares,
for the one, five and ten year periods (or since inception if less than ten
years) ended April 30, 2003 are found in Appendix M.
Average Annual Total Return (After Taxes on Distributions and Sale of Fund
Shares) Quotation
A Fund's average annual total return (after taxes on distributions and
sale of Fund shares) shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and capital gain distributions
are reinvested. It reflects the deduction of federal income taxes on both
distributions and proceeds. Average annual total returns (after taxes on
distributions and redemption) are calculated by determining the after-tax growth
or decline in value of a hypothetical investment in a Fund over a stated period
of time, and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant over the period. Because average annual total returns (after taxes on
distributions and redemption) tend to even out variations in the Fund's return,
investors should recognize that such returns are not the same as actual
year-by-year results. To illustrate the components of overall performance, a
Fund may separate its average annual total returns (after taxes on distributions
and redemption) into income results and capital gains or losses.
69
The standard formula for calculating average annual total return (after
taxes on distributions and redemption) is:
n
P(1+T) = ATV
DR
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (after taxes on distributions
and redemption);
n = number of years; and
ATV = ending value of a hypothetical $1,000 payment made at the
DR beginning of the one, five, or ten year periods (or since
inception, if applicable) at the end of the one, five, or
ten year periods (or since inception, if applicable), after
taxes on fund distributions and redemption.
Standardized average annual total return (after taxes on distributions and
redemption) for: (1) Class A shares reflects the deduction of a Fund's maximum
front-end sales charge at the time of purchase; (2) Class B and Class C shares
reflect the deduction of the maximum applicable CDSC on a redemption of shares
held for the period; and (3) Investor Class shares does not reflect a deduction
of any sales charge since that class is sold and redeemed at net asset value.
The after-tax returns assume all distributions by a Fund, less the taxes
due on such distributions, are reinvested at the price calculated as stated in
the prospectus on the reinvestment dates during the period. Taxes due on a
Fund's distributions are calculated by applying to each component of the
distribution (e.g., ordinary income and long-term capital gain) the highest
corresponding individual marginal federal income tax rates in effect on the
reinvestment date. The taxable amount and tax character of each distribution is
as specified by the Fund on the dividend declaration date, but reflects any
subsequent recharacterizations of distributions. The effect of applicable tax
credits, such as the foreign tax credit, are also taken into account. The
calculations only reflect federal taxes, and thus do not reflect state and local
taxes or the impact of the federal alternative minimum tax.
The ending values for each period assume a complete liquidation of all
shares. The ending values for each period are determined by subtracting capital
gains taxes resulting from the sale of Fund shares and adding the tax benefit
from capital losses resulting from the sale of Fund shares. The capital gain or
loss upon sale of Fund shares is calculated by subtracting the tax basis from
the proceeds. Capital gains taxes (or the benefit resulting from tax losses) are
calculated using the highest federal individual capital gains tax rate for gains
of the appropriate character (e.g., ordinary income or long-term) in effect on
the date of the sale of Fund shares and in accordance with federal tax law
applicable on that date. The calculations assume that a shareholder may deduct
all capital losses in full.
The basis of shares acquired through the $1,000 initial investment are
tracked separately from subsequent purchases through reinvested distributions.
The basis for a reinvested distribution is the distribution net of taxes paid on
the distribution. Tax basis is adjusted for any distributions representing
returns of capital and for any other tax basis adjustments that would apply to
an individual taxpayer.
The amount and character (i.e., short-term or long-term) of capital gain
or loss upon sale of Fund shares is determined separately for shares acquired
through the $1,000 initial investment and each subsequent purchase through
reinvested distributions. The tax character is determined by the length of the
measurement period in the case of the initial $1,000 investment and the length
of the period between reinvestment and the end of the measurement period in the
case of reinvested distributions.
The average annual total returns (after taxes on distributions and
redemption) for each Fund, with respect to its Class A, Class B, Class C and
Investor Class shares, for the one, five and ten year periods (or since
inception if less than ten years) ended April 30, 2003 are found in Appendix M.
70
Performance Information
All advertisements of the Funds will disclose the maximum sales charge
(including deferred sales charges) imposed on purchases of a Fund's shares. If
any advertised performance data does not reflect the maximum sales charge (if
any), such advertisement will disclose that the sales charge has not been
deducted in computing the performance data, and that, if reflected, the maximum
sales charge would reduce the performance quoted. Further information regarding
each Fund's performance is contained in that Fund's annual report to
shareholders, which is available upon request and without charge.
From time to time, AIM or its affiliates may waive all or a portion of
their fees and/or assume certain expenses of any Fund. Fee waivers or reductions
or commitments to reduce expenses will have the effect of increasing that Fund's
yield and total return.
Certain Funds may participate in the IPO market in some market cycles.
Because of these Funds' small asset bases, any investment the Funds may make in
IPOs may significantly affect these Funds' total returns. As the Funds' assets
grow, the impact of IPO investments will decline, which may reduce the effect of
IPO investments on the Funds' total returns.
The performance of each Fund will vary from time to time and past results
are not necessarily indicative of future results.
Total return and yield figures for the Funds are neither fixed nor
guaranteed. The Funds may provide performance information in reports, sales
literature and advertisements. The Funds may also, from time to time, quote
information about the Funds published or aired by publications or other media
entities which contain articles or segments relating to investment results or
other data about one or more of the Funds. The following is a list of such
publications or media entities:
Advertising Age Forbes Nation's Business
Barron's Fortune New York Times
Best's Review Hartford Courant Pension World
Broker World Inc. Pensions & Investments
Business Week Institutional Investor Personal Investor
Changing Times Insurance Forum Philadelphia Inquirer
Christian Science Monitor Insurance Week USA Today
Consumer Reports Report Investor's Business Daily U.S. News & World
Economist Journal of the American Wall Street Journal
FACS of the Week Society of CLU & ChFC Washington Post
Financial Planning Kiplinger Letter CNN
Financial Product News Money CNBC
Financial Services Week Mutual Fund Forecaster PBS
Financial World
Each Fund may also compare its performance to performance data of similar
mutual funds as published by the following services:
Bank Rate Monitor Stanger
Donoghue's Weisenberger
Mutual Fund Values (Morningstar) Lipper, Inc.
71
Each Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the following:
Lipper Mid-Cap Growth Fund Index Russell 3000 --Registered Trademark-- Growth Index
Lipper Large Cap Value Fund Index Russell 3000 --Registered Trademark-- Index
Russell 1000 --Registered Trademark-- Growth Index Russell MidCap --Registered Trademark-- Growth Index
Russell 1000 --Registered Trademark-- Index Russell Mid Cap --Registered Trademark-- Index
Russell 1000 --Registered Trademark-- Value Index Standard & Poor's 500 StockIndex
Russell 2500 --Trademark-- Index Standard & Poor's Mid Cap 400 Index
Russell 2500 --Trademark-- Growth Index NASDAQ Index
Each Fund may also compare its performance to rates on Certificates of
Deposit and other fixed rate investments such as the following:
10 year Treasury Notes
90 day Treasury Bills
Advertising for the Funds may from time to time include discussions of
general economic conditions and interest rates. Advertising for such Funds may
also include references to the use of those Funds as part of an individual's
overall retirement investment program. From time to time, sales literature
and/or advertisements for any of the Funds may disclose: (i) the largest
holdings in the Funds' portfolios; (ii) certain selling group members; (iii)
certain institutional shareholders; (iv) measurements of risk, including
standard deviation, Beta and Sharpe ratios; and/or (v) capitalization and sector
analyses of holdings in the Funds' portfolios.
From time to time, the Funds' sales literature and/or advertisements may
discuss generic topics pertaining to the mutual fund industry. This includes,
but is not limited to, literature addressing general information about mutual
funds, discussions regarding investment styles, such as the growth, value or
GARP (growth at a reasonable price) styles of investing, variable annuities,
dollar-cost averaging, stocks, bonds, money markets, certificates of deposit,
retirement, retirement plans, asset allocation, tax-free investing, college
planning and inflation.
From time to time, AIM Dent Demographic Trends Fund's sales literature
and/or advertisements may quote (i) Harry S. Dent, Jr.'s theories on why the
coming decade may offer unprecedented opportunities for investors, including his
opinions on the stock market outlook and where growth may be strongest; (ii)
Harry S. Dent, Jr.'s opinions and theories from his books and publications,
including, but not limited to, Job Shock, The Great Boom Ahead and The Roaring
2000s, including his beliefs that (a) people's spending patterns may help
predict the stock market, (b) the stock market has tended to perform best when a
generation has reached its peak spending years from ages 45-50, and (c) as more
and more baby boomers reach their peak spending age, they could propel stock
prices up for the next decade; and (iii) Harry S. Dent, Jr.'s S-curve analysis,
a forecasting tool used to analyze products that show remarkable growth.
72
APPENDIX A
RATINGS OF DEBT SECURITIES
The following is a description of the factors underlying the debt
ratings of Moody's, S&P and Fitch:
MOODY'S LONG-TERM DEBT RATINGS
Moody's corporate ratings areas follows:
AAA: Bonds and preferred stock which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt-edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
AA: Bonds and preferred stock which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. These are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk in Aa rated bonds appear
somewhat larger than those securities rated Aaa.
A: Bonds and preferred stock which are rated A possess many favorable
investment attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA: Bonds and preferred stock which are rated Baa are considered as
medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
BA: Bonds and preferred stock which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds and preferred stock which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.
CAA: Bonds and preferred stock which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest.
CA: Bonds and preferred stock which are rated Ca represent obligations
which are speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C: Bonds and preferred stock which are rated C are the lowest rated class
of bonds, and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating
A-1
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of that generic rating category.
MOODY'S SHORT-TERM PRIME RATING SYSTEM
Moody's short-term ratings are opinions of the ability of issuers to
honor senior financial obligations and contracts. Such obligations generally
have an original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following designations, all judged to be investment
grade , to indicate the relative repayment ability of rated issuers.
PRIME-1: Issuers (or supporting institutions) rated Prime-1 have a superior
ability for repayment of senior short-term obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers (or supporting institutions) rated Prime-2 have a strong
ability to repay senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime
rating categories.
Note: In addition, in certain countries the prime rating may be
modified by the issuer's or guarantor's senior unsecured long-term debt
rating.
Moody's municipal ratings are as follows:
MOODY'S U.S. LONG-TERM MUNICIPAL BOND RATING DEFINITIONS
Municipal ratings are opinions of the investment quality of issuers and
issues in the US municipal and tax-exempt markets. As such, these ratings
incorporate Moody's assessment of the default probability and loss severity of
these issuers and issues.
Municipal Ratings are based upon the analysis of four primary factors
relating to municipal finance: economy, debt, finances, and
administration/management strategies. Each of the factors is evaluated
individually and for its effect on the other factors in the context of the
municipality's ability to repay its debt.
AAA: Issuers or issues rated Aaa demonstrate the strongest
creditworthiness relative to other US municipal or tax-exempt issuers or
issues.
AA: Issuers or issues rated Aa demonstrate very strong
creditworthiness relative to other US municipal or tax-exempt issuers or
issues.
A-2
A: Issuers or issues rated A present above-average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
BAA: Issuers or issues rated Baa represent average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
BA: Issuers or issues rated Ba demonstrate below-average
creditworthiness relative to other US municipal or tax-exempt issuers or
issues.
B: Issuers or issues rated B demonstrate weak creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
CAA: Issuers or issues rated Caa demonstrate very weak
creditworthiness relative to other US municipal or tax-exempt issuers or
issues.
CA: Issuers or issues rated Ca demonstrate extremely weak
creditworthiness relative to other US municipal or tax-exempt issuers or
issues.
C: Issuers or issues rated C demonstrate the weakest
creditworthiness relative to other US municipal or tax-exempt issuers or
issues.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa to Caa. The modifier 1 indicates that the
issue ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic category.
MOODY'S MIG/VMIG US SHORT-TERM RATINGS
In municipal debt issuance, there are three rating categories for
short-term obligations that are considered investment grade. These ratings are
designated as Moody's Investment Grade (MIG) and are divided into three levels -
MIG 1 through MIG 3.
In addition, those short-term obligations that are of speculative quality
are designated SG, or speculative grade.
In the case of variable rate demand obligations (VRDOs), a two-component
rating is assigned. The first element represents Moody's evaluation of the
degree of risk associated with scheduled principal and interest payments. The
second element represents Moody's evaluation of the degree of risk associated
with the demand feature, using the MIG rating scale.
The short-term rating assigned to the demand feature of VRDOs is
designated as VMIG. When either the long- or short-term aspect of a VRDO is not
rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
MIG ratings expire at note maturity. By contrast, VMIG rating expirations
will be a function of each issue's specific structural or credit features.
Gradations of investment quality are indicated by rating symbols, with
each symbol representing a group in which the quality characteristics are
broadly the same.
MIG 1/VMIG 1: This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly reliable liquidity
support or demonstrated broad-based access to the market for refinancing.
A-3
MIG 2/VMIG 2: This designation denotes strong credit quality. Margins of
protection are ample although not as large as in the preceding group.
MIG 3/VMIG 3: This designation denotes acceptable credit quality. Liquidity and
cash flow protection may be narrow and market access for refinancing is likely
to be less well established.
SG: This designation denotes speculative-grade credit quality. Debt
instruments in this category may lack sufficient margins of protection.
STANDARD & POOR'S LONG-TERM CORPORATE AND MUNICIPAL RATINGS
Issue credit ratings are based in varying degrees, on the following
considerations: likelihood of payment - capacity and willingness of the obligor
to meet its financial commitment on an obligation in accordance with the terms
of the obligation; nature of and provisions of the obligation; and protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.
S&P describes its ratings for corporate and municipal bonds as follows:
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in a small degree.
A: Debt rated A has a strong capacity to meet its financial commitments although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having significant
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
NR: Not Rated.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option or
demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example,
A-4
AAA/A-1+). With short-term demand debt, the note rating symbols are
used with the commercial paper rating symbols (for example, SP-1+/A-1+).
S&P COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
These categories are as follows:
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated 'B' are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless Standard & Poor's believes
such payments will be made during such grace period.
S&P SHORT-TERM MUNICIPAL RATINGS
An S&P note rating reflect the liquidity factors and market-access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:
amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note); and source of payment
(the more dependant the issue is on the market for its refinancing, the more
likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH LONG-TERM CREDIT RATINGS
Fitch Ratings provides an opinion on the ability of an entity or of a
securities issue to meet financial commitments, such as interest, preferred
dividends, or repayment of principal, on a timely basis. These credit ratings
apply to a variety of entities and issues, including but not limited to
sovereigns,
A-5
governments, structured financings, and corporations; debt, preferred/preference
stock, bank loans, and counterparties; as well as the financial strength of
insurance companies and financial guarantors.
Credit ratings are used by investors as indications of the likelihood of
getting their money back in accordance with the terms on which they invested.
Thus, the use of credit ratings defines their function: "investment grade"
ratings (international Long-term 'AAA' - 'BBB' categories; Short-term 'F1' -
'F3') indicate a relatively low probability of default, while those in the
"speculative" or "non-investment grade" categories (international Long-term 'BB'
- - 'D'; Short-term 'B' - 'D') either signal a higher probability of default or
that a default has already occurred. Ratings imply no specific prediction of
default probability. However, for example, it is relevant to note that over the
long term, defaults on 'AAA' rated U.S. corporate bonds have averaged less than
0.10% per annum, while the equivalent rate for 'BBB' rated bonds was 0.35%, and
for 'B' rated bonds, 3.0%.
Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.
Entities or issues carrying the same rating are of similar but not
necessarily identical credit quality since the rating categories do not fully
reflect small differences in the degrees of credit risk.
Fitch credit and research are not recommendations to buy, sell or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
of taxability of payments of any security.
The ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch Ratings believes
to be reliable. Fitch Ratings does not audit or verify the truth or accuracy of
such information. Ratings may be changed or withdrawn as a result of changes in,
or the unavailability of, information or for other reasons.
Our program ratings relate only to standard issues made under the program
concerned; it should not be assumed that these ratings apply to every issue made
under the program. In particular, in the case of non-standard issues, i.e.,
those that are linked to the credit of a third party or linked to the
performance of an index, ratings of these issues may deviate from the applicable
program rating.
Credit ratings do not directly address any risk other than credit risk. In
particular, these ratings do not deal with the risk of loss due to changes in
market interest rates and other market considerations.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong capacity for timely payment of financial
commitments, which is unlikely to be affected by foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor has a very strong capacity for timely payment of financial commitments
which is not significantly vulnerable to foreseeable events.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of good credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances are more
likely to impair this capacity.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
A-6
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced and at Fitch's discretion, when Fitch Ratings deems the amount of
information available to be inadequate for ratings purposes.
RATINGWATCH: Ratings are placed on RatingWatch to notify investors that there is
a reasonable possibility of a rating change and the likely direction of such
change. These are designated as "Positive," indicating a potential upgrade,
"Negative," for potential downgrade, or "Evolving," if ratings may be raised,
lowered or maintained. RatingWatch is typically resolved over a relatively short
period.
FITCH SPECULATIVE GRADE BOND RATINGS
BB: Bonds are considered speculative. There is a possibility of credit risk
developing, particularly as the result of adverse economic changes over
time. However, business and financial alternatives may be available to allow
financial commitments to be met.
'
B: Bonds are considered highly speculative. Significant credit risk is present
but a limited margin of safety remains. While bonds in this class are currently
meeting financial commitments, the capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC: Default is a real possibility. Capacity for meeting financial
commitments is solely reliant upon sustained, favorable business or economic
developments.
CC: Default of some kind appears probable.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and are valued on the basis of their prospects
for achieving partial or full recovery value in liquidation or reorganization of
the obligor. "DDD" represents the highest potential for recovery on these bonds,
and "D" represents the lowest potential for recovery.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in categories below CCC.
FITCH SHORT-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local
currency ratings. A Short-term rating has a time horizon of less than 12 months
for most obligations, or up to three years for U.S. public finance securities,
and thus places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as in the case of the higher ratings.
A-7
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse changes could result in a reduction to
non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
C: High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D: Default. Issues assigned this rating are in actual or imminent
payment default.
A-8
`
APPENDIX B
TRUSTEES AND OFFICERS
As of January 1, 2003
The address of each trustee and officer is 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173. Each trustee oversees 89 portfolios in the AIM
Funds complex. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST AND/OR HELD BY TRUSTEE
OFFICER
SINCE
- ------------------------------- ------- ------------------------------------------------ ---------------------
INTERESTED PERSONS
Robert H. Graham -- 1946 1988 Director and Chairman, A I M Management Group None
Trustee, Chairman and Inc. (financial services holding company); and
President(1) Director and Vice Chairman, AMVESCAP PLC and
Chairman of AMVESCAP PLC - AIM
Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief
Executive Officer, A I M Management
Group Inc.; Director, Chairman and
President, A I M Advisors, Inc.
(registered investment advisor);
Director and Chairman, A I M
Capital Management, Inc.
(registered investment advisor), A
I M Distributors, Inc. (registered
broker dealer), A I M Fund
Services, Inc. (registered transfer
agent), and Fund Management Company
(registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC - Managed Products
- ------------------------------- ------- ------------------------------------------------ ---------------------
Mark H. Williamson -- 1951 2003 Director, President and Chief Executive Officer, Director and
Trustee and Executive Vice A I M Management Group Inc. (financial services Chairman, INVESCO
President(2) holding company); Director, Chairman and Bond Funds, Inc.,
President, A I M Advisors, Inc. (registered INVESCO Combination
investment advisor); Director, A I M Capital Stock & Bond Funds,
Management, Inc. (registered investment advisor) Inc., INVESCO
and A I M Distributors, Inc. (registered broker Counselor Series
dealer), Director and Chairman, A I M Fund Funds, Inc., INVESCO
Services, Inc. (registered transfer agent), and International Funds,
Fund Management Company (registered broker Inc., INVESCO Manager
dealer); and Chief Executive Officer, AMVESCAP Series Funds, Inc.,
PLC - AIM Division (parent of AIM and a global INVESCO Money Market
investment management firm) Funds, Inc., INVESCO
Formerly: Director, Chairman, President and Sector Funds, Inc.,
Chief Executive Officer, INVESCO Funds Group, INVESCO Stock Funds,
Inc.; and INVESCO Distributors, Inc.; Chief Inc., INVESCO
Executive Officer, AMVESCAP PLC - Managed Treasurer's Series
Products; Chairman and Chief Executive Officer
- ----------
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust. Mr. Williamson became Executive Vice
President of the Trust on March 4, 2003.
B-1
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST AND/OR HELD BY TRUSTEE
OFFICER
SINCE
- ------------------------------- ------- ------------------------------------------------ ---------------------
of NationsBanc Advisors, Inc.; and Chairman of Funds, Inc. and
NationsBanc Investments, Inc. INVESCO Variable
Investment Funds, Inc.
INDEPENDENT TRUSTEES
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered
investment company)
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited
Trustee (technology consulting company) (insurance company);
and Captaris, Inc.
(unified messaging
provider)
Albert R. Dowden -- 1941 2000 Director, Magellan Insurance Company; Member of Cortland Trust, Inc.
Trustee Advisory Board of Rotary Power International (registered
(designer, manufacturer, and seller of rotary investment company)
power engines); and Director, The Boss Group
(private equity group) and Annuity & Life Re
(Holdings), Ltd. (re-insurance company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North America,
Inc.; Senior Vice President, AB Volvo; and
director of various affiliated Volvo companies
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; None
Trustee President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Administaff
Trustee Group, Inc. (government affairs company) and
Texana Timber LP
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered
investment company)
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the None
Trustee USA
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
B-2
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST AND/OR HELD BY TRUSTEE
OFFICER
SINCE
- ------------------------------- ------- ------------------------------------------------ ---------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
Louis S. Sklar -- 1939 1989 Executive Vice President, Hines (real estate None
Trustee development company)
OTHER OFFICERS
Kevin M. Carome - 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President(3) General Counsel, A I M Management Group Inc.
(financial services holding company) and A I M
Advisors, Inc.; and Vice President, A I M
Capital Management, Inc., A I M Distributors,
Inc. and A I M Fund Services, Inc.; Director,
Vice President and General Counsel, Fund
Management Company
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; and
Senior Vice President and General Counsel,
Liberty Funds Group, LLC
Gary T. Crum -- 1947 1988 Director, Chairman and Director of Investments, N/A
Senior Vice President(4) A I M Capital Management, Inc.; Director and
Executive Vice President, A I M Management Group
Inc.; Director and Senior Vice President, A I M
Advisors, Inc.; and Director, A I M
Distributors, Inc. and AMVESCAP PLC
Formerly: Chief Executive Officer and President,
A I M Capital Management, Inc.
Stuart W. Coco -- 1955 2002 Managing Director and Chief Research Officer - N/A
Vice President Fixed Income, A I M Capital Management, Inc.;
and Vice President, A I M Advisors, Inc.
Melville B. Cox -- 1943 1992 Vice President and Chief Compliance Officer, A I N/A
Vice President M Advisors, Inc. and A I M Capital Management,
Inc.; and Vice President, A I M Fund Services,
Inc.
- ----------
(3) Mr. Carome became Senior Vice President of the Trust on May 13, 2003.
(4) Information is current as of January 10, 2003.
B-3
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST AND/OR HELD BY TRUSTEE
OFFICER
SINCE
- ------------------------------- ------- ------------------------------------------------ ---------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc.; and N/A
Vice President(4) President, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management,
Inc.
Dana R. Sutton -- 1959 1988 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Nancy L. Martin - 1957 2003 Vice President, A I M Advisors, Inc.; and Vice N/A
Secretary(5) President and General Counsel, A I M Capital
Management, Inc.
- ----------
(5) Ms. Martin became Secretary of the Trust on April 1, 2003.
B-4
TRUSTEE OWNERSHIP OF FUND SHARES AS OF DECEMBER 31, 2002
NAME OF TRUSTEE DOLLAR RANGE OF EQUITY SECURITIES AGGREGATE DOLLAR RANGE OF EQUITY
PER FUND SECURITIES IN ALL REGISTERED
INVESTMENT COMPANIES OVERSEEN BY
TRUSTEE IN THE AIM FAMILY OF
FUNDS--Registered Trademark--
- ------------------- -------------------------------------------- --------------------------------
Robert H. Graham Aggressive Growth Over $100,000 Over $100,000
Blue Chip Over $100,000
Capital Development Over $100,000
Charter Over $100,000
Constellation Over $100,000
Emerging Growth $50,001 - $100,000
Diversified Dividend Over $100,000
Large Cap Growth Over $100,000
Mid Cap Growth Over $100,000
Weingarten Over $100,000
Mark H. Williamson -0- $10,001 - $50,000
Frank S. Bayley -0- $10,001 - $50,000
Bruce L. Crockett Aggressive Growth $1 - $10,000 $1 - $10,000
Charter $1 - $10,000
Constellation $1 - $10,000
Weingarten $1 - $10,000
Albert R. Dowden Blue Chip $10,001 - $50,000 $50,001 - $100,000
Emerging Growth $10,001 - $50,000
Edward K. Dunn, Jr. Capital Development Over $100,000 Over $100,000(6)
Jack M. Fields Blue Chip Over $100,000 Over $100,000(6)
Charter Over $100,000
Constellation Over $100,000
Weingarten Over $100,000
- ----------
(6) Includes the total amount of compensation deferred by the trustee at his
or her election pursuant to a deferred compensation plan. Such deferred
compensation is placed in a deferral account and deemed to be invested in
one or more of the AIM Funds.
B-5
NAME OF TRUSTEE DOLLAR RANGE OF EQUITY SECURITIES AGGREGATE DOLLAR RANGE OF EQUITY
PER FUND SECURITIES IN ALL REGISTERED
INVESTMENT COMPANIES OVERSEEN BY
TRUSTEE IN THE AIM FAMILY OF
FUNDS--Registered Trademark--
- ------------------- -------------------------------------------- --------------------------------
Carl Frischling Aggressive Growth $50,001 - $100,000 Over $100,000(6)
Blue Chip Over $100,000
Capital Development Over $100,000
Charter Over $100,000
Constellation $50,001 - $100,000
Weingarten $50,001 - $100,000
Prema Mathai-Davis Aggressive Growth $50,001 - $100,000 Over $100,000(6)
Blue Chip $10,001 - $50,000
Large Cap Basic Value $10,001 - $50,000
Lewis F. Pennock Charter $10,001 - $50,000 $50,001 - $100,000
Large Cap Basic Value $1 - $10,000
Ruth H. Quigley -0- $1 - $10,000
Louis S. Sklar Aggressive Growth $50,001 - $100,000 Over $100,000(6)
Charter Over $100,000
Constellation Over $100,000
Weingarten Over $100,000
- ----------
(6) Includes the total amount of compensation deferred by the trustee at his
or her election pursuant to a deferred compensation plan. Such deferred
compensation is placed in a deferral account and deemed to be invested in
one or more of the AIM Funds.
B-6
APPENDIX C
TRUSTEE COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for
each trustee of the Trust who was not affiliated with AIM during the year ended
December 31, 2002:
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED ESTIMATED ANNUAL COMPENSATION
FROM THE BY ALL BENEFITS UPON FROM ALL AIM
TRUSTEE TRUST(1) AIM FUNDS(2) RETIREMENT(3) FUNDS(4)
- ------------------- ------------ ---------- ---------------- ------------
Frank S. Bayley $25,471 $ 142,800 $90,000 $ 150,000
Bruce L. Crockett 25,298 50,132 90,000 149,000
Albert R. Dowden 25,471 57,955 90,000 150,000
Edward K. Dunn, Jr. 25,298 94,149 90,000 149,000
Jack M. Fields(5) 25,471 29,153 90,000 153,000
Carl Frischling 25,471 74,511 90,000 150,000
Prema Mathai-Davis 25,471 33,931 90,000 150,000
Lewis F. Pennock 26,197 54,802 90,000 154,000
Ruth H. Quigley 25,471 142,502 90,000 153,000
Louis S. Sklar 26,025 78,500 90,000 153,000
(1) The total amount of compensation deferred by all trustees of the Trust
during the fiscal year ended October 31, 2002, including earnings, was
$121,155.
(2) During the fiscal year ended October 31, 2002, the total amount of
expenses allocated to the Trust in respect of such retirement benefits was
$58,205.
(3) Amounts shown assume each trustee serves until his or her normal
retirement date.
(4) All trustees currently serve as directors or trustees of seventeen
registered investment companies advised by AIM.
(5) During the fiscal year ended October 31, 2002, the Trust paid $129,560 in
legal fees to Kramer Levin Naftalis & Frankel LLP for services rendered by
such firm as counsel to the independent trustees of the Trust. Mr.
Frischling is a partner of such firm.
C-1
APPENDIX D
PROXY VOTING POLICIES
The Proxy Voting Policies applicable to each Fund follow:
PROXY POLICIES AND PROCEDURES
REVIEWED BY THE AIM FUNDS BOARD OF DIRECTORS/TRUSTEES JUNE 10-11, 2003
A. Proxy Policies
Each of A I M Advisors, Inc., A I M Capital Management, Inc., AIM Private
Asset Management, Inc. and AIM Alternative Asset Management Company (each
an "AIM Advisor" and collectively "AIM") has the fiduciary obligation to,
at all times, make the economic best interest of advisory clients the sole
consideration when voting proxies of companies held in client accounts. As
a general rule, each AIM Advisor shall vote against any actions that would
reduce the rights or options of shareholders, reduce shareholder influence
over the board of directors and management, reduce the alignment of
interests between management and shareholders, or reduce the value of
shareholders' investments. At the same time, AIM believes in supporting
the management of companies in which it invests, and will accord proper
weight to the positions of a company's board of directors, and the AIM
portfolio managers who chose to invest in the companies. Therefore, on
most issues, our votes have been cast in accordance with the
recommendations of the company's board of directors, and we do not
currently expect that trend to change. Although AIM's proxy voting
policies are stated below, AIM's proxy committee considers all relevant
facts and circumstances, and retains the right to vote proxies as deemed
appropriate.
I. Boards Of Directors
A board that has at least a majority of independent directors is
integral to good corporate governance. Key board committees,
including audit, compensation and nominating committees, should be
completely independent.
There are some actions by directors that should result in votes
being withheld. These instances include directors who:
- Are not independent directors and sit on the board's audit,
compensation or nominating committee;
- Attend less than 75 percent of the board and committee
meetings without a valid excuse;
- Implement or renew a dead-hand or modified dead-hand poison
pill;
- Enacted egregious corporate governance policies or failed to
replace management as appropriate;
- Have failed to act on takeover offers where the majority of
the shareholders have tendered their shares; or
- Ignore a shareholder proposal that is approved by a majority
of the shares outstanding.
Votes in a contested election of directors must be evaluated on a
case-by-case basis, considering the following factors:
- Long-term financial performance of the target company relative
to its industry;
- Management's track record;
- Portfolio manager's assessment;
- Qualifications of director nominees (both slates);
D-1
- Evaluation of what each side is offering shareholders as well
as the likelihood that the proposed objectives and goals can
be met; and
- Background to the proxy contest.
II. Independent Auditors
A company should limit its relationship with its auditors to the
audit engagement, and certain closely related activities that do
not, in the aggregate, raise an appearance of impaired independence.
We will support the reappointment of the company's auditors unless:
- It is not clear that the auditors will be able to fulfill
their function;
- There is reason to believe the independent auditors have
rendered an opinion that is neither accurate nor indicative of
the company's financial position; or
- The auditors have a significant professional or personal
relationship with the issuer that compromises the auditors'
independence.
III. Compensation Programs
Appropriately designed equity-based compensation plans, approved by
shareholders, can be an effective way to align the interests of
long-term shareholders and the interests of management, employees
and directors. Plans should not substantially dilute shareholders'
ownership interests in the company, provide participants with
excessive awards or have objectionable structural features. We will
consider all incentives, awards and compensation, and compare them
to a company-specific adjusted allowable dilution cap and a weighted
average estimate of shareholder wealth transfer and voting power
dilution.
- We will generally vote against equity-based plans where the
total dilution (including all equity-based plans) is
excessive.
- We will support the use of employee stock purchase plans to
increase company stock ownership by employees, provided that
shares purchased under the plan are acquired for no less than
85% of their market value.
- We will vote against plans that have any of the following
structural features: ability to re-price underwater options
without shareholder approval, ability to issue options with an
exercise price below the stock's current market price, ability
to issue reload options, or automatic share replenishment
("evergreen") feature.
- We will vote for proposals to reprice options if there is a
value-for-value (rather than a share-for-share) exchange.
- We will generally support the board's discretion to determine
and grant appropriate cash compensation and severance
packages.
IV. Corporate Matters
We will review management proposals relating to changes to capital
structure, reincorporation, restructuring and mergers and
acquisitions on a case by case basis, considering the impact of the
changes on corporate governance and shareholder rights, anticipated
financial and operating benefits, portfolio manager views, level of
dilution, and a company's industry and performance in terms of
shareholder returns.
- We will vote for merger and acquisition proposals that the
proxy committee and relevant portfolio managers believe, based
on their review of the materials, will
D-2
result in financial and operating benefits, have a fair offer
price, have favorable prospects for the combined companies,
and will not have a negative impact on corporate governance or
shareholder rights.
- We will vote against proposals to increase the number of
authorized shares of any class of stock that has superior
voting rights to another class of stock.
- We will vote for proposals to increase common share
authorization for a stock split, provided that the increase in
authorized shares would not result in excessive dilution given
a company's industry and performance in terms of shareholder
returns.
- We will vote for proposals to institute open-market share
repurchase plans in which all shareholders participate on an
equal basis.
V. Shareholder Proposals
Shareholder proposals can be extremely complex, and the impact on
share value can rarely be anticipated with any high degree of
confidence. The proxy committee reviews shareholder proposals on a
case-by-case basis, giving careful consideration to such factors as:
the proposal's impact on the company's short-term and long-term
share value, its effect on the company's reputation, the economic
effect of the proposal, industry and regional norms applicable to
the company, the company's overall corporate governance provisions,
and the reasonableness of the request.
- We will generally abstain from shareholder social and
environmental proposals.
- We will generally support the board's discretion regarding
shareholder proposals that involve ordinary business
practices.
- We will generally vote for shareholder proposals that are
designed to protect shareholder rights if the company's
corporate governance standards indicate that such additional
protections are warranted.
- We will generally vote for proposals to lower barriers to
shareholder action.
- We will generally vote for proposals to subject shareholder
rights plans to a shareholder vote. In evaluating these plans,
we give favorable consideration to the presence of "TIDE"
provisions (short-term sunset provisions, qualified
bid/permitted offer provisions, and/or mandatory review by a
committee of independent directors at least every three
years).
VI. Other
- We will vote against any proposal where the proxy materials
lack sufficient information upon which to base an informed
decision.
- We will vote against any proposals to authorize the proxy to
conduct any other business that is not described in the proxy
statement.
- We will vote any matters not specifically covered by these
proxy policies and procedures in the economic best interest of
advisory clients.
AIM's proxy policies, and the procedures noted below, may be
amended from time to time.
D-3
B. Proxy Committee Procedures
The proxy committee currently consists of representatives from the Legal
and Compliance Department, the Investments Department and the Finance
Department.
The committee members review detailed reports analyzing the proxy issues
and have access to proxy statements and annual reports. The committee then
discusses the issues and determines the vote. The committee shall give
appropriate and significant weight to portfolio managers' views regarding
a proposal's impact on shareholders. A proxy committee meeting requires a
quorum of three committee members, voting in person or by proxy.
AIM's proxy committee shall consider its fiduciary responsibility to all
clients when addressing proxy issues and vote accordingly. The proxy
committee may enlist the services of reputable outside professionals
and/or proxy evaluation services, such as Institutional Shareholder
Services or any of its subsidiaries ("ISS"), to assist with the analysis
of voting issues and/or to carry out the actual voting process. To the
extent the services of ISS or another provider are used, the proxy
committee shall periodically review the policies of that provider.
In addition to the foregoing, the following shall be strictly adhered to
unless contrary action receives the prior approval of Funds' Board of
Directors/Trustees:
1. Other than by voting proxies and participating in Creditors'
committees, AIM shall not engage in conduct that involves an attempt
to change or influence the control of a company.
2. AIM will not publicly announce its voting intentions and the reasons
therefore.
3. AIM shall not participate in a proxy solicitation or otherwise seek
proxy-voting authority from any other public company shareholder.
4. All communications regarding proxy issues between the proxy
committee and companies or their agents, or with fellow shareholders
shall be for the sole purpose of expressing and discussing AIM's
concerns for its advisory clients' interests and not for an attempt
to influence or control management.
C. Business/Disaster Recovery
If the proxy committee is unable to meet due to a temporary business
interruption, such as a power outage, a sub-committee of the proxy
committee may vote proxies in accordance with the policies stated herein.
If the sub-committee of the proxy committee is not able to vote proxies,
ISS shall vote proxies by default in accordance with ISS' proxy policies
and procedures, which may vary slightly from AIM's.
D. Restrictions Affecting Voting
If a country's laws allow a company in that country to block the sale of
the company's shares by a shareholder in advance of a shareholder meeting,
AIM will not vote in shareholder meetings held in that country.
Administrative or other procedures, such as securities lending, may also
cause AIM to refrain from voting. Although AIM considers proxy voting to
be an important shareholder right, the proxy committee will not impede a
portfolio manager's ability to trade in a stock in order to vote at a
shareholder meeting.
E. Conflicts of Interest
The proxy committee reviews each proxy to assess the extent to which there
may be a material conflict between AIM's interests and those of advisory
clients. A potential conflict of interest
D-4
situation may include where AIM or an affiliate manages assets for,
administers an employee benefit plan for, provides other financial
products or services to, or otherwise has a material business relationship
with, a company whose management is soliciting proxies, and failure to
vote proxies in favor of management of the company may harm AIM's
relationship with the company. In order to avoid even the appearance of
impropriety, the proxy committee will not take AIM's relationship with the
company into account, and will vote the company's proxies in the best
interest of the advisory clients, in accordance with these proxy policies
and procedures.
To the extent that a committee member has any conflict of interest with
respect to a company or an issue presented, that committee member should
inform the proxy committee of such conflict and abstain from voting on
that company or issue.
D-5
APPENDIX E
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the record
and beneficial holders of 5% or more of the outstanding shares of each class of
the Trust's equity securities and the percentage of the outstanding shares held
by such holders are set forth below. Unless otherwise indicated below, the Trust
has no knowledge as to whether all or any portion of the shares owned of record
are also owned beneficially.
A shareholder who owns beneficially 25% or more of the outstanding
securities of a Fund is presumed to "control" that Fund as defined in the 1940
Act. Such control may affect the voting rights of other shareholders.
All information listed below is as of June 20, 2003.
AIM AGGRESSIVE GROWTH FUND
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- ------------------------------ ---------- ---------- ---------- ---------- -------------
Citigroup Global Markets House
Acct
Attn: Cindy Tempesta 7th Fl
333 West 34th St. 5.54% -- 5.23% -- --
New York, NY 10001-2402
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers 8.07% -- 13.23% -- --
Attn: Fund Administration
4800 Deer Lake Dr East
2nd Floor
Jacksonville, FL 32246
The Manufacturers Life
Insurance Company'
C/O Manulife Financial USA
Attn: Laurie Ross SRS Acctg 12.17% -- -- -- --
250 Bloor St East, 7th Floor
Toronto, Ontario, Canada
M4WIE5
First Command Bank Trust
Attn: Trust Department -- -- -- -- 5.73%
PO Box 901075
Fort Worth, TX 76101-0000
E-1
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- ------------------------------ ---------- ---------- ---------- ---------- -------------
Reliance Trust Company
Custodian
FBO Olson International Ltd -- -- -- 21.18% --
401k plan
PO Box 48524
Atlanta, GA 30362-0000
SI Howard Glass Company Inc.
Earl R. Farmer Jr. -- -- -- 5.11% --
379 SW Cutoff
Worcester, MA 01604-2713
Sierra Conveyor Co Inc
Daniel P. Watson -- -- -- 5.06% --
PO Box 1382
Roseville, CA 95678-8382
AMVESCAP National Trust
Company TTE
FBO Guys Inc. 401 (k) -- -- -- 5.26% --
Profit Sharing Plan
P. O. Box 105779
Atlanta, GA 30348-5779
Reliance Trust
FBO Northern Printing Network
401k -- -- -- 18.86% --
PO Box 48529
Atlanta, GA 30362-1529
Patterson & Co FBO
Freudenberg PN
1525 West Wt Harris Blvd NC -- -- -- -- 81.47%
1151
Charlotte, NC 28288-0001
Patterson & Co FBO
Freudenberg SPUN
1525 West Wt Harris Blvd NC
1151 -- -- -- -- 11.69%
Charlotte, NC 28288-0001
E-2
AIM BASIC VALUE II FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- --------------------- ------------------- ------------------- -------------------
A I M Advisors, Inc.(*)
Attn: David Hessel
11 Greenway Plaza
Suite 100 100.00%(**) 100.00%(**) 100.00%(**)
Houston, TX 77046
(*) Owned of record and beneficially.
(**) Presumed to be a control person because of beneficial ownership of 25% or
more of the Fund.
AIM BLUE CHIP FUND
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL INVESTOR
SHARES SHARES SHARES SHARES CLASS SHARES CLASS SHARES*
---------- ---------- ---------- ---------- ------------- -------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD RECORD
- -------------------------- ---------- ---------- ---------- ---------- ------------- -------------
Merrill Lynch Pierce
Fenner & Smith
FBO The Sole Benefit of
Customers
Attn: Fund Administration
4800 Deer Lake Dr East 8.28% 7.94% 15.67% -- -- --
2nd Floor
Jacksonville, FL 32246
Banc One Securities Corp
FBO
The One Investment
Solution
Attn: Wrap Processing -- -- 7.20% -- -- --
OH1-1244
1111 Polaris Pkwy,
Suite J-2
Columbus, OH 43240-1244
Citigroup Global Markets
House Acct.
Attn: Cindy Tempesta 7th -- 6.54% 7.54% -- -- --
Floor
333 West 34th Street
New York, NY 10001-2402
E-3
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL INVESTOR
SHARES SHARES SHARES SHARES CLASS SHARES CLASS SHARES(*)
---------- ---------- ---------- ---------- ------------- ---------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD RECORD
- -------------------------- ---------- ---------- ---------- ---------- ------------- ---------------
First Command Bank Trust
Attn: Trust Department -- -- -- -- 100.00% --
PO Box 901075
Fort Worth, TX 76101-2075
Reliance Trust Company
Custodian
FBO Mecklenburg
Neurological Associates PA -- -- -- 13.97% -- --
401k Plan
PO Box 48529
Atlanta, GA 30362-1529
Norm Wagner TTEE FBO
Norm Wagner Automotive
401K Plan -- -- -- 18.37% -- --
39 Massachusetts Ave
Lunenburg MA 01462-1212
D&L Manufacturing Inc.
401K PSP
Lee Eslicker TTEE -- -- -- 18.73% -- --
Omnibus Account
P. O. Box 52427
Tulsa, OK 74152-0427
Walsh & Sons Construction
Corp
Forfeiture Account
DTD 12/01/1982
3209 Vestal Pkwy E -- -- -- 5.50% -- --
Vestal NY 13850-2154
(*) Investor Class shares of AIM Blue Chip Fund have not commenced operations.
E-4
AIM CAPITAL DEVELOPMENT FUND
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- --------------------------------- ---------- ---------- ---------- ---------- -------------
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers
Attn: Fund Administration
4800 Deer Lake Dr East 9.85% 10.30% 14.36% -- --
2nd Floor
Jacksonville, FL 32246-6484
Citigroup Global Markets House
Acct
Attn: Cindy Tempesta 7th Fl -- 7.08% 5.68% -- --
333 West 34th St.
New York, NY 10001-2402
Coastgear & Company
State Street Bank & Trust
Attn: Kevin Smith -- -- 9.09% -- --
105 Rosemont Avenue
Westwood, MA 02090
A I M Advisors, Inc.(*)
Attn: David Hessel
11 Greenway Plaza -- -- -- -- 100.00%
Suite 100
Houston, TX 77046
AMVESCAP Natl TR CO FBO
Equator Technologies, Inc. 401
(K) Retirement Plan -- -- - 66.08% --
P. O. Box 105779
Atlanta, GA 30348-5779
Reliance Trust Company
Custodian
FBO Agents Assistance -- -- -- 7.97% --
Corporation of Michigan 401k
PO Box 48529
Atlanta, GA 30362-0000
E-5
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- --------------------------------- ---------- ---------- ---------- ---------- -------------
Capital Bank & Trust Company
TTEE FBO 401K FBO All Kinds of
Minds 401K
c/o Premier/Fascorp
8515 E. Orchard Rd. 2T2 -- -- -- 5.04% --
Englewood, CO 80111-5037
(*) Owned of record and beneficially.
AIM CHARTER FUND
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- --------------------------------- ---------- ---------- ---------- ---------- -------------
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr East
2nd Floor 8.53% 5.86% 14.49% -- --
Jacksonville, FL 32246
Ruth and Ted Bauer
Family Foundation -- -- -- -- 11.18%
11 Greenway Plaza, Suite 2600
Houston, TX 77046-1173
City National Bank
Attn: Trust Operations/Mutual
Funds -- -- -- -- 8.59%
P.O. Box 60520
Los Angeles, CA 90060-0520
City of Springfield, Trustee, FBO
City of Springfield, 457 DCP
C/O Great West, Recordkeeper -- -- -- -- 5.72%
8515 E. Orchard Rd 2T2
Englewood, CO 80111-0000
E-6
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- --------------------------------- ---------- ---------- ---------- ---------- -------------
Town of Watertown, Trustee
FBO: Town of Watertown
457 Deferred Compensation Plan -- -- -- -- 6.95%
C/O Great West, Recordkeeper
8515 E. Orchard Rd 2T2
Englewood, CO 80111-0000
AMVESCAP Natl TR CO FBO Equator
Technologies, Inc. 401 (K)
Retirement Plan -- -- -- 43.34% --
P. O. Box 105779
Atlanta, GA 30348-5779
INVESCO Trust Company TTEE
FBO Big Horn Basin
Orthopedic Clinic PC -- -- -- 19.12% --
401k Profit Sharing Plan
PO Box 105779
Atlanta, GA 30348-5779
Reliance Trust Company Custodian
FBO Non Commissioned Officers
Association of the United States -- -- -- 7.86% --
of America 401K Plan
P. O. Box 48529
Atlanta, GA 30362-1529
Walsh & Sons Construction Corp.
Forfeiture Account DTD 12/01/1982 -- -- -- 6.07% --
3209 Vestal Pkwy E
Vestal, NY 13850-2154
First Command Bank Trust
Attn: Trust Department -- -- -- -- 24.44%
PO Box 901075
Fort Worth, TX 76101-0000
Citigroup Global Markets House
Acct.
Attn: Cindy Tempesta 7th Floor
333 West 34th Street 5.37% 6.35% 7.20% -- --
New York, NY 10001-2402
E-7
AIM CONSTELLATION FUND
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- --------------------------------- ---------- ---------- ---------- ---------- -------------
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers
Attn: Fund Administration
4800 Deer Lake Dr East, 2nd 11.65% 5.18% 17.82% -- --
Floor
Jacksonville, FL 32246
Ohio Public
Employees Deferred Compensation -- -- -- -- 63.42%
172 E. State Street
Columbus, OH 43215
Wells Fargo Bank West NA Cust.
City of Houston
457 Deferred Compensation Plan -- -- -- -- 11.01%
C/O Great West, Recordkeeper
8515 E. Orchard Rd 2T2
Englewood, CO 80111-0000
Nationwide Trust Company FBO
Participating Retirement Plans
C/O IPO Portfolio Accounting -- -- -- -- 9.51%
P.O. Box 182029
Columbus, OH 43218
State of Vermont Deferred Comp
C/O Copeland Companies
Attn: Planned Valuation -- -- -- -- 7.91%
Services
2 Tower Center
East Brunswick, NJ 08816-0000
Reliance Trust Company Cust FBO
William J. Kamm and Sons Inc.
401K Plan -- -- -- 31.56% --
P. O. Box 48529
Atlanta, GA 30362-1529
E-8
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- --------------------------------- ---------- ---------- ---------- ---------- -------------
AMVESCAP National Trust Company
TTE
FBO Guys Inc. 401(k) Profit
Sharing Plan
P. O. Box 105779 -- -- -- 18.50% --
Atlanta, GA 30348-5779
Reliance Trust Custodian
FBO Stadtmauer Bailkin LLP
401k Plan
PO Box 48529 -- -- -- 12.84% --
Atlanta, GA 30362-0000
Reliance Trust Custodian
FBO Mecklenburg Neurological
Associates PA -- -- -- 6.14% --
401k Plan
PO Box 48529
Atlanta, GA 30362-0000
Citigroup Global Markets
House Account
Attn: Cindy Tempesta 7th Floor 5.96 5.72% 7.57% -- --
333 West 34th Street
New York, NY 10001-2403
Airbrush Images Inc 401k Plan
Daniel E. Henrichs TTEE
850 N. FM 3083 -- -- -- 11.29% --
Conroe, TX 77303-1850
AIM CORE STRATEGIES FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- --------------------- ------------------- ------------------- -------------------
A I M Advisors, Inc.(*)
Attn: David Hessel
11 Greenway Plaza, Suite 100 100.00%(**) 100.00%(**) 100.00%(**)
Houston, TX 77046
(*) Owned of record and beneficially.
(**) Presumed to be a control person because of beneficial ownership of 25% or
more of the Fund.
E-9
AIM DENT DEMOGRAPHIC TRENDS FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- --------------------- ------------------- ------------------- -------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr East, 2nd Floor 5.25% 10.96% 17.45%
Jacksonville, FL 32246
Citigroup Global House Acct
Attn: Cindy Tempesta 7th Floor
333 West 34th Street 5.70% 10.06% 11.15%
New York, NY 10001-2402
AIM DIVERSIFIED DIVIDEND FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- --------------------- ------------------- ------------------- -------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Solo Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr East
2nd Floor 7.85% 15.88% --
Jacksonville, FL 32246
Legg Mason Wood Walker Inc.
291-11550-14
P.O. Box 1476
Baltimore, MD 21203-1475 -- -- 7.66%
AIM EMERGING GROWTH FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- --------------------- ------------------- ------------------- -------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr East, 2nd Floor 8.00% 6.56% 17.33%
Jacksonville, FL 32246
E-10
AIM LARGE CAP BASIC VALUE FUND
CLASS A CLASS B CLASS C CLASS R INVESTOR
SHARES SHARES SHARES SHARES CLASS SHARES(*)
---------- ---------- ---------- ---------- ------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- --------------------------------- ---------- ---------- ---------- ---------- ------------
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr East
2nd Floor 24.92% 14.14% 24.70% -- --
Jacksonville, FL 32246
Darse E. Crandall Solo 401k
Darse E. Crandall
13360 Del Monte Dr. Apt. 2C -- -- -- 14.13% --
Seal Beach, CA 90740-4561
PVR Inc
Phillip V. Rye -- -- -- 7.61% --
22119 Kensington Dr.
Woodhaven, MI 48183-1151
Carol's Craftique Inc
Carol L. Moecker -- -- -- 6.92% --
1414 24th Ave S
Moorhead, MN 56560-0000
MCB Trust Services Cust FBO
ECFIRST.COM Pension Plan -- -- -- 8.64% --
700 17th Street, Ste 300
Denver, CO 80202-0000
MCB Trust Services Cust FBO
Joe Verde Sales and Management
Training Inc. Profit Sharing Plan -- -- -- 17.54% --
700 17th St. Ste 300
Denver, CO 80202-3507
Federated Lighting Inc. 401 K
Profit Sharing Plan
1600 Trade Zone #406 -- -- -- 6.75% --
Upper Marlboro, MD 20772
(*) Investor Class shares of AIM Large Cap Basic Value Fund have not commenced
operations.
E-11
AIM LARGE CAP GROWTH FUND
CLASS A CLASS B CLASS C CLASS R INVESTOR
SHARES SHARES SHARES SHARES CLASS SHARES(*)
---------- ---------- ---------- ---------- ------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- --------------------------------- ---------- ---------- ---------- ---------- ------------
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr East
2nd Floor 11.29% 10.30% 14.27% -- --
Jacksonville, FL 32246
INVESCO Trust Company TTEE
FBO Big Horn Basin Orthopedic
Clinic PC -- -- -- 66.89% --
401k Profit Sharing Plan
PO Box 105779
Atlanta, GA 30348
Citigroup Global Markets House
Acct.
Attn: Cindy Tempesta, 7th Floor -- 6.57% 12.65% -- --
333 West 34th Street
New York, NY 10001-2483
Reliance Trust Company Custodian
FBO Continental Products Inc.
401K Plan -- -- -- 21.46% --
P. O. Box 48529
Atlanta, GA 30362-1529
Dennis C. McCluskey MD &
Associates Inc. 401K & PSP
Dennis C. McCluskey TTEE
Omnibus Account
754 S. Cleveland Ave. Ste 300 -- -- -- 6.13% --
Mogadore, OH 44260-2205
(*) Investor Class shares of AIM Large Cap Growth Fund have not commenced
operations.
E-12
AIM MID CAP GROWTH FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS R SHARES
------------------- ------------------- ------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD
- ----------------------------------- ------------------- ------------------- ------------------- -------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr East
2nd Floor 10.79% 9.57% 16.13% --
Jacksonville, FL 32246
A I M Advisors, Inc.(*)
Attn: David Hessel
11 Greenway Plaza -- -- -- 33.15%
Suite 100
Houston, TX 77046
MCB Trust Services Cust. FBO
NEBR - New England Build & Res
700 17th Street, Suite 300 -- -- -- 19.84%
Denver, CO 80202-3507
Walsh & Sons Construction Corp.
Forfeiture Account -- -- -- 11.22%
3209 Vestal Pkwy E
Vestal, NY 13850-2154
A G Edwards & Sons Inc. FBO
Kalamazoo Industries
401 K Plan -- -- -- 9.72%
One North Jefferson
St. Louis, MO 63103-2287
Premier Business Resource
Linda M. Esserman -- -- -- 5.22%
301 W. Platt Street, #1329
Tampa, FL 33606-0000
Lane M. Schloeder DVM
Lane M. Schloeder -- -- -- 5.41%
11764 Kirkwood Street
Herald, CA 95638-0000
Attn: Matthew Brady
Morgan Stanley & Co. FBO
X-Entity 0111 C Equity
1585 Broadway 5th Floor 5.26% -- -- --
New York, NY 10036-8200
(*) Owned of record and beneficially
E-13
AIM U.S. GROWTH FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- --------------------- ------------------- ------------------- -------------------
A I M Advisors, Inc.(*)
Attn: David Hessel
11 Greenway Plaza
Suite 100 100.00%(**) 100.00%(**) 100.00%(**)
Houston, TX 77046
(*) Owned of record and beneficially.
(**) Presumed to be a control person because of beneficial ownership of 25% or
more of the Fund.
AIM WEINGARTEN FUND
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- --------------------------------- ---------- ---------- ---------- ---------- -------------
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers
Attn: Fund Administration
4800 Deer Lake Dr East 11.82% 5.59% 17.56% -- --
2nd Floor
Jacksonville, FL 32246
Macquarium Inc. 401 K
Louis K. Adler or Mark F. Adler
TTEES -- -- -- 19.45% --
Omnibus Account
50 Washington St. Suite 300
Reno, NV 89503-5660
Sierra Conveyor Co Inc
Daniel P. Watson -- -- -- 10.17% --
PO Box 1382
Roseville, CA 95678-0000
Sierra Conveyor Co Inc
Marjorie J. Watson -- -- -- 8.89% --
PO Box 1382
Roseville, CA 95678-0000
Sierra Conveyor Co Inc
Brian Schyberg -- -- -- 7.69% --
PO Box 1382
Roseville, CA 95678-0000
Sierra Conveyor Co Inc Daniel
McCormick -- -- -- 5.77% --
PO Box 1382
Roseville, CA 95678-0000
E-14
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ---------- ---------- ---------- -------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- --------------------------------- ---------- ---------- ---------- ---------- -------------
Citigroup Global House Acct
Attn: Cindy Tempesta, 7th Floor 7.57% 6.63% 6.28% -- --
333 West 34th Street
New York, NY 10001-2483
AIM Foundation
Attn: Patricia Lewis -- -- -- -- 21.03%
11 Greenway Plaza, Suite 2600
Houston, TX 77046
First Command Bank Trust
Attn: Trust Department -- -- -- -- 12.50%
PO Box 901075
Fort Worth, TX 76101-0000
David Leary, Trustee
FBO: Town of Weymouth
457 Deferred Compensation Plan -- -- -- -- 7.30%
C/O Great West, Recordkeeper
8515 E. Orchard Rd 2T2
Englewood, CO 80111-0000
Town of Watertown, Trustee
FBO: Town of Watertown
457 Deferred Compensation Plan -- -- -- -- 8.56%
C/O Great West, Recordkeeper
8515 E. Orchard Rd 2T2
Englewood, CO 80111-0000
Festivals, Inc. Profit Sharing
Plan
Alan Silverman -- -- -- 8.75% --
4201 120th Avenue SE
Bellevue, WA 98006-1149
City of Springfield, Trustee,
FBO City of Springfield 457 DCP
C/O Great West, Recordkeeper
8515 E. Orchard Rd. 2T2 -- -- -- -- 5.10%
Engelwood, CO 80111-5037
E-15
MANAGEMENT OWNERSHIP
As of June 20, 2003, the trustees and officers as a group owned less
than 1% of the outstanding shares of each class of each Fund, except that the
trustees and officers as a group owned 1.13% of Class A shares of AIM Emerging
Growth Fund and 1.57% of Class A shares of AIM Diversified Dividend Fund.
E-16
APPENDIX F
MANAGEMENT FEES
For the last three fiscal years ended October 31, the management fees
payable by each Fund, the amounts waived by AIM and the net fees paid by each
Fund were as follows:
FUND NAME 2002 2001
---- ----
MANAGEMENT FEE MANAGEMENT FEE NET MANAGEMENT MANAGEMENT MANAGEMENT NET MANAGEMENT
PAYABLE WAIVERS FEE PAID FEE PAYABLE FEE WAIVERS FEE PAID
------- ------- -------- ----------- ----------- --------
AIM Aggressive
Growth Fund $ 17,081,494 $ 16,400 $ 17,065,094 $ 23,755,259 $ 7,508 $ 23,747,751
AIM Basic Value II
Fund(1) 1,164 1,164 $-0- N/A N/A N/A
AIM Blue Chip Fund 24,803,281 26,519 24,776,762 35,318,225 153,216 35,165,009
AIM Capital
Development Fund 7,368,692 11,465 7,357,227 8,548,376 3,281 8,545,095
AIM Charter Fund 29,583,893 58,255 29,525,638 43,928,613 504,457 43,424,156
AIM Constellation 63,117,935 1,334,866 61,783,069 93,618,688 3,749,927 89,868,761
Fund
AIM Core
Strategies Fund(2) 5,619 5,619 -0- N/A N/A N/A
AIM Dent
Demographic Trends
Fund 6,351,166 5,666 6,345,500 10,214,781 1,945 10,212,836
AIM Diversified
Dividend Fund(2) 44,236 44,236 -0- N/A N/A N/A
AIM Emerging
Growth Fund(3) $ 1,352,147 $ 1,704 $ 1,350,443 $ 1,912,682 $ 261,774 $ 1,650,908
FUND NAME 2000
----
MANAGEMENT MANAGEMENT NET MANAGEMENT
FEE PAYABLE FEE WAIVERS FEE PAID
----------- ----------- --------
AIM Aggressive
Growth Fund $ 26,977,097 -0- $ 26,977,097
AIM Basic Value II
Fund(1) N/A N/A N/A
AIM Blue Chip Fund 36,923,601 $ 70,387 36,853,214
AIM Capital
Development Fund 9,200,414 -0- 9,200,414
AIM Charter Fund 56,142,463 1,484,073 54,658,390
AIM Constellation
Fund 128,677,520 6,187,566 122,489,954
AIM Core
Strategies Fund(2) N/A N/A N/A
AIM Dent
Demographic Trends
Fund 10,757,633 -0- 10,757,633
AIM Diversified
Dividend Fund(2) N/A N/A N/A
AIM Emerging
Growth Fund(3) $ 908,443 -0- $ 908,443
F-1
FUND NAME 2002 2001
---- ----
MANAGEMENT FEE MANAGEMENT FEE NET MANAGEMENT MANAGEMENT MANAGEMENT NET MANAGEMENT
PAYABLE WAIVERS FEE PAID FEE PAYABLE FEE WAIVERS FEE PAID
------- ------- -------- ----------- ----------- --------
AIM Large Cap
Basic Value Fund 1,168,281 793 1,167,488 537,749 85,532 452,217
AIM Large Cap
Growth Fund 2,371,037 3,052 2,367,985 3,378,201 1,590 3,376,611
AIM Mid Cap Growth
Fund 1,620,211 2,679 1,617,532 1,860,437 875 1,859,562
AIM U.S. Growth
Fund(1) 1,237 1,237 -0- N/A N/A N/A
AIM Weingarten Fund 6,086,537 28,985 26,057,552 46,064,764 584,500 45,480,264
FUND NAME 2000
----
MANAGEMENT MANAGEMENT NET MANAGEMENT
FEE PAYABLE FEE WAIVERS FEE PAID
----------- ----------- --------
AIM Large Cap
Basic Value Fund 12,555 $ 12,555 -0-
AIM Large Cap
Growth Fund 1,064,335 -0- 1,064,335
AIM Mid Cap Growth
Fund 1,125,851 -0- 1,125,851
AIM U.S. Growth
Fund(1) N/A N/A N/A
AIM Weingarten Fund 75,218,931 5,181,384 70,073,547
(1) Commenced operations on August 30, 2002
(2) Commenced operations on December 31, 2001
(3) Commenced operations on March 31, 2000
For the last three fiscal periods or years ended October 31, the
sub-advisory fees paid by AIM Advisors to H.S. Dent Advisors, Inc. with respect
to services provided to the AIM Dent Demographic Trends Funds were as follows:
2002 2001 2000
---- ---- ----
AIM Dent Demographic Trends Fund.......................... $971,355 $2,403,478 $2,531,208
F-2
APPENDIX G
ADMINISTRATIVE SERVICES FEES
The Funds paid AIM the following amounts for administrative services for
the last three fiscal years ended October 31:
FUND NAME 2002 2001 2000
---- ---- ----
AIM Aggressive Growth Fund $ 383,159 $ 276,738 $ 233,230
AIM Basic Value II Fund(1) 8,493 N/A N/A
AIM Blue Chip Fund 441,011 331,400 280,996
AIM Capital Development 205,580 160,775 147,339
Fund
AIM Charter Fund 468,551 383,570 383,224
AIM Constellation Fund 629,514 622,082 731,392
AIM Core Strategies Fund(2) 41,781 N/A N/A
AIM Dent Demographic
Trends Fund 145,864 151,955 142,614
AIM Diversified Dividend
Fund(2) 41,781 N/A N/A
AIM Emerging Growth Fund(3) 50,000 50,000 29,235
AIM Large Cap Basic Value
Fund 50,000 50,000 50,000
AIM Large Cap Growth Fund 87,337 110,085 50,000
AIM Mid Cap Growth Fund 50,000 50,000 50,000
AIM U.S. Growth Fund(1) 8,493 N/A N/A
AIM Weingarten Fund 450,564 392,623 473,764
(1) Commenced operations on August 30, 2002
(2) Commenced operations on December 31, 2001
(3) Commenced operations on March 31, 2000
G-1
APPENDIX H
BROKERAGE COMMISSIONS
Brokerage commissions(1) paid by each of the Funds listed below during the
last three fiscal years or period ended October 31, were as follows:
FUND 2002 2001 2000
---- ---------- ---------- ----------
AIM Aggressive Growth Fund(2) $5,920,899 $ 6,473,868 $ 4,003,829
AIM Basic Value II Fund(3) 1,313 N/A N/A
AIM Blue Chip Fund 4,014,589 3,838,893 3,087,012
AIM Capital Development Fund 4,525,600 4,153,032 2,924,761
AIM Charter Fund 12,272,154 12,104,855 10,479,914
AIM Constellation Fund(4) 16,936,943 23,003,818 25,382,535
AIM Core Strategies Fund(5) 1,587 N/A N/A
AIM Dent Demographic Trends Fund(6) 4,652,389 3,053,966 1,831,365
AIM Diversified Dividend Fund(5) 17,394 N/A N/A
AIM Emerging Growth Fund(7)(9) 2,158,091 1,016,711 136,048
AIM Large Cap Basic Value Fund 300,919 235,562 8,679
AIM Large Cap Growth Fund 864,959 891,255 284,025
AIM Mid Cap Growth Fund 1,118,766 801,920 361,741
AIM U.S. Growth Fund(3) 844 N/A N/A
AIM Weingarten Fund(8) 23,824,701 30,640,967 21,922,844
(1) Disclosure regarding brokerage commissions is limited to commissions paid
on agency trades and designated as such on the trade confirm.
(2) The variation in brokerage commissions paid by the AIM Aggressive Growth
Fund for the fiscal year ended October 31, 2002, as compared to the fiscal
year ended October 31, 2000, was due to a significant fluctuation in asset
levels and cash outflows.
(3) Commenced operations on August 30, 2002.
(4) The variation in brokerage commissions paid by AIM Constellation Fund for
the fiscal year ended October 31, 2002, as compared to the two prior
fiscal years was due to a decrease in asset levels and portfolio
transactions.
(5) Commenced operations on December 31, 2001.
(6) The variation in brokerage commissions paid by AIM Dent Demographic Trends
Fund for the fiscal year ended October 31, 2002, as compared to the two
prior fiscal years, was due to a significant fluctuation in asset levels,
cash outflows and an increase in transactions on which commissions were
paid.
(7) Commenced operations on March 31, 2000.
(8) The variation in the brokerage commissions paid by AIM Weingarten Fund for
the fiscal year ended October 31, 2002, as compared to the prior fiscal
year, was due to a decrease in assets and portfolio turnover.
(9) The variation in brokerage commissions paid by AIM Emerging Growth Fund
for the fiscal year ended October 31, 2002, as compared to the two prior
fiscal years, was due to a significant fluctuation in asset levels,
increased portfolio turnover and an increase in transactions on which
commissions were paid.
H-1
APPENDIX I
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASES OF
SECURITIES OF REGULAR BROKERS OR DEALERS
During the last fiscal year ended October 31, 2002, each Fund allocated
the following amount of transactions to broker-dealers that provided AIM with
certain research, statistics and other information:
Related
Fund Transactions Brokerage Commissions
- ---- ------------ ---------------------
AIM Aggressive Growth Fund $ 565,103,831 $ 879,279
AIM Basic Value II Fund(1) 22,299 43
AIM Blue Chip Fund 482,791,925 704,507
AIM Capital Development Fund 275,926,022 559,877
AIM Charter Fund 1,750,689,258 2,288,465
AIM Constellation Fund 1,667,124,770 2,166,999
AIM Core Strategies Fund(2) 732 4
AIM Dent Demographic Trends Fund 303,483,443 523,736
AIM Diversified Dividend Fund(2) 2,034,618 2,336
AIM Emerging Growth Fund 107,310,161 296,892
AIM Large Cap Basic Value Fund 11,547,195 16,829
AIM Large Cap Growth Fund 72,803,328 92,460
AIM Mid Cap Growth Fund 70,267,204 143,854
AIM U.S. Growth Fund(1) 0 0
AIM Weingarten Fund 1,938,782,465 3,013,694
(1) Commenced operations on August 30, 2002
(2) Commenced operations on December 31, 2001
During the last fiscal year ended October 31, 2002, the Funds held
securities issued by the following companies, which are "regular" brokers or
dealers of one or more of the Funds identified below:
Fund/Issuer Security Market Value
----------- -------- ------------
AIM Aggressive Growth Fund
Legg Mason Common Stock $ 11,615,000
AIM Basic Value II Fund
J.P. Morgan Chase & Co. Common Stock 29,050
Merrill Lynch & Co., Inc. Common Stock 37,950
AIM Blue Chip Fund
Goldman Sachs Group, Inc. (The) Common Stock 28,640,000
J.P. Morgan Chase & Co. Common Stock 18,675,000
Merrill Lynch & Co., Inc. Common Stock 28,462,500
Morgan Stanley Common Stock 35,028,000
AIM Charter Fund
Morgan Stanley Common Stock 29,190,000
AIM Constellation Fund
Goldman Sachs Group, Inc. (The) Common Stock 53,700,000
Merrill Lynch & Co., Inc. Common Stock 57,129,930
I-1
Morgan Stanley Common Stock 56,173,236
Fund/Issuer Security Market Value
----------- -------- ------------
AIM Core Strategies Fund
Bear Stearns Cos., Inc. (The) Common Stock 2,442
AIM Dent Demographic Trends Fund
Goldman Sachs Group, Inc. (The) Common Stock 4,296,000
Lehman Brothers Holdings Inc. Common Stock 3,995,250
Morgan Stanley Common Stock 4,475,800
AIM Diversified Dividend Fund
Morgan Stanley Common Stock 124,544
AIM Large Cap Basic Value Fund
J.P. Morgan Chase & Co. Common Stock 3,942,500
Merrill Lynch & Co., Inc. Common Stock 3,719,100
Morgan Stanley Common Stock 3,853,080
AIM Weingarten Fund
Goldman Sachs Group, Inc. (The) Common Stock 28,640,000
J.P. Morgan Chase & Co. Common Stock 20,750,000
I-2
APPENDIX J
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS
A list of amounts paid by each class of shares to AIM Distributors
pursuant to the Plans for the fiscal year or period ended October 31, 2002
follows:
CLASS A CLASS B CLASS C CLASS R
FUND SHARES SHARES SHARES SHARES
- ---- ------ ------ ------ ------
AIM Aggressive Growth Fund(3) $ 5,780,784 $ 2,857,330 $ 929,471 $ 69
AIM Basic Value II Fund(1) 218 465 465 N/A
AIM Blue Chip Fund(3) 6,517,172 16,167,462 4,196,874 31
AIM Capital Development Fund(3) 2,050,963 4,539,281 690,638 20
AIM Charter Fund(3) 8,613,574 15,924,539 2,261,077 23
AIM Constellation Fund(3) 26,651,431 7,863,981 2,406,943 104
AIM Core Strategies Fund(2) 1,049 2,248 2,248 N/A
AIM Dent Demographic Trends Fund 993,200 3,310,084 1,324,161 N/A
AIM Diversified Dividend Fund(2) 9,410 25,823 6,272 N/A
AIM Emerging Growth Fund 274,207 553,611 253,702 N/A
AIM Large Cap Basic Value Fund(3) 349,059 697,535 252,255 17
AIM Large Cap Growth Fund(3) 466,743 1,320,106 507,688 18
AIM Mid Cap Growth Fund(3) 337,632 822,210 238,357 17
AIM U.S. Growth Fund(1) 231 495 495 N/A
AIM Weingarten Fund(3) 9,600,534 7,658,196 1,234,983 43
(1) Commenced operations on August 30, 2002
(2) Commenced operations on December 31, 2001
(3) Commenced operations for Class R on June 3, 2002.
J-1
APPENDIX K
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS
An estimate by category of the allocation of actual fees paid by Class A
shares of the Funds during the fiscal year ended October 31, 2002, follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
----------- ------- -------- ------------ ------------
AIM Aggressive Growth Fund $ -0- -0- -0- -0- 5,780,784
AIM Basic Value II Fund(1) N/A N/A N/A N/A N/A
AIM Blue Chip Fund 499,128 62,911 187,740 -0- 5,767,393
AIM Capital Development Fund 206,409 25,996 78,021 -0- 1,740,537
AIM Charter Fund 513,609 64,811 190,484 -0- 7,844,670
AIM Constellation Fund 1,391,961 175,372 516,796 -0- 24,567,302
AIM Core Strategies Fund(2) N/A N/A N/A N/A N/A
AIM Dent Demographic Trends Fund 106,595 13,309 37,969 -0- 835,327
AIM Diversified Dividend Fund(2) -0- -0- -0- -0- 9,410
AIM Emerging Growth Fund 29,306 3,746 11,017 -0- 230,138
AIM Large Cap Basic Value Fund 34,761 4,450 11,933 -0- 297,915
AIM Large Cap Growth Fund 38,719 4,966 13,795 -0- 409,263
AIM Mid Cap Growth Fund 32,433 4,067 12,167 -0- 288,965
AIM U.S. Growth Fund(1) N/A N/A N/A N/A N/A
AIM Weingarten Fund 613,489 77,459 229,104 -0- 8,680,483
(1) Commenced operations on August 30, 2002
(2) Commenced operations on December 31, 2001
An estimate by category of the allocation of actual fees paid by Class
B shares of the Funds during the fiscal year ended October 31, 2002, follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
----------- ------- -------- ------------ ------------
AIM Aggressive Growth Fund $ 69,192 8,852 23,520 2,142,997 612,769
AIM Basic Value II Fund(1) N/A N/A N/A N/A N/A
AIM Blue Chip Fund 167,358 21,023 62,166 12,125,597 3,791,318
AIM Capital Development Fund 29,940 3,710 11,357 3,404,461 1,089,813
AIM Charter Fund 99,364 12,498 36,430 11,943,404 3,832,843
AIM Constellation Fund 115,674 14,521 43,132 5,897,985 1,792,669
AIM Core Strategies Fund(2) N/A N/A N/A N/A N/A
AIM Dent Demographic Trends Fund 36,222 4,523 14,260 2,482,563 772,516
AIM Diversified Dividend Fund(2) 2,135 -0- -0- 19,367 4,320
AIM Emerging Growth Fund 8,128 1,108 3,079 415,208 126,088
AIM Large Cap Basic Value Fund 19,549 2,416 7,322 523,151 145,097
AIM Large Cap Growth Fund 22,439 2,822 7,840 990,080 296,925
AIM Mid Cap Growth Fund 15,275 2,024 5,190 616,658 183,063
AIM U.S. Growth Fund(1) N/A N/A N/A N/A N/A
AIM Weingarten Fund 75,003 9,361 27,736 5,743,647 1,802,449
(1) Commenced operations on August 30, 2002
(2) Commenced operations on December 31, 2001
K-1
An estimate by category of the allocation of actual fees paid by Class C
shares of the Funds during the fiscal year ended October 31, 2002, follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
----------- ------- -------- ------------ ------------
AIM Aggressive Growth Fund $27,661 3,559 9,366 193,567 695,318
AIM Basic Value II Fund(1) N/A N/A N/A N/A N/A
AIM Blue Chip Fund 57,196 7,092 21,430 412,692 3,698,464
AIM Capital Development Fund 11,000 1,222 4,753 81,483 592,180
AIM Charter Fund 27,254 3,526 10,492 199,365 2,020,440
AIM Constellation Fund 39,369 5,059 14,507 282,893 2,065,115
AIM Core Strategies Fund(2) N/A N/A N/A N/A N/A
AIM Dent Demographic Trends Fund 19,412 2,418 6,717 138,540 1,157,073
AIM Diversified Dividend Fund(2) 635 87 0 2,860 2,690
AIM Emerging Growth Fund 6,316 702 1,560 37,430 207,695
AIM Large Cap Basic Value Fund 11,118 1,346 4,985 82,258 152,548
AIM Large Cap Growth Fund 12,505 1,705 3,552 85,258 404,668
AIM Mid Cap Growth Fund 7,140 974 1,803 45,975 182,466
AIM U.S. Growth Fund(1) N/A N/A N/A N/A N/A
AIM Weingarten Fund 21,922 2,821 8,248 160,830 1,041,162
(1) Commenced operations on August 30, 2002
(2) Commenced operations on December 31, 2001
Class R shares of AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM
Capital Development Fund, AIM Charter Fund, AIM Constellation Fund, AIM Large
Cap Basic Value Fund, AIM Large Cap Growth Fund, AIM Mid Cap Growth Fund and AIM
Weingarten Fund commenced operations on June 3, 2002. The fees paid by Class R
shares of the Funds for the above noted categories during the fiscal year ended
October 31, 2002 were $68.96, $31.57, $20.22, $23.43, $104.02, $17.33, $18.44,
$16.60 and $42.91, respectively.
K-2
APPENDIX L
TOTAL SALES CHARGES
The following chart reflects the total sales charges paid in connection
with the sale of Class A shares of each Fund and the amount retained by AIM
Distributors for the last three fiscal periods or years ending October 31:
2002 2001 2000
---- ---- ----
SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED
------- -------- ------- -------- ------- --------
AIM Aggressive Growth Fund $ 2,490,945 $ 401,540 $ 6,941,065 $ 1,042,378 $13,013,259 $ 2,075,726
AIM Basic Value II Fund(1) N/A N/A N/A N/A N/A N/A
AIM Blue Chip Fund 3,369,955 524,961 10,186,805 1,504,443 18,764,141 2,876,209
AIM Capital Development Fund 1,081,325 167,124 1,471,704 217,702 1,986,868 309,839
AIM Charter Fund 2,445,644 387,132 8,482,508 1,267,570 21,686,299 3,447,012
AIM Constellation Fund 7,869,917 1,272,976 18,221,618 2,721,593 32,281,350 5,088,774
AIM Core Strategies Fund(2) N/A N/A N/A N/A N/A N/A
AIM Dent Demographic Trends Fund 890,896 131,333 3,448,426 505,337 13,202,030 2,007,746
AIM Diversified Dividend Fund(2) 70,911 11,277 N/A N/A N/A N/A
AIM Emerging Growth Fund(3) 255,036 42,050 711,947 108,381 2,135,371 336,338
AIM Large Cap Basic Value Fund 447,812 72,325 838,531 120,808 80,721 12,029
AIM Large Cap Growth Fund 567,190 89,304 2,588,386 403,111 3,837,030 577,198
AIM Mid Cap Growth Fund 456,202 70,433 1,057,009 162,126 2,652,130 422,379
AIM U.S. Growth Fund* N/A N/A N/A N/A N/A N/A
AIM Weingarten Fund 2,965,221 482,681 9,137,102 1,394,055 23,882,434 3,854,495
(1) Commenced operations on August 30, 2002
(2) Commenced operations on December 31, 2001
(3) Commenced operations on March 31, 2000
The following chart reflects the contingent deferred sales charges paid by
Class A, Class B, Class C and Class R shareholders and retained by AIM
Distributors for the last three fiscal periods or years ended October 31:
2002 2001 2000
---- ---- ----
AIM Aggressive Growth Fund $ 88,844 $ 127,954 $ 55,615
AIM Basic Value II Fund(1) N/A N/A N/A
AIM Blue Chip Fund 107,445 251,600 197,230
AIM Capital Development Fund 15,360 19,079 22,923
AIM Charter Fund 69,358 191,689 148,823
AIM Constellation Fund 183,857 317,491 411,140
AIM Core Strategies Fund(2) N/A N/A N/A
AIM Dent Demographic Trends Fund 27,687 152,995 91,369
AIM Diversified Dividend Fund(2) 83 N/A N/A
AIM Emerging Growth Fund(3) 8,141 50,717 9,199
AIM Large Cap Basic Value Fund 10,512 31,559 502
AIM Large Cap Growth Fund 19,917 97,612 15,696
AIM Mid Cap Growth Fund 16,428 26,251 23,692
AIM U.S. Growth Fund(*) N/A N/A N/A
AIM Weingarten Fund 61,852 163,986 139,887
(1) Commenced operations on August 30, 2002
(2) Commenced operations on December 31, 2001
(3) Commenced operations on March 31, 2000
L-1
APPENDIX M
PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURNS
The average annual total returns (including sales load) for each Fund, with
respect to its Class A shares, for the one, five and ten year periods (or since
inception if less than ten years) ended April 30, 2003 are as follows:
PERIODS ENDED
APRIL 30, 2003
--------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Aggressive Growth Fund -25.48% -5.20% 9.28% N/A 05/01/84
AIM Basic Value II Fund N/A N/A N/A N/A 08/30/02
AIM Blue Chip Fund -19.15% -6.04% 7.11% N/A 02/04/87
AIM Capital Development Fund -26.13% -2.32% N/A 5.89% 06/17/96
AIM Charter Fund -17.48% -4.30% 6.42% N/A 11/26/68
AIM Constellation Fund -20.68% -5.14% 6.64% N/A 04/30/76
AIM Core Strategies Fund -14.54% N/A N/A -14.72% 12/31/01
AIM Dent Demographic Trends Fund -23.98% N/A N/A -12.31% 06/07/99
AIM Diversified Dividend Fund -17.24% N/A N/A -12.35% 12/31/01
AIM Emerging Growth Fund -24.59% N/A N/A -22.29% 03/31/00
AIM Large Cap Basic Value Fund -24.74% N/A N/A -1.64% 06/30/99
AIM Large Cap Growth Fund -19.46% N/A N/A -7.81% 03/01/99
AIM Mid Cap Growth Fund -27.56% N/A N/A -11.18% 11/01/99
AIM U.S. Growth Fund N/A N/A N/A N/A 08/30/02
AIM Weingarten Fund -22.97% -10.94% 3.42% N/A 06/17/69
The average annual total returns (including maximum applicable contingent
deferred sales charge) for each Fund, with respect to its Class B shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended April 30, 2003 are as follows:
PERIODS ENDED
APRIL 30, 2003
--------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Aggressive Growth Fund -25.60% N/A N/A -2.04% 03/01/99
AIM Basic Value II Fund N/A N/A N/A N/A 08/30/02
AIM Blue Chip Fund -19.32% -6.02% N/A 2.62% 10/01/96
AIM Capital Development Fund -26.15% -2.22% N/A 4.44% 10/01/96
AIM Charter Fund -17.70% -4.24% N/A 5.23% 06/26/95
AIM Constellation Fund -20.83% -5.06% N/A -3.21% 11/03/97
AIM Core Strategies Fund -14.54% N/A N/A -14.72% 12/31/01
AIM Dent Demographic Trends Fund -24.05% N/A N/A -12.30% 06/07/99
AIM Diversified Dividend Fund -17.30% N/A N/A -11.84% 12/31/01
AIM Emerging Growth Fund -24.60% N/A N/A -22.08% 03/31/00
AIM Large Cap Basic Value Fund -24.82% N/A N/A -5.95% 08/01/00
AIM Large Cap Growth Fund -19.56% N/A N/A -10.11% 04/05/99
AIM Mid Cap Growth Fund -27.71% N/A N/A -11.18% 11/01/99
AIM U.S. Growth Fund N/A N/A N/A N/A 08/30/02
AIM Weingarten Fund -23.01% -10.84% N/A 0.65% 06/26/95
M-1
The average annual total returns (including maximum applicable contingent
deferred sales charge) for each Fund, with respect to its Class C shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended April 30, 2003 are as follows:
PERIODS ENDED
APRIL 30, 2003
--------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Aggressive Growth Fund -22.58% N/A N/A -1.73% 03/01/99
AIM Basic Value II Fund N/A N/A N/A N/A 08/30/02
AIM Blue Chip Fund -15.92% -5.63% N/A -2.25% 08/04/97
AIM Capital Development Fund -23.05% -1.88% N/A 1.85% 08/04/97
AIM Charter Fund -14.28% -3.93% N/A -1.82% 08/04/97
AIM Constellation Fund -17.51% -4.80% N/A -3.13% 08/04/97
AIM Core Strategies Fund -14.54% N/A N/A -14.72% 12/31/01
AIM Dent Demographic Trends Fund -20.85% N/A N/A -11.61% 06/07/99
AIM Diversified Dividend Fund -13.91% N/A N/A -9.17% 12/31/01
AIM Emerging Growth Fund -21.60% N/A N/A -21.40% 03/31/00
AIM Large Cap Basic Value Fund -21.65% N/A N/A -4.90% 08/01/00
AIM Large Cap Growth Fund -16.28% N/A N/A -9.66% 04/05/99
AIM Mid Cap Growth Fund -24.56% N/A N/A -10.37% 11/01/99
AIM U.S. Growth Fund N/A N/A N/A N/A 08/30/02
AIM Weingarten Fund -19.76% -10.58% N/A -7.04% 08/04/97
The average annual total returns (not including the 0.75% contingent
deferred sales charge that may be imposed on a total redemption of retirement
plan assets within the first year) for each Fund, with respect to its Class R
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended April 30, 2003 are as follows:
PERIODS ENDED
APRIL 30, 2003
--------------
SINCE INCEPTION
CLASS R SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE(**)
-------------- ------ ------- -------- --------- ----
AIM Aggressive Growth Fund -21.36% -4.37% 9.62% N/A 05/01/84
AIM Blue Chip Fund -14.57% -5.11% 7.56% N/A 02/04/87
AIM Capital Development Fund -21.94% -1.36% N/A 6.61% 06/17/96
AIM Charter Fund -12.97% -3.43% 6.80% N/A 11/26/68
AIM Constellation Fund -15.88% -4.17% 7.07% N/A 04/30/76
AIM Large Cap Basic Value Fund -20.46% N/A N/A -0.32% 06/30/99
AIM Large Cap Growth Fund -14.80% N/A N/A -6.66% 03/01/99
AIM Mid Cap Growth Fund -23.59% N/A N/A -9.91% 11/01/99
AIM Weingarten Fund -18.56% -10.09% 3.81% N/A 06/17/69
(*) The returns shown for these periods are the blended returns of the
historical performance of the Funds' Class R shares since June 3, 2002 and
the restated historical performance of the Funds' Class A shares (for
periods prior to June 3, 2002) at net asset value, adjusted to reflect the
higher Rule 12b-1 fees applicable to the Class R shares.
(**) The inception date shown in the table is that of the Funds' Class A
shares. The inception date of the Funds' Class R shares is June 3, 2002.
M-2
The average annual total returns for the Fund, with respect to its
Investor Class shares, for the one, five and ten year periods (or since
inception if less than ten years) ended April 30, 2003 are as follows:
PERIODS ENDED
APRIL 30, 2003(*)
---------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE(**)
---------------------- ------ ------- -------- --------- ------
AIM Blue Chip Fund -14.47% -4.97% 7.72% N/A% 02/04/87
AIM Large Cap Basic Value Fund -20.37% N/A N/A -0.18% 06/30/99
AIM Large Cap Growth Fund -14.79% N/A N/A -6.55% 03/01/99
(*) The returns shown for these periods are the restated historical performance
of the Fund's Class A shares at the net asset value, and reflect the higher
Rule 12b-1 fees applicable to Class A shares.
(**) The inception date shown in the table is that of the Fund's Class A shares.
CUMULATIVE TOTAL RETURNS
The cumulative total returns (including sales load) for each Fund, with
respect to its Class A shares, for the one, five and ten year periods (or since
inception if less than ten years) ended April 30, 2003 are as follows:
PERIODS ENDED
APRIL 30, 2003
--------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Aggressive Growth Fund -25.48% -23.42% 142.79% N/A 05/01/84
AIM Basic Value II Fund N/A N/A N/A -4.38% 08/30/02
AIM Blue Chip Fund -19.15% -26.78% 98.68% N/A 02/04/87
AIM Capital Development Fund -26.13% -11.07% N/A 48.19% 06/17/96
AIM Charter Fund -17.48% -19.72% 86.26% N/A 11/26/68
AIM Constellation Fund -20.68% -23.19% 90.16% N/A 04/30/76
AIM Core Strategies Fund -14.54% N/A N/A -19.07% 12/31/01
AIM Dent Demographic Trends Fund -23.98% N/A N/A -40.08% 06/07/99
AIM Diversified Dividend Fund -17.24% N/A N/A -16.07% 12/31/01
AIM Emerging Growth Fund -24.59% N/A N/A -54.03% 03/31/00
AIM Large Cap Basic Value Fund -24.74% N/A N/A -6.13% 06/30/99
AIM Large Cap Growth Fund -19.46% N/A N/A -28.73% 03/01/99
AIM Mid Cap Growth Fund -27.56% N/A N/A -33.93% 11/01/99
AIM U.S. Growth Fund N/A N/A N/A -1.88% 08/30/02
AIM Weingarten Fund -22.97% -43.97% 39.98% N/A 06/17/69
The cumulative total returns (including maximum applicable contingent
deferred sales charge) for each Fund, with respect to its Class B shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended April 30, 2003 are as follows:
M-3
PERIODS ENDED
APRIL 30, 2003
--------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Aggressive Growth Fund -25.60% N/A N/A -8.21% 03/01/99
AIM Basic Value II Fund N/A N/A N/A -4.38% 08/30/02
AIM Blue Chip Fund -19.32% -26.68% N/A 18.55% 10/01/96
AIM Capital Development Fund -26.15% -10.62% N/A 33.10% 10/01/96
AIM Charter Fund -17.70% -19.48% N/A 49.16% 06/26/95
AIM Constellation Fund -20.83% -22.88% N/A -16.40% 11/03/97
AIM Core Strategies Fund -14.54% N/A N/A -19.07% 12/31/01
AIM Dent Demographic Trends Fund -24.05% N/A N/A -40.05% 06/07/99
AIM Diversified Dividend Fund -17.30% N/A N/A -15.42% 12/31/01
AIM Emerging Growth Fund -24.60% N/A N/A -53.66% 03/31/00
AIM Large Cap Basic Value Fund -24.82% N/A N/A -15.49% 08/01/00
AIM Large Cap Growth Fund -19.56% N/A N/A -35.17% 04/05/99
AIM Mid Cap Growth Fund -27.71% N/A N/A -33.94% 11/01/99
AIM U.S. Growth Fund N/A N/A N/A -1.88% 08/30/02
AIM Weingarten Fund -23.01% -43.65% N/A 5.21% 06/26/95
The cumulative total returns (including maximum applicable contingent
deferred sales charge) for each Fund, with respect to its Class C shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended April 30, 2003 are as follows:
PERIODS ENDED
APRIL 30, 2003
--------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Aggressive Growth Fund -22.58% N/A N/A -7.01% 03/01/99
AIM Basic Value II Fund N/A N/A N/A -4.38% 08/30/02
AIM Blue Chip Fund -15.92% -25.15% N/A -12.26% 08/04/97
AIM Capital Development Fund -23.05% -9.07% N/A 11.10% 08/04/97
AIM Charter Fund -14.28% -18.15% N/A -9.99% 08/04/97
AIM Constellation Fund -17.51% -21.81% N/A -16.67% 08/04/97
AIM Core Strategies Fund -14.54% N/A N/A -19.07% 12/31/01
AIM Dent Demographic Trends Fund -20.85% N/A N/A -38.20% 06/07/99
AIM Diversified Dividend Fund -13.91% N/A N/A -12.00% 12/31/01
AIM Emerging Growth Fund -21.60% N/A N/A -52.40% 03/31/00
AIM Large Cap Basic Value Fund -21.65% N/A N/A -12.89% 08/01/00
AIM Large Cap Growth Fund -16.28% N/A N/A -33.85% 04/05/99
AIM Mid Cap Growth Fund -24.56% N/A N/A -31.80% 11/01/99
AIM U.S. Growth Fund N/A N/A N/A -1.88% 08/30/02
AIM Weingarten Fund -19.76% -42.81% N/A -34.21% 08/04/97
The cumulative total returns (not including the 0.75% contingent deferred
sales charge that may be imposed on a total redemption of retirement plan assets
within the first year) for each Fund, with respect to its Class R shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended April 30, 2003 are as follows:
M-4
PERIODS ENDED
APRIL 30, 2003
--------------
SINCE INCEPTION
CLASS R SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE(**)
-------------- ------ ------- -------- --------- ----
AIM Aggressive Growth Fund -21.36% -20.00% 150.58% N/A 05/01/84
AIM Blue Chip Fund -14.57% -23.06% 107.23% N/A 02/04/87
AIM Capital Development Fund -21.94% -6.60% N/A 55.17% 06/17/96
AIM Charter Fund -12.97% -15.99% 93.02% N/A 11/26/68
AIM Constellation Fund -15.88% -19.20% 98.00% N/A 04/30/76
AIM Large Cap Basic Value Fund -20.46% N/A N/A -1.22% 06/30/99
AIM Large Cap Growth Fund -14.80% N/A N/A -24.94% 03/01/99
AIM Mid Cap Growth Fund -23.59% N/A N/A -30.57% 11/01/99
AIM Weingarten Fund -18.56% -41.25% 45.33% N/A 06/17/69
(*) The returns shown for these periods are the blended returns of the
historical performance of the Funds' Class R shares since June 3, 2002 and
the restated historical performance of the Funds' Class A shares (for
periods prior to June 3, 2002) at net asset value, adjusted to reflect the
higher Rule 12b-1 fees applicable to the Class R shares.
(**) The inception date shown in the table is that of the Funds' Class A shares.
The inception date of the Funds' Class R shares is June 3, 2002.
The cumulative total returns for the Fund, with respect to its Investor
Class shares, for the one, five and ten year periods (or since inception if less
than ten years) ended April 30, 2003 are as follows:
PERIODS ENDED
APRIL 30, 2003(*)
-----------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE(**)
---------------------- ------ ------- -------- --------- ------
AIM Blue Chip Fund -14.47% -22.52% 110.29% N/A 02/04/87
AIM Large Cap Basic Value Fund -20.37% N/A N/A -0.69% 06/30/99
AIM Large Cap Growth Fund -14.79% N/A N/A -24.57% 03/01/99
(*) The returns shown for these periods are the restated historical performance
of the Fund's Class A shares at the net asset value, and reflect the higher
Rule 12b-1 fees applicable to Class A shares.
(**) The inception date shown in the table is that of the Fund's Class A shares.
M-5
AVERAGE ANNUAL TOTAL RETURNS (AFTER TAXES ON DISTRIBUTIONS)
The average annual total returns (after taxes on distributions and
including sales load) for each Fund, with respect to its Class A shares, for the
one, five and ten year periods (or since inception if less than ten years) ended
April 30, 2003 are as follows:
PERIODS ENDED
APRIL 30, 2003
--------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Aggressive Growth Fund -25.48% -6.42% 8.24% N/A 05/01/84
AIM Basic Value II Fund N/A N/A N/A N/A 08/30/02
AIM Blue Chip Fund -19.15% -6.06% 6.08% N/A 02/04/87
AIM Capital Development Fund -26.13% -3.15% N/A 5.24% 06/17/96
AIM Charter Fund -17.48% -5.11% 4.64% N/A 11/26/68
AIM Constellation Fund -20.68% -6.33% 5.48% N/A 04/30/76
AIM Core Strategies Fund -15.12% N/A N/A -15.16% 12/31/01
AIM Dent Demographic Trends Fund -23.98% N/A N/A -12.31% 06/07/99
AIM Diversified Dividend Fund -17.24% N/A N/A -12.35% 12/31/01
AIM Emerging Growth Fund -24.59% N/A N/A -22.77% 03/31/00
AIM Large Cap Basic Value Fund -24.74% N/A N/A -2.00% 06/30/99
AIM Large Cap Growth Fund -19.46% N/A N/A -7.81% 03/01/99
AIM Mid Cap Growth Fund -27.56% N/A N/A -11.18% 11/01/99
AIM U.S. Growth Fund N/A N/A N/A N/A 08/30/02
AIM Weingarten Fund -22.97% -12.11% 1.04% N/A 06/17/69
The average annual total returns (after taxes on distributions and
including maximum applicable contingent deferred sales charge) for each Fund,
with respect to its Class B shares, for the one, five and ten year periods (or
since inception if less than ten years) ended April 30, 2003 are as follows:
PERIODS ENDED
APRIL 30, 2003
--------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Aggressive Growth Fund -25.60% N/A N/A -3.55% 03/01/99
AIM Basic Value II Fund N/A N/A N/A N/A 08/30/02
AIM Blue Chip Fund -19.32% -6.03% N/A 2.15% 10/01/96
AIM Capital Development Fund -26.15% -3.09% N/A 3.75% 10/01/96
AIM Charter Fund -17.70% -5.03% N/A 3.52% 06/26/95
AIM Constellation Fund -20.83% -6.30% N/A -4.68% 11/03/97
AIM Core Strategies Fund -15.12% N/A N/A -15.16% 12/31/01
AIM Dent Demographic Trends Fund -24.05% N/A N/A -12.30% 06/07/99
AIM Diversified Dividend Fund -17.30% N/A N/A -11.84% 12/31/01
AIM Emerging Growth Fund -24.60% N/A N/A -22.58% 03/31/00
AIM Large Cap Basic Value Fund -24.82% N/A N/A -6.01% 08/01/00
AIM Large Cap Growth Fund -19.56% N/A N/A -10.11% 04/05/99
AIM Mid Cap Growth Fund -27.71% N/A N/A -11.18% 11/01/99
AIM U.S. Growth Fund N/A N/A N/A N/A 08/30/02
AIM Weingarten Fund -23.01% -12.07% N/A -1.84% 06/26/95
M-6
The average annual total returns (after taxes on distributions and
including maximum applicable contingent deferred sales charge) for each Fund,
with respect to its Class C shares, for the one, five and ten year periods (or
since inception if less than ten years) ended April 30, 2003 are as follows:
PERIODS ENDED
APRIL 30, 2003
--------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Aggressive Growth Fund -22.58% N/A N/A -3.23% 03/01/99
AIM Basic Value II Fund N/A N/A N/A N/A 08/30/02
AIM Blue Chip Fund -15.92% -5.64% N/A -2.36% 08/04/97
AIM Capital Development Fund -23.05% -2.74% N/A 1.07% 08/04/97
AIM Charter Fund -14.28% -4.70% N/A -3.10% 08/04/97
AIM Constellation Fund -17.51% -6.03% N/A -4.53% 08/04/97
AIM Core Strategies Fund -15.12% N/A N/A -15.16% 12/31/01
AIM Dent Demographic Trends Fund -20.85% N/A N/A -11.61% 06/07/99
AIM Diversified Dividend Fund -13.91% N/A N/A -9.17% 12/31/01
AIM Emerging Growth Fund -21.60% N/A N/A -21.90% 03/31/00
AIM Large Cap Basic Value Fund -21.65% N/A N/A -4.96% 08/01/00
AIM Large Cap Growth Fund -16.28% N/A N/A -9.66% 04/05/99
AIM Mid Cap Growth Fund -24.56% N/A N/A -10.37% 11/01/99
AIM U.S. Growth Fund N/A N/A N/A N/A 08/30/02
AIM Weingarten Fund -19.76% -11.79% N/A -8.89% 08/04/97
The average annual total returns (after taxes on distributions) for the
Fund, with respect to its Investor Class shares, for the one, five and ten year
periods (or since inception if less than ten years) ended April 30, 2003 are as
follows:
PERIODS ENDED
APRIL 30, 2003(*)
---------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE(**)
---------------------- ------ ------- -------- --------- ------
AIM Blue Chip Fund -14.47% -4.99% 6.69% N/A 02/04/87
AIM Large Cap Basic Value Fund -20.37% N/A N/A -0.55% 06/30/99
AIM Large Cap Growth Fund -14.79% N/A N/A -6.55% 03/01/99
(*) The returns shown for these periods are the restated historical performance
of the Fund's Class A shares at the net asset value, and reflect the higher
Rule 12b-1 fees applicable to Class A shares.
(**) The inception date shown in the table is that of the Fund's Class A shares.
AVERAGE ANNUAL TOTAL RETURNS (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION)
The average annual total returns (after taxes on distributions and
redemption and including sales load) for each Fund, with respect to its Class A
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended April 30, 2003 are as follows:
M-7
PERIODS ENDED
APRIL 30, 2003
--------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Aggressive Growth Fund -15.64% -3.51% 8.19% N/A 05/01/84
AIM Basic Value II Fund N/A N/A N/A N/A 08/30/02
AIM Blue Chip Fund -11.76% -4.71% 5.49% N/A 02/04/87
AIM Capital Development Fund -16.05% -2.00% N/A 4.72% 06/17/96
AIM Charter Fund -10.73% -3.28% 4.74% N/A 11/26/68
AIM Constellation Fund -12.70% -3.46% 5.77% N/A 04/30/76
AIM Core Strategies Fund -8.93% N/A N/A -11.92% 12/31/01
AIM Dent Demographic Trends Fund -14.72% N/A N/A -9.44% 06/07/99
AIM Diversified Dividend Fund -10.59% N/A N/A -9.84% 12/31/01
AIM Emerging Growth Fund -15.10% N/A N/A -16.88% 03/31/00
AIM Large Cap Basic Value Fund -15.19% N/A N/A -1.48% 06/30/99
AIM Large Cap Growth Fund -11.95% N/A N/A -6.08% 03/01/99
AIM Mid Cap Growth Fund -16.92% N/A N/A -8.66% 11/01/99
AIM U.S. Growth Fund N/A N/A N/A N/A 08/30/02
AIM Weingarten Fund -14.10% -7.48% 2.75% N/A 06/17/69
The average annual total returns (after taxes on distributions and
redemption and including maximum applicable contingent deferred sales charge)
for each Fund, with respect to its Class B shares, for the one, five and ten
year periods (or since inception if less than ten years) ended April 30, 2003
are as follows:
PERIODS ENDED
APRIL 30, 2003
--------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Aggressive Growth Fund -15.72% N/A N/A -0.85% 03/01/99
AIM Basic Value II Fund N/A N/A N/A N/A 08/30/02
AIM Blue Chip Fund -11.86% -4.69% N/A 1.97% 10/01/96
AIM Capital Development Fund -16.06% -1.92% N/A 3.50% 10/01/96
AIM Charter Fund -10.87% -3.19% N/A 3.88% 06/26/95
AIM Constellation Fund -12.79% -3.35% N/A -2.01% 11/03/97
AIM Core Strategies Fund -8.93% N/A N/A -11.92% 12/31/01
AIM Dent Demographic Trends Fund -14.77% N/A N/A -9.43% 06/07/99
AIM Diversified Dividend Fund -10.62% N/A N/A -9.44% 12/31/01
AIM Emerging Growth Fund -15.10% N/A N/A -16.74% 03/31/00
AIM Large Cap Basic Value Fund -15.24% N/A N/A -4.73% 08/01/00
AIM Large Cap Growth Fund -12.01% N/A N/A -7.80% 04/05/99
AIM Mid Cap Growth Fund -17.02% N/A N/A -8.66% 11/01/99
AIM U.S. Growth Fund N/A N/A N/A N/A 08/30/02
AIM Weingarten Fund -14.13% -7.32% N/A 0.77% 06/26/95
The average annual total returns (after taxes on distributions and
redemption and including maximum applicable contingent deferred sales charge)
for each Fund, with respect to its Class C shares, for the one, five and ten
year periods (or since inception if less than ten years) ended April 30, 2003
are as follows:
M-8
PERIODS ENDED
APRIL 30, 2003
--------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Aggressive Growth Fund -13.86% N/A N/A -0.61% 03/01/99
AIM Basic Value II Fund N/A N/A N/A N/A 08/30/02
AIM Blue Chip Fund -9.78% -4.39% N/A -1.80% 08/04/97
AIM Capital Development Fund -14.15% -1.66% N/A 1.34% 08/04/97
AIM Charter Fund -8.77% -2.95% N/A -1.53% 08/04/97
AIM Constellation Fund -10.75% -3.16% N/A -1.97% 08/04/97
AIM Core Strategies Fund -8.93% N/A N/A -11.92% 12/31/01
AIM Dent Demographic Trends Fund -12.80% N/A N/A -8.93% 06/07/99
AIM Diversified Dividend Fund -8.54% N/A N/A -7.31% 12/31/01
AIM Emerging Growth Fund -13.26% N/A N/A -16.26% 03/31/00
AIM Large Cap Basic Value Fund -13.29% N/A N/A -3.91% 08/01/00
AIM Large Cap Growth Fund -9.99% N/A N/A -7.47% 04/05/99
AIM Mid Cap Growth Fund -15.08% N/A N/A -8.05% 11/01/99
AIM U.S. Growth Fund N/A N/A N/A N/A 08/30/02
AIM Weingarten Fund -12.13% -7.14% N/A -4.70% 08/04/97
The average annual total returns (after taxes on distributions and
redemption) for the Fund, with respect to its Investor Class shares, for the
one, five and ten year periods (or since inception if less than ten years) ended
April 30, 2003 are as follows:
PERIODS ENDED
APRIL 30, 2003(*)
---------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE(**)
---------------------- ------ ------- -------- --------- ------
AIM Blue Chip Fund -8.88% -3.90% 6.02% N/A 02/04/87
AIM Large Cap Basic Value Fund -12.50% N/A N/A -0.32% 06/30/99
AIM Large Cap Growth fund -9.08% N/A N/A -5.12% 03/01/99
(*) The returns shown for these periods are the restated historical performance
of the Fund's Class A shares at the net asset value, and reflect the higher
Rule 12b-1 fees applicable to Class A shares.
(**) The inception date shown in the table is that of the Fund's Class A shares.
M-9
FINANCIAL STATEMENTS
Pursuant to Rule 3-03(d) of Regulation S-X unaudited financials for the period
ended April 30, 2003, for Registrant's portfolios have been included in addition
to the portfolios' audited financials for the period ended October 31, 2002.
Such financials reflect all adjustments which are of a normal recurring nature
and which are, in the opinion of management, necessary to a fair statement of
the results for the periods presented.
Report of Independent Auditors
To the Shareholders of AIM Aggressive Growth Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Aggressive Growth Fund (a portfolio AIM Equity Funds), including the schedule of
investments, as of October 31, 2002, and the related statements of operations
for the year then ended, and the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the periods presented through October 31, 2000 were
audited by other auditors whose report dated December 6, 2000, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Aggressive Growth Fund as of October 31, 2002, the results of its operations for
the period 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.
/s/ ERNST & YOUNG LLP
Houston, Texas
December 10, 2002
FS-1
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS-93.49%
Advertising-0.65%
Lamar Advertising Co.(a) 400,000 $ 13,576,000
===========================================================================
Aerospace & Defense-1.65%
Alliant Techsystems Inc.(a) 500,000 30,075,000
- ---------------------------------------------------------------------------
L-3 Communications Holdings, Inc.(a) 97,400 4,577,800
===========================================================================
34,652,800
===========================================================================
Air Freight & Logistics-1.76%
C.H. Robinson Worldwide, Inc. 400,000 11,828,000
- ---------------------------------------------------------------------------
Expeditors International of Washington, Inc. 800,000 25,208,000
===========================================================================
37,036,000
===========================================================================
Apparel Retail-2.72%
AnnTaylor Stores Corp.(a) 500,000 11,715,000
- ---------------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 500,000 6,860,000
- ---------------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 1,000,000 23,370,000
- ---------------------------------------------------------------------------
Too Inc.(a) 600,000 15,180,000
===========================================================================
57,125,000
===========================================================================
Application Software-3.88%
Activision, Inc.(a) 300,000 6,150,000
- ---------------------------------------------------------------------------
Electronic Arts Inc.(a) 75,000 4,884,000
- ---------------------------------------------------------------------------
Intuit Inc.(a) 600,000 31,152,000
- ---------------------------------------------------------------------------
National Instruments Corp.(a) 956,700 27,447,723
- ---------------------------------------------------------------------------
Reynolds & Reynolds Co. (The)-Class A 500,000 11,835,000
===========================================================================
81,468,723
===========================================================================
Auto Parts & Equipment-3.09%
Gentex Corp.(a) 1,000,000 29,480,000
- ---------------------------------------------------------------------------
Lear Corp.(a) 500,000 18,275,000
- ---------------------------------------------------------------------------
Superior Industries International, Inc. 400,000 16,988,000
===========================================================================
64,743,000
===========================================================================
Banks-1.11%
Southwest Bancorp. of Texas, Inc.(a) 300,000 8,475,000
- ---------------------------------------------------------------------------
TCF Financial Corp. 350,000 14,854,000
===========================================================================
23,329,000
===========================================================================
Broadcasting & Cable TV-1.87%
Hispanic Broadcasting Corp.(a) 979,800 21,065,700
- ---------------------------------------------------------------------------
Westwood One, Inc.(a) 500,000 18,150,000
===========================================================================
39,215,700
===========================================================================
Computer & Electronics Retail-3.16%
CDW Computer Centers, Inc.(a) 1,250,000 66,275,000
===========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
Construction & Engineering-2.55%
Jacobs Engineering Group Inc.(a) 1,768,600 $ 53,570,894
===========================================================================
Consumer Finance-0.94%
Doral Financial Corp. 750,000 19,695,000
===========================================================================
Data Processing Services-5.71%
Concord EFS, Inc.(a) 625,000 8,925,000
- ---------------------------------------------------------------------------
DST Systems, Inc.(a) 500,000 15,375,000
- ---------------------------------------------------------------------------
Fiserv, Inc.(a) 1,315,000 41,080,600
- ---------------------------------------------------------------------------
Iron Mountain Inc.(a) 400,000 11,284,000
- ---------------------------------------------------------------------------
Paychex, Inc. 1,500,000 43,230,000
===========================================================================
119,894,600
===========================================================================
Department Stores-0.56%
Kohl's Corp.(a) 200,000 11,690,000
===========================================================================
Diversified Commercial Services-3.14%
Apollo Group, Inc.-Class A(a) 125,000 5,187,500
- ---------------------------------------------------------------------------
ChoicePoint Inc.(a) 300,000 11,358,000
- ---------------------------------------------------------------------------
Cintas Corp. 500,000 23,635,000
- ---------------------------------------------------------------------------
H&R Block, Inc. 250,000 11,095,000
- ---------------------------------------------------------------------------
Regis Corp. 500,000 14,670,000
===========================================================================
65,945,500
===========================================================================
Diversified Financial Services-4.16%
Federated Investors, Inc.-Class B 500,000 13,400,000
- ---------------------------------------------------------------------------
Investors Financial Services Corp. 1,201,200 36,840,804
- ---------------------------------------------------------------------------
Legg Mason, Inc. 250,000 11,615,000
- ---------------------------------------------------------------------------
Moody's Corp. 219,600 10,343,160
- ---------------------------------------------------------------------------
SEI Investments Co. 185,000 4,937,650
- ---------------------------------------------------------------------------
Waddell & Reed Financial, Inc.-Class A 575,000 10,062,500
===========================================================================
87,199,114
===========================================================================
Electronic Equipment & Instruments-0.62%
Molex Inc.-Class A 560,000 13,008,800
===========================================================================
Employment Services-1.79%
Robert Half International Inc.(a) 2,250,000 37,575,000
===========================================================================
General Merchandise Stores-1.25%
Dollar Tree Stores, Inc.(a) 1,000,000 26,290,000
===========================================================================
Health Care Distributors & Services-6.48%
AmerisourceBergen Corp. 630,000 44,824,500
- ---------------------------------------------------------------------------
Express Scripts, Inc.(a) 1,000,000 54,180,000
- ---------------------------------------------------------------------------
</Table>
FS-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
Health Care Distributors & Services-(Continued)
Lincare Holdings Inc.(a) 750,000 $ 25,552,500
- ---------------------------------------------------------------------------
Patterson Dental Co.(a) 221,800 11,424,918
===========================================================================
135,981,918
===========================================================================
Health Care Equipment-4.03%
Biomet, Inc. 400,000 11,784,000
- ---------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 1,250,000 35,750,000
- ---------------------------------------------------------------------------
ResMed Inc. 737,100 24,891,867
- ---------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 250,000 12,055,000
===========================================================================
84,480,867
===========================================================================
Health Care Facilities-3.61%
Community Health Systems Inc.(a) 1,000,000 23,500,000
- ---------------------------------------------------------------------------
Health Management Associates, Inc.-Class A 1,500,000 28,680,000
- ---------------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 750,000 23,512,500
===========================================================================
75,692,500
===========================================================================
Industrial Machinery-2.07%
Danaher Corp. 750,000 43,387,500
===========================================================================
Insurance Brokers-0.75%
Brown & Brown, Inc. 521,000 15,838,400
===========================================================================
Internet Retail-0.53%
eBay Inc.(a) 175,000 11,070,500
===========================================================================
IT Consulting & Services-5.23%
Affiliated Computer Services, Inc.-Class A(a) 1,250,000 57,562,500
- ---------------------------------------------------------------------------
CACI International Inc.-Class A(a) 325,000 13,295,750
- ---------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 1,750,000 38,797,500
===========================================================================
109,655,750
===========================================================================
Managed Health Care-3.82%
Caremark Rx, Inc.(a) 2,000,000 35,400,000
- ---------------------------------------------------------------------------
First Health Group Corp.(a) 1,720,400 44,695,992
===========================================================================
80,095,992
===========================================================================
Multi-Line Insurance-1.46%
HCC Insurance Holdings, Inc. 1,250,000 30,662,500
===========================================================================
Oil & Gas Drilling-6.30%
ENSCO International Inc. 750,000 20,280,000
- ---------------------------------------------------------------------------
National-Oilwell, Inc.(a) 1,000,000 20,850,000
- ---------------------------------------------------------------------------
Patterson-UTI Energy, Inc.(a) 1,500,000 43,380,000
- ---------------------------------------------------------------------------
Pride International, Inc.(a) 2,250,000 31,230,000
- ---------------------------------------------------------------------------
Varco International, Inc.(a) 1,000,000 16,440,000
===========================================================================
132,180,000
===========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
Oil & Gas Equipment & Services-1.63%
Cal Dive International, Inc.(a) 1,000,000 $ 21,970,000
- ---------------------------------------------------------------------------
Cooper Cameron Corp.(a) 261,200 12,177,144
===========================================================================
34,147,144
===========================================================================
Oil & Gas Exploration & Production-0.83%
Newfield Exploration Co.(a) 500,000 17,495,000
===========================================================================
Pharmaceuticals-2.19%
Medicis Pharmaceutical Corp.-Class A(a) 1,000,000 45,900,000
===========================================================================
Property & Casualty Insurance-0.22%
ACE Ltd. (Cayman Islands) 150,000 4,612,500
===========================================================================
Restaurants-3.77%
CBRL Group, Inc. 500,000 11,715,000
- ---------------------------------------------------------------------------
CEC Entertainment Inc.(a) 600,000 16,680,000
- ---------------------------------------------------------------------------
Cheesecake Factory Inc. (The)(a) 450,000 15,255,000
- ---------------------------------------------------------------------------
Sonic Corp.(a) 499,950 11,633,837
- ---------------------------------------------------------------------------
Starbucks Corp.(a) 1,000,000 23,750,000
===========================================================================
79,033,837
===========================================================================
Semiconductors-2.98%
Linear Technology Corp. 750,000 20,730,000
- ---------------------------------------------------------------------------
Microchip Technology Inc. 1,000,000 24,400,000
- ---------------------------------------------------------------------------
QLogic Corp.(a) 500,000 17,380,000
===========================================================================
62,510,000
===========================================================================
Specialty Chemicals-0.99%
Valspar Corp. (The) 500,000 20,885,000
===========================================================================
Specialty Stores-3.39%
Bed Bath & Beyond Inc.(a) 1,000,000 35,460,000
- ---------------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 1,500,000 35,700,000
===========================================================================
71,160,000
===========================================================================
Telecommunications Equipment-0.98%
UTStarcom, Inc.(a) 1,200,000 20,496,000
===========================================================================
Trading Companies & Distributors-1.62%
Fastenal Co. 1,000,000 33,950,000
===========================================================================
Total Common Stocks (Cost $1,815,413,949) 1,961,525,539
===========================================================================
</Table>
FS-3
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
MONEY MARKET FUNDS-6.73%
STIC Liquid Assets Portfolio(b) 70,615,747 $ 70,615,747
- ---------------------------------------------------------------------------
STIC Prime Portfolio(b) 70,615,747 70,615,747
===========================================================================
Total Money Market Funds (Cost
$141,231,494) 141,231,494
===========================================================================
TOTAL INVESTMENTS-100.22% (Cost
$1,956,645,443)(c) 2,102,757,033
===========================================================================
OTHER ASSETS LESS LIABILITIES-(0.22%) (4,682,077)
===========================================================================
NET ASSETS-100.00% $2,098,074,956
___________________________________________________________________________
===========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
(c) The Investment Company Act of 1940 defines affiliates as those companies in
which a fund holds 5% or more of the outstanding voting securities.
Following is a summary of the transactions with affiliates for the year
ended October 31, 2002.
<Table>
<Caption>
CHANGE IN
MARKET UNREALIZED MARKET
VALUE PURCHASES SALES APPRECIATION VALUE DIVIDEND REALIZED
10/31/2001 AT COST AT COST (DEPRECIATION) 10/31/2002 INCOME GAIN/(LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Tetra Tech, Inc............. $62,112,000 $ -- $(57,037,978) $(5,074,022) $ -- $ -- $(10,809,052)
Vans, Inc................... 17,950,000 -- (18,219,064) 269,064 -- -- (3,449,586)
=================================================================================================================================
$80,062,000 $ -- $ -- $(14,258,638)
_______________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
See Notes to Financial Statements.
FS-4
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost $1,956,645,443)* $2,102,757,033
- ---------------------------------------------------------------------
Receivables for:
Investments sold 32,642,285
- ---------------------------------------------------------------------
Fund shares sold 1,042,129
- ---------------------------------------------------------------------
Dividends 587,766
- ---------------------------------------------------------------------
Investment for deferred compensation plan 77,197
- ---------------------------------------------------------------------
Collateral for securities loaned 596,209,634
- ---------------------------------------------------------------------
Other assets 69,721
=====================================================================
Total assets 2,733,385,765
_____________________________________________________________________
=====================================================================
LIABILITIES:
Payables for:
Investments purchased 31,163,532
- ---------------------------------------------------------------------
Fund shares reacquired 4,848,413
- ---------------------------------------------------------------------
Deferred compensation plan 77,197
- ---------------------------------------------------------------------
Collateral upon return of securities loaned 596,209,634
- ---------------------------------------------------------------------
Accrued distribution fees 834,639
- ---------------------------------------------------------------------
Accrued trustees' fees 2,141
- ---------------------------------------------------------------------
Accrued transfer agent fees 1,686,114
- ---------------------------------------------------------------------
Accrued operating expenses 489,139
=====================================================================
Total liabilities 635,310,809
=====================================================================
Net assets applicable to shares outstanding $2,098,074,956
_____________________________________________________________________
=====================================================================
NET ASSETS:
Class A $1,798,317,504
_____________________________________________________________________
=====================================================================
Class B $ 226,806,244
_____________________________________________________________________
=====================================================================
Class C $ 72,676,014
_____________________________________________________________________
=====================================================================
Class R $ 137,084
_____________________________________________________________________
=====================================================================
Institutional Class $ 138,110
_____________________________________________________________________
=====================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 246,501,426
_____________________________________________________________________
=====================================================================
Class B 32,199,073
_____________________________________________________________________
=====================================================================
Class C 10,319,202
_____________________________________________________________________
=====================================================================
Class R 18,811
_____________________________________________________________________
=====================================================================
Institutional Class 18,865
_____________________________________________________________________
=====================================================================
Class A:
Net asset value per share $ 7.30
- ---------------------------------------------------------------------
Offering price per share:
(Net asset value of $7.30 divided by 94.50%) $ 7.72
_____________________________________________________________________
=====================================================================
Class B:
Net asset value and offering price per share $ 7.04
_____________________________________________________________________
=====================================================================
Class C:
Net asset value and offering price per share $ 7.04
_____________________________________________________________________
=====================================================================
Class R:
Net asset value and offering price per share $ 7.29
_____________________________________________________________________
=====================================================================
Institutional Class:
Net asset value and offering price per share $ 7.32
_____________________________________________________________________
=====================================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $580,852,013
were on loan to brokers.
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $22,625) $ 5,288,856
- --------------------------------------------------------------------
Dividends from affiliated money market funds 1,521,952
- --------------------------------------------------------------------
Interest 661
- --------------------------------------------------------------------
Security lending income 1,844,648
====================================================================
Total investment income 8,656,117
====================================================================
EXPENSES:
Advisory fees 17,081,494
- --------------------------------------------------------------------
Administrative services fees 383,159
- --------------------------------------------------------------------
Custodian fees 236,351
- --------------------------------------------------------------------
Distribution fees -- Class A 5,780,784
- --------------------------------------------------------------------
Distribution fees -- Class B 2,857,330
- --------------------------------------------------------------------
Distribution fees -- Class C 929,471
- --------------------------------------------------------------------
Distribution fees -- Class R 69
- --------------------------------------------------------------------
Transfer agent fees 10,159,914
- --------------------------------------------------------------------
Transfer agent fees -- Institutional Class 32
- --------------------------------------------------------------------
Trustees' fees 21,665
- --------------------------------------------------------------------
Other 1,001,546
====================================================================
Total expenses 38,451,815
====================================================================
Less: Fees waived (16,400)
- --------------------------------------------------------------------
Expenses paid indirectly (41,491)
====================================================================
Net expenses 38,393,924
====================================================================
Net investment income (loss) (29,737,807)
====================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain (loss) from investment securities (454,400,428)
- --------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 70,396,760
====================================================================
Net gain (loss) from investment securities (384,003,668)
====================================================================
Net increase (decrease) in net assets resulting from
operations $(413,741,475)
____________________________________________________________________
====================================================================
</Table>
See Notes to Financial Statements.
FS-5
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (29,737,807) $ (33,053,668)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (454,400,428) (655,234,334)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 70,396,760 (1,352,849,651)
================================================================================================
Net increase (decrease) in net assets resulting from
operations (413,741,475) (2,041,137,653)
================================================================================================
Distributions to shareholders from net realized gains:
Class A -- (805,640,320)
- ------------------------------------------------------------------------------------------------
Class B -- (74,578,792)
- ------------------------------------------------------------------------------------------------
Class C -- (23,638,642)
- ------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (368,156,521) 676,696,702
- ------------------------------------------------------------------------------------------------
Class B (19,209,543) 177,773,085
- ------------------------------------------------------------------------------------------------
Class C (8,446,307) 58,760,112
- ------------------------------------------------------------------------------------------------
Class R 133,795 --
- ------------------------------------------------------------------------------------------------
Institutional Class 145,043 --
================================================================================================
Net increase (decrease) in net assets (809,275,008) (2,031,765,508)
________________________________________________________________________________________________
================================================================================================
NET ASSETS:
Beginning of year 2,907,349,964 4,939,115,472
================================================================================================
End of year $ 2,098,074,956 $ 2,907,349,964
________________________________________________________________________________________________
================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 3,061,994,083 $ 3,487,258,638
- ------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (208,878) (202,093)
- ------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (1,109,821,839) (655,421,411)
- ------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 146,111,590 75,714,830
================================================================================================
$ 2,098,074,956 $ 2,907,349,964
________________________________________________________________________________________________
================================================================================================
</Table>
See Notes to Financial Statements.
FS-6
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Aggressive Growth Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers five different classes of shares: Class A shares, Class B
shares, Class C shares, Class R shares and the Institutional Class. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge. Class R shares and
Institutional Class shares are sold at net asset value. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The Fund's investment objective is to achieve
long-term growth of capital.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
FS-7
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.80% of
the first $150 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $150 million. AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market fund of which the
Fund has invested. For the year ended October 31, 2002, AIM waived fees of
$16,400.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2002, AIM was
paid $383,159 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended October 31, 2002, AFS
retained $4,349,971 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and the 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 shares, Class B shares, Class C shares and Class R
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.25% of the Fund's average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B and C shares and 0.50% of the average daily net assets of Class R
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own the appropriate class of shares
of the Fund. Any amounts not paid as a service fee under the Plans would
constitute an asset-based sales charge. NASD Rules also impose a cap on the
total sales charges, including asset-based sales charges that may be paid by any
class of shares of the Fund. Pursuant to the master distribution agreements, for
the year ended October 31, 2002, the Class A, Class B, Class C and Class R
shares paid $5,780,784, $2,857,330, $929,471, and $69, respectively.
AIM Distributors retained commissions of $401,540 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 2002,
AIM Distributors retained $61,820, $0, $27,024, and $0 in contingent deferred
sales charges imposed on redemptions of Class A, Class B, Class C, and Class R
shares, respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $11,792
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the year ended October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $40,361 and reductions in
custodian fees of $1,130 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $41,491.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended October 31,
2002, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At October 31, 2002, securities with an aggregate value of $580,852,013 were
on loan to brokers. The loans were secured by cash collateral of $596,209,634
received by the Fund and invested in affiliated money market funds as follows:
$298,104,817 in STIC Liquid Assets Portfolio and $298,104,817 in STIC Prime
Portfolio. For the year ended October 31, 2002, the Fund received fees of
$1,844,648 for securities lending.
FS-8
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
The tax character of distributions paid during the years ended October 31, 2002
and 2001 were as follows:
<Table>
<Caption>
2002 2001
- ---------------------------------------------------------------
Distributions paid from long-term
capital gain $ -- $903,857,754
_______________________________________________________________
===============================================================
</Table>
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation -- investments $ 136,901,651
- --------------------------------------------------------------
Temporary book/tax differences (208,878)
- --------------------------------------------------------------
Capital loss carryforward (1,100,611,900)
- --------------------------------------------------------------
Shares of beneficial interest 3,061,994,083
==============================================================
$ 2,098,074,956
______________________________________________________________
==============================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is due
to differences in the timing of recognition of gains and losses on investments
for book and tax purposes. The Fund's unrealized appreciation difference is
attributable primarily to the deferral of losses on wash sales.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the deferral of trustee compensation and
retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -------------------------------------------------------------
October 31, 2009 $ 636,872,876
- -------------------------------------------------------------
October 31, 2010 463,739,024
=============================================================
$1,100,611,900
_____________________________________________________________
=============================================================
</Table>
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 2002 was
$1,758,341,136 and $2,242,381,518, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 243,936,819
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (107,035,168)
=============================================================
Net unrealized appreciation of investment
securities $ 136,901,651
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $1,965,855,382.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of the reclassification of a net
operating loss and other reclassifications on October 31, 2002, undistributed
net investment income (loss) was increased by $29,731,022 and shares of
beneficial interest decreased by $29,731,022. This reclassification had no
effect on the net assets of the Fund.
FS-9
NOTE 10--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 44,249,623* $385,941,183* 66,113,301 $ 764,231,772
- --------------------------------------------------------------------------------------------------------------------------
Class B 6,507,666 55,189,130 16,139,430 187,252,162
- --------------------------------------------------------------------------------------------------------------------------
Class C 2,934,855 24,752,456 6,138,899 70,314,475
- --------------------------------------------------------------------------------------------------------------------------
Class R** 18,814 133,820 -- --
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class*** 18,865 145,043 -- --
==========================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 59,903,743 755,374,108
- --------------------------------------------------------------------------------------------------------------------------
Class B -- -- 5,828,105 71,964,367
- --------------------------------------------------------------------------------------------------------------------------
Class C -- -- 1,838,406 22,685,441
==========================================================================================================================
Reacquired:
Class A (87,574,389) (754,097,704) (77,634,743) (842,909,178)
- --------------------------------------------------------------------------------------------------------------------------
Class B (9,151,616)* (74,398,673)* (7,763,426) (81,443,444)
- --------------------------------------------------------------------------------------------------------------------------
Class C (4,058,002) (33,198,763) (3,192,257) (34,239,804)
- --------------------------------------------------------------------------------------------------------------------------
Class R** (3) (25) -- --
==========================================================================================================================
(47,054,187) $(395,533,533) 67,371,458 $ 913,229,899
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Includes automatic conversion of 188,487 shares of Class B shares in the
amount of $1,563,408 to 182,647 shares of Class A shares in the amount of
$1,563,408.
** Class R shares commenced sales on June 3, 2002.
*** Institutional shares commenced sales on March 15, 2002.
FS-10
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A(a)
------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.68 $ 18.41 $ 13.90 $ 10.04 $ 12.49
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(b) (0.09)(b) (0.13) (0.09) (0.08)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (1.29) (6.34) 11.08 4.05 (1.93)
=================================================================================================================================
Total from investment operations (1.38) (6.43) 10.95 3.96 (2.01)
=================================================================================================================================
Less distributions from net realized gains -- (3.30) (6.44) (0.10) (0.44)
=================================================================================================================================
Net asset value, end of period $ 7.30 $ 8.68 $ 18.41 $ 13.90 $ 10.04
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (15.90)% (40.51)% 47.53% 39.73% (16.36)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,798,318 $2,516,407 $4,444,515 $2,808,451 $2,638,038
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.32%(d) 1.17% 1.04% 1.09% 1.06%
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (1.00)%(d) (0.79)% (0.77)% (0.69)% (0.64)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 68% 89% 79% 75% 69%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information and distributions prior to October 31, 1999 have
been restated to reflect a 4 for 1 stock split, effected in the form of
a 300% stock dividend, on July 14, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with generally accepted accounting
principles and does not include sales charges.
(d) Ratios are based on average daily net assets of $2,312,313,674.
<Table>
<Caption>
CLASS B(a)
----------------------------------------------------------
MARCH 1, 1999
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------------- OCTOBER 31,
2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.45 $ 18.12 $ 13.81 $ 10.85
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(b) (0.17)(b) (0.29) (0.07)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.26) (6.20) 11.04 3.03
========================================================================================================================
Total from investment operations (1.41) (6.37) 10.75 2.96
========================================================================================================================
Less distributions from net realized gains -- (3.30) (6.44) --
========================================================================================================================
Net asset value, end of period $ 7.04 $ 8.45 $ 18.12 $ 13.81
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(c) (16.69)% (40.90)% 46.29% 27.27%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $226,806 $294,303 $374,010 $24,914
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets 2.07%(d) 1.94% 1.86% 2.08%(e)
========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.75)%(d) (1.55)% (1.59)% (1.68)%(e)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate 68% 89% 79% 75%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Per share information and distributions prior to October 31, 1999 have
been restated to reflect a 4 for 1 stock split, effected in the form of
a 300% stock dividend, on July 14, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with generally accepted accounting
principles, does not include contingent deferred sales charges and is
not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $285,732,961.
(e) Annualized.
FS-11
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C(a)
--------------------------------------------------------
MARCH 1, 1999
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------------ OCTOBER 31,
2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.45 $ 18.11 $ 13.81 $10.85
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(b) (0.17)(b) (0.29) (0.07)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.26) (6.19) 11.03 3.03
======================================================================================================================
Total from investment operations (1.41) (6.36) 10.74 2.96
======================================================================================================================
Less distributions from net realized gains -- (3.30) (6.44) --
======================================================================================================================
Net asset value, end of period $ 7.04 $ 8.45 $ 18.11 $13.81
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(c) (16.69)% (40.86)% 46.21% 27.27%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $72,676 $96,640 $120,591 $6,807
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 2.07%(d) 1.94%(d) 1.86% 2.08%(e)
======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.75)%(d) (1.55)%(d) (1.59)% (1.68)%(e)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 68% 89% 79% 75%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Per share information and distributions prior to October 31, 1999 have
been restated to reflect a 4 for 1 stock split, effected in the form of
a 300% stock dividend, on July 14, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with generally accepted accounting
principles, does not include contingent deferred sales charges and is
not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $92,947,098.
(e) Annualized.
<Table>
<Caption>
CLASS R
-------------
JUNE 3, 2002
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2002
- ---------------------------------------------------------------------------
Net asset value, beginning of period $ 8.89
- ---------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a)
- ---------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.56)
===========================================================================
Total from investment operations (1.60)
===========================================================================
Net asset value, end of period $ 7.29
___________________________________________________________________________
===========================================================================
Total return(b) (18.00)%
___________________________________________________________________________
===========================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 137
___________________________________________________________________________
===========================================================================
Ratio of expenses to average net assets 1.62%(c)
===========================================================================
Ratio of net investment income (loss) to average net assets (1.30)%(c)
___________________________________________________________________________
===========================================================================
Portfolio turnover rate 68%
___________________________________________________________________________
===========================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $33,556.
FS-12
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
MARCH 15, 2002
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2002
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.53
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a)
- ---------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.19)
=================================================================================
Total from investment operations (2.21)
=================================================================================
Net asset value, end of period $ 7.32
_________________________________________________________________________________
=================================================================================
Total return(b) (23.19)%
_________________________________________________________________________________
=================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 138
_________________________________________________________________________________
=================================================================================
Ratio of expenses to average net assets 0.81%(c)
=================================================================================
Ratio of net investment income (loss) to average net assets (0.49)%(c)
_________________________________________________________________________________
=================================================================================
Portfolio turnover rate 68%
_________________________________________________________________________________
=================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $50,407.
FS-13
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Basic Value II Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Basic Value II Fund (a portfolio AIM Equity Funds), including the schedule of
investments, as of October 31, 2002, and the related statement of operations,
the statement of changes in net assets and the financial highlights for the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Basic Value II Fund as of October 31, 2002, the results of its operations, the
changes in its net assets and the financial highlights for the period then ended
in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
Houston, Texas
December , 2002
FS-14
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.94%
Advertising-4.38%
Interpublic Group of Cos., Inc. (The) 1,900 $ 22,743
- -----------------------------------------------------------------
Omnicom Group Inc. 300 17,289
=================================================================
40,032
=================================================================
Aerospace & Defense-1.84%
Honeywell International Inc. 700 16,758
=================================================================
Apparel Retail-2.71%
Gap, Inc. (The) 2,100 24,717
=================================================================
Banks-2.96%
Bank One Corp. 700 26,999
=================================================================
Building Products-2.92%
American Standard Cos. Inc.(a) 400 26,680
=================================================================
Data Processing Services-4.79%
Ceridian Corp.(a) 1,400 19,292
- -----------------------------------------------------------------
First Data Corp. 700 24,458
=================================================================
43,750
=================================================================
Diversified Commercial Services-3.71%
Cendant Corp.(a) 1,400 16,100
- -----------------------------------------------------------------
H&R Block, Inc. 400 17,752
=================================================================
33,852
=================================================================
Diversified Financial Services-16.96%
Citigroup Inc. 1,100 40,645
- -----------------------------------------------------------------
Freddie Mac 500 30,790
- -----------------------------------------------------------------
J.P. Morgan Chase & Co. 1,400 29,050
- -----------------------------------------------------------------
Merrill Lynch & Co., Inc. 1,000 37,950
- -----------------------------------------------------------------
Stilwell Financial, Inc. 1,400 16,394
=================================================================
154,829
=================================================================
Electronic Equipment & Instruments-2.76%
Waters Corp.(a) 1,000 25,180
=================================================================
</Table>
FS-15
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------
<Caption>
Employment Services-2.01%
Robert Half International Inc.(a) 1,100 18,370
=================================================================
Environmental Services-3.53%
Waste Management, Inc. 1,400 32,228
=================================================================
Food Retail-4.62%
Kroger Co. (The)(a) 1,600 23,744
- -----------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------
<Caption>
Food Retail-(Continued)
Safeway Inc.(a) 800 $ 18,480
=================================================================
42,224
=================================================================
Health Care Distributors & Services-2.80%
IMS Health Inc. 1,700 25,568
=================================================================
Hotels, Resorts & Cruise Lines-2.55%
Starwood Hotels & Resorts Worldwide, Inc. 1,000 23,300
=================================================================
Industrial Conglomerates-3.80%
Tyco International Ltd. (Bermuda) 2,400 34,704
=================================================================
Leisure Products-2.71%
Brunswick Corp. 1,200 24,696
=================================================================
Managed Health Care-2.87%
Aetna Inc. 650 26,195
=================================================================
Multi-Utilities & Unregulated Power-2.24%
Duke Energy Corp. 1,000 20,490
=================================================================
Oil & Gas Drilling-5.54%
Pride International, Inc.(a) 1,900 26,372
- -----------------------------------------------------------------
Transocean Inc. 1,100 24,178
=================================================================
50,550
=================================================================
Oil & Gas Equipment & Services-4.39%
Schlumberger Ltd. 500 20,055
- -----------------------------------------------------------------
Weatherford International Ltd.(a) 500 20,020
=================================================================
40,075
=================================================================
Pharmaceuticals-1.83%
Wyeth 500 16,750
=================================================================
Property & Casualty Insurance-4.96%
ACE Ltd. (Bermuda) 900 27,675
- -----------------------------------------------------------------
Radian Group Inc. 500 17,635
=================================================================
45,310
=================================================================
</Table>
FS-16
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------
Restaurants-2.98%
Outback Steakhouse, Inc. 800 27,240
=================================================================
Semiconductor Equipment-4.50%
Novellus Systems, Inc.(a) 1,300 41,080
=================================================================
Systems Software-3.58%
Computer Associates International, Inc. 2,200 $ 32,692
=================================================================
Total Common Stocks & Other Equity
Interests (Cost $960,073) 894,269
=================================================================
TOTAL INVESTMENTS-97.94% (Cost $960,073) 894,269
=================================================================
OTHER ASSETS LESS LIABILITIES-2.06% 18,854
=================================================================
NET ASSETS-100.00% $913,123
_________________________________________________________________
=================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
See Notes to Financial Statements.
FS-17
AIM BASIC VALUE II
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
OCTOBER 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$960,073) $894,269
- ---------------------------------------------------------------------------------
Cash 21,070
- ---------------------------------------------------------------------------------
Receivables for:
Amount due from Advisor 13,770
- ---------------------------------------------------------------------------------
Dividends 486
=================================================================================
Total assets 929,595
_________________________________________________________________________________
=================================================================================
LIABILITIES:
Accrued trustees' fees 626
- ---------------------------------------------------------------------------------
Accrued transfer agent fees 147
- ---------------------------------------------------------------------------------
Accrued operating expenses 15,699
=================================================================================
Total liabilities 16,472
=================================================================================
Net assets applicable to shares outstanding $913,123
_________________________________________________________________________________
=================================================================================
NET ASSETS:
Class A $365,247
_________________________________________________________________________________
=================================================================================
Class B $273,938
_________________________________________________________________________________
=================================================================================
Class C $273,938
_________________________________________________________________________________
=================================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 40,001
_________________________________________________________________________________
=================================================================================
Class B 30,001
_________________________________________________________________________________
=================================================================================
Class C 30,001
_________________________________________________________________________________
=================================================================================
Class A:
Net asset value per share $ 9.13
- ---------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $9.13 / 94.50%) $ 9.66
_________________________________________________________________________________
=================================================================================
Class B:
Net asset value and offering price per share $ 9.13
_________________________________________________________________________________
=================================================================================
Class C:
Net asset value and offering price per share $ 9.13
_________________________________________________________________________________
=================================================================================
</Table>
See Notes to Financial Statements.
FS-18
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 30, 2002 (DATE OPERATIONS COMMENCED) TO OCTOBER 31, 2002
<Table>
INVESTMENT INCOME:
Dividends $ 1,642
- ---------------------------------------------------------------------------------------------------
Interest 295
===================================================================================================
Total investment income 1,937
===================================================================================================
EXPENSES:
Advisory fees 1,164
- ---------------------------------------------------------------------------------------------------
Administrative services fees 8,493
- ---------------------------------------------------------------------------------------------------
Custodian fees 1,826
- ---------------------------------------------------------------------------------------------------
Distribution fees -- Class A 218
- ---------------------------------------------------------------------------------------------------
Distribution fees -- Class B 465
- ---------------------------------------------------------------------------------------------------
Distribution fees -- Class C 465
- ---------------------------------------------------------------------------------------------------
Transfer agent fees 264
- ---------------------------------------------------------------------------------------------------
Trustees' fees 2,615
- ---------------------------------------------------------------------------------------------------
Printing 9,234
- ---------------------------------------------------------------------------------------------------
Professional fees 11,588
- ---------------------------------------------------------------------------------------------------
Other 1,107
===================================================================================================
Total expenses 37,439
===================================================================================================
Less: Fees waived and expenses reimbursed (34,726)
- ---------------------------------------------------------------------------------------------------
Expenses paid indirectly (11)
===================================================================================================
Net expenses 2,702
===================================================================================================
Net investment income (loss) (765)
===================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment securities (20,338)
- ---------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities (65,804)
===================================================================================================
Net gain (loss) from investment securities (86,142)
===================================================================================================
Net increase (decrease) in net assets resulting from operations $(86,907)
___________________________________________________________________________________________________
===================================================================================================
</Table>
See Notes to Financial Statements.
FS-19
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 30, 2002 (DATE OPERATIONS COMMENCED) TO OCTOBER 31, 2002
<Table>
<Caption>
OCTOBER 31
2002
------------
OPERATIONS:
Net investment income (loss) $ (765)
- --------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (20,338)
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities (65,804)
========================================================================================================
Net increase (decrease) in net assets resulting from operations (86,907)
========================================================================================================
Share transactions-net:
Class A 400,010
- --------------------------------------------------------------------------------------------------------
Class B 300,010
- --------------------------------------------------------------------------------------------------------
Class C 300,010
========================================================================================================
Net increase in net assets 913,123
========================================================================================================
NET ASSETS:
Beginning of period --
========================================================================================================
End of period $913,123
________________________________________________________________________________________________________
========================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $993,034
- --------------------------------------------------------------------------------------------------------
Undistributed net investment income 6,231
- --------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities (20,338)
- --------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment securities (65,804)
========================================================================================================
$913,123
________________________________________________________________________________________________________
========================================================================================================
</Table>
See Notes to Financial Statements.
FS-20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
OCTOBER 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Basic Value II Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
commenced operations August 30, 2002 and consists of three different classes of
shares that are not currently available for sale: Class A shares, Class B shares
and Class C 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 to provide
long-term growth of capital.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using
exchange rates as of the close of the NYSE. Generally, trading in foreign
securities is substantially completed each day at various times prior to
the close of the NYSE. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of the close of the
respective markets. Events affecting the values of such foreign securities
may occur between the times at which the particular foreign market closes
and the close of the customary trading session of the NYSE which would not
be reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
FS-21
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.
Premiums and discounts are amortized and/or accreted for financial
reporting purposes.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first
$1 billion of the Fund's average daily net assets, plus 0.70% of the Fund's next
$1 billion of average daily net assets, plus 0.65% of the Fund's average daily
nest assets in excess of $2 billion. AIM has voluntarily agreed to waive fees
and/or reimburse expenses (excluding interest, taxes, dividends on short sales,
extraordinary items and increases in expenses due to expense offset
arrangements, if any) for Class A, Class B and Class C shares to the extent
necessary to limit the total annual fund operating expenses of Class A to 1.75%
which may be terminated or modified at any time. 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 fund of which the Fund has invested.
For the period August 30, 2002 (date operations commenced) through October 31,
2002, AIM waived fees of $1,164 and reimbursed expenses of $32,414.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the period August 30, 2002 (date operations
commenced) through October 31, 2002, AIM was paid $8,493 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the period August 30, 2002 (date
operations commenced) through October 31, 2002, AFS retained $6 for such
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund ,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to
FS-22
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own the appropriate
class of shares of the Fund. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. AIM Distributors has voluntarily agreed to
waive all fees during the time the shares are not available for sale. This
waiver may be terminated or modified at any time. Pursuant to the master
distribution agreements, for the period August 30, 2002 (date operations
commenced) through October 31, 2002, AIM Distributors waived fees of $217, $465
and $466 for Class A, Class B and Class C shares, respectively.
Certain officers and trustees of the Trust are officers and directors
of AIM, AFS and AIM Distributors.
During the period August 30, 2002 (date operations commenced) through
October 31, 2002, the Fund paid legal fees of $0 for services rendered by
Kramer, Levin, Naftalis & Frankel LLP as counsel to the Board of Trustees. A
member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the period August 30, 2002 (date operations commenced) through October 31,
2002, the Fund received reductions in transfer agency fees from AFS (an
affiliate of AIM) of $2 and reductions in custodian fees of $9 under expense
offset arrangements which resulted in a reduction of the Fund's total expenses
of $11.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the period August 30, 2002 (date operations commenced) through October
31, 2002.
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Undistributed ordinary income $ 6,691
Unrealized appreciation (depreciation) - investments (65,804)
Temporary book/tax differences (460)
Capital loss carryforward (20,338)
Shares of beneficial interest 993,034
- --------------------------------------------------------------------------
$913,123
==========================================================================
</Table>
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 and tax differences are the result of stock issuance costs.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
Capital
Expiration Loss Carryforward
- ------------------------ ------------------------
October 31, 2010 $20,338
</Table>
FS-23
NOTE 6--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period August 30, 2002 (date
operations commenced) through October 31, 2002 was $1,017,941 and $37,530,
respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ --
- -----------------------------------------------------------------
Aggregate unrealized (depreciation)
of investment securities (65,804)
=================================================================
Net unrealized appreciation (depreciation)
of investment securities $(65,804)
_________________________________________________________________
=================================================================
</Table>
Investments have the same cost for tax and financial statement purposes.
NOTE 7--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of nondeductible stock issuance
costs on October 31, 2002, undistributed net investment income was increased by
$6,996 and shares of beneficial interest decreased by $6,996. The
reclassification has no effect on net assets of the Fund.
NOTE 8--SHARE INFORMATION
Changes in shares outstanding during the period August 30, 2002 (date operations
commenced) through October 31, 2002 were as follows:
<Table>
<Caption>
2002
----------------------------------
Shares Amount
------------ ------------
Sold:
Class A* 40,001 $ 400,010
- ------------------------------------------------------------------------------
Class B* 30,001 300,010
- ------------------------------------------------------------------------------
Class C* 30,001 300,010
==============================================================================
100,003 $1,000,030
______________________________________________________________________________
==============================================================================
</Table>
* Currently all shares are owned by AIM.
FS-24
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period August 30, 2002 (date operations commenced)
through October 31, 2002.
<Table>
<Caption>
CLASS A
----------------
AUGUST 30, 2002
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2002
----------------
Net asset value, beginning of period $ 10.00
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)
- -------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.86)
===========================================================================================
Total from investment operations (0.87)
===========================================================================================
Net asset value, end of period $ 9.13
___________________________________________________________________________________________
===========================================================================================
Total return (a) (8.70)%
___________________________________________________________________________________________
===========================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 365
___________________________________________________________________________________________
===========================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.75%(b)
- -------------------------------------------------------------------------------------------
Without fee waivers 23.74%(b)
___________________________________________________________________________________________
===========================================================================================
Ratio of net investment income (loss) to average net assets (0.49)%(b)
___________________________________________________________________________________________
===========================================================================================
Portfolio turnover rate 4%
___________________________________________________________________________________________
===========================================================================================
</Table>
(a) Includes adjustments in accordance with generally accepted accounting
principles, does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$359,547.
FS-25
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------
AUGUST 30, 2002
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2002
----------------
Net asset value, beginning of period $10.00
- ------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)
- ------------------------------------------------------------------------------------
Net losses on securities (both realized and unrealized) (0.86)
====================================================================================
Total from investment operations (0.87)
====================================================================================
Net asset value, end of period $ 9.13
____________________________________________________________________________________
====================================================================================
Total return(a) (8.70)%
____________________________________________________________________________________
====================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 274
____________________________________________________________________________________
====================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.75%(b)
- ------------------------------------------------------------------------------------
Without fee waivers 24.39%(b)
____________________________________________________________________________________
====================================================================================
Ratio of net investment income (loss) to average net assets (0.49)%(b)
____________________________________________________________________________________
====================================================================================
Portfolio turnover rate 4%
____________________________________________________________________________________
====================================================================================
</Table>
(a) Includes adjustments in accordance with generally accepted accounting
principles, does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$269,663.
FS-26
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------
AUGUST 30, 2002
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2002
----------------
Net asset value, beginning of period $10.00
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)
- -----------------------------------------------------------------------------------
Net losses on securities (both realized and unrealized) (0.86)
====================================================================================
Total from investment operations (0.87)
====================================================================================
Net asset value, end of period $ 9.13
___________________________________________________________________________________
===================================================================================
Total return(a) (8.70)%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 274
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.75%(b)
- -----------------------------------------------------------------------------------
Without fee waivers 24.39%(b)
___________________________________________________________________________________
===================================================================================
Ratio of net investment income (loss) to average net assets (0.49)%(b)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate 4%
___________________________________________________________________________________
===================================================================================
</Table>
(a) Includes adjustments in accordance with generally accepted accounting
principles, does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$269,663.
FS-27
Report of Independent Auditors
To the Shareholders of AIM Blue Chip Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM Blue
Chip Fund (a portfolio AIM Equity Funds), including the schedule of investments,
as of October 31, 2002, and the related statement of operations for the year
then ended, and the statements of changes in net assets and the financial
highlights for each of the two years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for each of the periods presented through October 31, 2000 were
audited by other auditors whose report dated December 6, 2000, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Blue Chip Fund as of October 31, 2002, 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.
Houston, Texas /s/ ERNST & YOUNG LLP
December 10, 2002
FS-28
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-95.34%
Aerospace & Defense-3.12%
General Dynamics Corp. 200,000 $ 15,826,000
- --------------------------------------------------------------------------
Lockheed Martin Corp. 650,000 37,635,000
- --------------------------------------------------------------------------
United Technologies Corp. 600,000 37,002,000
==========================================================================
90,463,000
==========================================================================
Aluminum-0.53%
Alcoa Inc. 700,000 15,442,000
==========================================================================
Apparel Retail-0.32%
Limited Brands 600,000 9,402,000
==========================================================================
Banks-5.46%
Bank of America Corp. 825,000 57,585,000
- --------------------------------------------------------------------------
Fifth Third Bancorp 675,000 42,862,500
- --------------------------------------------------------------------------
Wells Fargo & Co. 1,150,000 58,040,500
==========================================================================
158,488,000
==========================================================================
Biotechnology-1.24%
Amgen Inc.(a) 775,000 36,084,000
==========================================================================
Brewers-0.77%
Anheuser-Busch Cos., Inc. 425,000 22,423,000
==========================================================================
Broadcasting & Cable TV-0.96%
Clear Channel Communications, Inc.(a) 750,000 27,787,500
==========================================================================
Building Products-0.53%
Masco Corp. 750,000 15,420,000
==========================================================================
Computer Hardware-2.77%
Dell Computer Corp.(a) 1,850,000 52,928,500
- --------------------------------------------------------------------------
International Business Machines Corp. 350,000 27,629,000
==========================================================================
80,557,500
==========================================================================
Data Processing Services-2.31%
First Data Corp. 1,200,000 41,928,000
- --------------------------------------------------------------------------
Fiserv, Inc.(a) 800,000 24,992,000
==========================================================================
66,920,000
==========================================================================
Department Stores-0.91%
Kohl's Corp.(a) 450,000 26,302,500
==========================================================================
Diversified Chemicals-0.25%
Du Pont (E. I.) de Nemours & Co. 175,000 7,218,750
==========================================================================
Diversified Commercial Services-0.31%
H&R Block, Inc. 200,000 8,876,000
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
Diversified Financial Services-11.80%
American Express Co. 900,000 $ 32,733,000
- --------------------------------------------------------------------------
Citigroup Inc. 2,400,000 88,680,000
- --------------------------------------------------------------------------
Fannie Mae 700,000 46,802,000
- --------------------------------------------------------------------------
Freddie Mac 700,000 43,106,000
- --------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 400,000 28,640,000
- --------------------------------------------------------------------------
J.P. Morgan Chase & Co. 900,000 18,675,000
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 750,000 28,462,500
- --------------------------------------------------------------------------
Morgan Stanley 900,000 35,028,000
- --------------------------------------------------------------------------
SLM Corp. 200,000 20,548,000
==========================================================================
342,674,500
==========================================================================
Drug Retail-0.64%
Walgreen Co. 550,000 18,562,500
==========================================================================
Electric Utilities-1.02%
FPL Group, Inc. 250,000 14,745,000
- --------------------------------------------------------------------------
Southern Co. (The) 500,000 14,850,000
==========================================================================
29,595,000
==========================================================================
Food Distributors-1.36%
SYSCO Corp. 1,250,000 39,600,000
==========================================================================
General Merchandise Stores-4.65%
Costco Wholesale Corp.(a) 450,000 15,268,500
- --------------------------------------------------------------------------
Target Corp. 950,000 28,614,000
- --------------------------------------------------------------------------
Wal-Mart Stores, Inc. 1,700,000 91,035,000
==========================================================================
134,917,500
==========================================================================
Health Care Distributors & Services-1.43%
Cardinal Health, Inc. 600,000 41,526,000
==========================================================================
Health Care Equipment-3.86%
Boston Scientific Corp.(a) 350,000 13,170,500
- --------------------------------------------------------------------------
Medtronic, Inc. 1,175,000 52,640,000
- --------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 550,000 19,585,500
- --------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 650,000 26,793,000
==========================================================================
112,189,000
==========================================================================
Health Care Facilities-2.04%
HCA Inc. 900,000 39,141,000
- --------------------------------------------------------------------------
Tenet Healthcare Corp.(a) 700,000 20,125,000
==========================================================================
59,266,000
==========================================================================
Home Improvement Retail-1.84%
Home Depot, Inc. (The) 1,850,000 53,428,000
==========================================================================
</Table>
FS-29
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
Hotels, Resorts & Cruise Lines-0.85%
Carnival Corp. 950,000 $ 24,814,000
==========================================================================
Household Products-2.90%
Colgate-Palmolive Co. 725,000 39,860,500
- --------------------------------------------------------------------------
Procter & Gamble Co. (The) 500,000 44,225,000
==========================================================================
84,085,500
==========================================================================
Industrial Conglomerates-3.04%
General Electric Co. 3,500,000 88,375,000
==========================================================================
Industrial Gases-0.69%
Air Products & Chemicals, Inc. 450,000 19,890,000
==========================================================================
Integrated Oil & Gas-3.07%
Exxon Mobil Corp. 2,650,000 89,199,000
==========================================================================
Integrated Telecommunication Services-1.50%
AT&T Corp. 675,000 8,802,000
- --------------------------------------------------------------------------
BellSouth Corp. 350,000 9,152,500
- --------------------------------------------------------------------------
SBC Communications Inc. 1,000,000 25,660,000
==========================================================================
43,614,500
==========================================================================
Life & Health Insurance-0.60%
Prudential Financial, Inc.(a) 600,000 17,520,000
==========================================================================
Managed Health Care-1.49%
UnitedHealth Group Inc. 475,000 43,201,250
==========================================================================
Motorcycle Manufacturers-0.42%
Harley-Davidson, Inc. 235,000 12,290,500
==========================================================================
Movies & Entertainment-1.88%
Viacom Inc.-Class B(a) 1,225,000 54,647,250
==========================================================================
Multi-Line Insurance-1.99%
American International Group, Inc. 925,000 57,858,750
==========================================================================
Multi-Utilities & Unregulated Power-0.51%
Duke Energy Corp. 725,000 14,855,250
==========================================================================
Networking Equipment-1.73%
Cisco Systems, Inc.(a) 4,500,000 50,310,000
==========================================================================
Oil & Gas Drilling-1.63%
ENSCO International Inc. 675,000 18,252,000
- --------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 500,000 17,485,000
- --------------------------------------------------------------------------
Transocean Inc. 525,000 11,539,500
==========================================================================
47,276,500
==========================================================================
Oil & Gas Equipment & Services-0.62%
Schlumberger Ltd. (Netherlands) 450,000 18,049,500
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
Pharmaceuticals-10.38%
Allergan, Inc. 400,000 $ 21,780,000
- --------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 275,000 26,947,250
- --------------------------------------------------------------------------
Johnson & Johnson 1,600,000 94,000,000
- --------------------------------------------------------------------------
Pfizer Inc. 3,250,000 103,252,500
- --------------------------------------------------------------------------
Pharmacia Corp. 625,000 26,875,000
- --------------------------------------------------------------------------
Wyeth 850,000 28,475,000
==========================================================================
301,329,750
==========================================================================
Railroads-0.62%
Canadian National Railway Co. (Canada) 425,000 18,134,750
==========================================================================
Semiconductor Equipment-1.87%
Applied Materials, Inc.(a) 2,550,000 38,326,500
- --------------------------------------------------------------------------
KLA-Tencor Corp.(a) 450,000 16,033,500
==========================================================================
54,360,000
==========================================================================
Semiconductors-3.65%
Analog Devices, Inc.(a) 800,000 21,440,000
- --------------------------------------------------------------------------
Intel Corp. 1,400,000 24,220,000
- --------------------------------------------------------------------------
Linear Technology Corp. 380,000 10,503,200
- --------------------------------------------------------------------------
Microchip Technology Inc. 1,000,000 24,400,000
- --------------------------------------------------------------------------
Texas Instruments Inc. 1,000,000 15,860,000
- --------------------------------------------------------------------------
Xilinx, Inc.(a) 500,000 9,495,000
==========================================================================
105,918,200
==========================================================================
Soft Drinks-1.80%
Coca-Cola Co. (The) 600,000 27,888,000
- --------------------------------------------------------------------------
PepsiCo, Inc. 550,000 24,255,000
==========================================================================
52,143,000
==========================================================================
Specialty Stores-0.86%
Bed Bath & Beyond Inc.(a) 700,000 24,822,000
==========================================================================
Systems Software-4.57%
Microsoft Corp.(a) 2,000,000 106,940,000
- --------------------------------------------------------------------------
Oracle Corp.(a) 1,700,000 17,323,000
- --------------------------------------------------------------------------
VERITAS Software Corp.(a) 550,000 8,387,500
==========================================================================
132,650,500
==========================================================================
Wireless Telecommunication Services-0.55%
Vodafone Group PLC-ADR (United Kingdom) 1,000,000 15,920,000
==========================================================================
Common Stocks & Other Equity Interests
(Cost $2,687,527,249) 2,768,407,950
==========================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY BILLS-0.27%
1.63%, 12/19/02 (Cost $7,982,560)(b) $8,000,000(c) 7,982,560
==========================================================================
</Table>
FS-30
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
MONEY MARKET FUNDS-4.59%
STIC Liquid Assets Portfolio(d) 66,569,490 $ 66,569,490
- --------------------------------------------------------------------------
STIC Prime Portfolio(d) 66,569,490 66,569,490
==========================================================================
Total Money Market Funds (Cost
$133,138,980) 133,138,980
==========================================================================
TOTAL INVESTMENTS-100.20% (Cost
$2,828,648,789) 2,909,529,490
==========================================================================
OTHER ASSETS LESS LIABILITIES-(0.20%) (5,675,437)
==========================================================================
NET ASSETS-100.00% $2,903,854,053
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 7.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-31
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost $2,828,648,789)* $2,909,529,490
- ---------------------------------------------------------------------
Receivables for:
Investments sold 13,899,569
- ---------------------------------------------------------------------
Fund shares sold 2,307,628
- ---------------------------------------------------------------------
Dividends and interest 2,411,671
- ---------------------------------------------------------------------
Investment for deferred compensation plan 61,174
- ---------------------------------------------------------------------
Collateral for securities loaned 8,988,400
- ---------------------------------------------------------------------
Other assets 56,116
=====================================================================
Total assets 2,937,254,048
_____________________________________________________________________
=====================================================================
LIABILITIES:
Payables for:
Investments purchased 11,603,709
- ---------------------------------------------------------------------
Fund shares reacquired 7,982,722
- ---------------------------------------------------------------------
Deferred compensation plan 61,174
- ---------------------------------------------------------------------
Collateral upon return of securities loaned 8,988,400
- ---------------------------------------------------------------------
Variation margin 243,840
- ---------------------------------------------------------------------
Accrued distribution fees 2,434,100
- ---------------------------------------------------------------------
Accrued trustees' fees 2,651
- ---------------------------------------------------------------------
Accrued transfer agent fees 1,836,246
- ---------------------------------------------------------------------
Accrued operating expenses 247,153
=====================================================================
Total liabilities 33,399,995
=====================================================================
Net assets applicable to shares outstanding $2,903,854,053
_____________________________________________________________________
=====================================================================
NET ASSETS:
Class A $1,402,588,789
_____________________________________________________________________
=====================================================================
Class B $1,198,513,202
_____________________________________________________________________
=====================================================================
Class C $ 302,555,409
_____________________________________________________________________
=====================================================================
Class R $ 36,623
_____________________________________________________________________
=====================================================================
Institutional Class $ 160,030
_____________________________________________________________________
=====================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 152,087,477
_____________________________________________________________________
=====================================================================
Class B 135,006,825
_____________________________________________________________________
=====================================================================
Class C 34,083,249
_____________________________________________________________________
=====================================================================
Class R 3,972
_____________________________________________________________________
=====================================================================
Institutional Class 17,280
_____________________________________________________________________
=====================================================================
Class A:
Net asset value per share $ 9.22
- ---------------------------------------------------------------------
Offering price per share:
(Net asset value of $9.22 divided by 94.50%) $ 9.76
_____________________________________________________________________
=====================================================================
Class B:
Net asset value and offering price per share $ 8.88
_____________________________________________________________________
=====================================================================
Class C:
Net asset value and offering price per share $ 8.88
_____________________________________________________________________
=====================================================================
Class R:
Net asset value and offering price per share $ 9.22
_____________________________________________________________________
=====================================================================
Institutional Class:
Net asset value and offering price per share $ 9.26
_____________________________________________________________________
=====================================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $8,734,920
were on loan to brokers.
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$192,363) $ 38,304,023
- --------------------------------------------------------------------
Dividends from affiliated money market funds 2,827,516
- --------------------------------------------------------------------
Interest 79,361
- --------------------------------------------------------------------
Security lending income 200,425
====================================================================
Total investment income 41,411,325
====================================================================
EXPENSES:
Advisory fees 24,803,281
- --------------------------------------------------------------------
Administrative services fees 441,011
- --------------------------------------------------------------------
Custodian fees 227,964
- --------------------------------------------------------------------
Distribution fees -- Class A 6,517,172
- --------------------------------------------------------------------
Distribution fees -- Class B 16,167,462
- --------------------------------------------------------------------
Distribution fees -- Class C 4,196,874
- --------------------------------------------------------------------
Distribution fees -- Class R 31
- --------------------------------------------------------------------
Transfer agent fees 14,152,359
- --------------------------------------------------------------------
Transfer agent fees -- Institutional Class 28
- --------------------------------------------------------------------
Trustees' fees 28,525
- --------------------------------------------------------------------
Other 1,144,829
====================================================================
Total expenses 67,679,536
====================================================================
Less: Fees waived (26,519)
- --------------------------------------------------------------------
Expenses paid indirectly (60,293)
====================================================================
Net expenses 67,592,724
====================================================================
Net investment income (loss) (26,181,399)
====================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES
CONTRACTS:
Net realized gain (loss) from:
Investment securities (597,204,711)
- --------------------------------------------------------------------
Foreign currencies (914)
- --------------------------------------------------------------------
Futures contracts (8,019,257)
====================================================================
(605,224,882)
====================================================================
Change in net unrealized appreciation (depreciation)
of:
Investment securities (88,799,949)
- --------------------------------------------------------------------
Foreign currencies 8,118
- --------------------------------------------------------------------
Futures contracts 1,164,391
====================================================================
(87,627,440)
====================================================================
Net gain (loss) from investment securities, foreign
currencies and futures contracts (692,852,322)
====================================================================
Net increase (decrease) in net assets resulting from
operations $(719,033,721)
____________________________________________________________________
====================================================================
</Table>
See Notes to Financial Statements.
FS-32
Statement of Changes In Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (26,181,399) $ (35,262,129)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and futures contracts (605,224,882) (875,780,324)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and futures
contracts (87,627,440) (1,586,297,713)
================================================================================================
Net increase (decrease) in net assets resulting from
operations (719,033,721) (2,497,340,166)
================================================================================================
Share transactions-net:
Class A (325,975,435) 81,644,114
- ------------------------------------------------------------------------------------------------
Class B (303,773,409) 98,738,160
- ------------------------------------------------------------------------------------------------
Class C (109,471,968) 49,072,979
- ------------------------------------------------------------------------------------------------
Class R 36,356 --
- ------------------------------------------------------------------------------------------------
Institutional Class 168,155 --
================================================================================================
Net increase (decrease) in net assets (1,458,050,022) (2,267,884,913)
================================================================================================
NET ASSETS:
Beginning of year 4,361,904,075 6,629,788,988
================================================================================================
End of year $ 2,903,854,053 $ 4,361,904,075
________________________________________________________________________________________________
================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 4,536,803,562 $ 5,301,981,761
- ------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (154,369) (133,954)
- ------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and futures contracts (1,714,840,770) (1,109,616,802)
- ------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and futures contracts 82,045,630 169,673,070
================================================================================================
$ 2,903,854,053 $ 4,361,904,075
________________________________________________________________________________________________
================================================================================================
</Table>
See Notes to Financial Statements.
FS-33
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Blue Chip Fund (the "Fund") is a series portfolio of AIM Equity Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers five different classes of shares: Class A shares, Class B
shares, Class C shares, Class R shares and the Institutional Class. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge. Class R shares and
Institutional Class shares are sold at net asset value. 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 with a secondary objective of current income.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
FS-34
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and that a change in value of the
contracts may not correlate with changes in the value of the securities
being hedged.
I. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million. AIM has agreed to
waive advisory fees payable by the Fund to AIM at the annual rate of 0.025% for
each $5 billion increment in net assets over $5 billion, up to a maximum waiver
of 0.175% on net assets in excess of $35 billion. 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 fund of which the Fund has invested.
For the year ended October 31, 2002, AIM waived fees of $26,519.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2002, AIM was
paid $441,011 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended October 31, 2002, AFS
retained $7,192,239 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and the 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 shares, Class B shares, Class C shares and Class R
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.35% of the Fund's average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B and C shares and 0.50% of the average daily net assets of Class R
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own the appropriate class of shares
of the Fund. Any amounts not paid as a service fee under the Plans would
constitute an asset-based sales charge. NASD Rules also impose a cap on the
total sales charges, including asset-based sales charges that may be paid by any
class of shares of the Fund. Pursuant to the master distribution agreements, for
the year ended October 31, 2002, the Class A, Class B, Class C and Class R
shares paid $6,517,172, $16,167,462, $4,196,874 and $31, respectively.
AIM Distributors retained commissions of $524,961 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 2002,
AIM Distributors retained $43,312, $2,640, $61,493 and $0 in contingent deferred
sales charges imposed on redemptions of Class A, Class B, Class C and Class R
shares, respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors. During the year ended October 31, 2002, the Fund paid
legal fees of $15,064 for services rendered by Kramer, Levin, Naftalis & Frankel
LLP as counsel to the Board of Trustees. A member of that firm is a trustee of
the Trust.
FS-35
NOTE 3--INDIRECT EXPENSES
For the year ended October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $59,304 and reductions in
custodian fees of $989 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $60,293.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended October 31,
2002, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At October 31, 2002, securities with an aggregate value of $8,734,920 were on
loan to brokers. The loans were secured by cash collateral of $8,988,400
received by the Fund and invested in STIC Liquid Assets Portfolio, an affiliated
money market fund. For the year ended October 31, 2002, the Fund received fees
of $200,425 for securities lending.
NOTE 7--FUTURES CONTRACTS
On October 31, 2002, $3,964,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts. Open futures contracts as of October 31, 2002 were as follows:
<Table>
<Caption>
NO. OF MONTH/ MARKET UNREALIZED
CONTRACT CONTRACTS COMMITMENT VALUE APPRECIATION
- ---------------------------------------------------------------------------
S&P 500 Index 230 Dec-02 Long $50,910,500 $1,164,391
___________________________________________________________________________
===========================================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2002 and 2001.
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation -- investments $ 40,944,547
- --------------------------------------------------------------
Temporary book/tax differences (154,369)
- --------------------------------------------------------------
Capital loss carryforward (1,673,739,687)
- --------------------------------------------------------------
Shares of beneficial interest 4,536,803,562
==============================================================
$ 2,903,854,053
______________________________________________________________
==============================================================
</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
depreciation difference is attributable to the tax deferral of losses on wash
sales and the realization for tax purposes of unrealized gains on futures
contracts. Amount includes appreciation on foreign currencies of $539.
The temporary book/tax differences are the result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the results of the deferral of trustee compensation and
retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
October 31, 2007 $ 38,614,682
- -----------------------------------------------------------
October 31, 2008 185,511,022
- -----------------------------------------------------------
October 31, 2009 833,974,843
- -----------------------------------------------------------
October 31, 2010 615,639,140
===========================================================
$1,673,739,687
___________________________________________________________
===========================================================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 2002 was
$1,058,391,209 and $1,837,546,899, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 314,846,721
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (273,902,713)
- -------------------------------------------------------------
Net unrealized appreciation of investment
securities $ 40,944,008
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is
$2,868,585,482.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
As of result of differing book/tax treatment of foreign currency transactions
and net operating loss reclassifications, on October 31, 2002, shares of
beneficial interest was decreased by $26,161,898, undistributed net investment
income was increased by $26,160,984 and undistributed net realized gains was
increased by $914. This reclassification had no effect on the net assets of the
Fund.
FS-36
NOTE 11--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 36,847,391* $ 400,415,874* 59,896,009 $859,547,781
- -------------------------------------------------------------------------------------------------------------------------
Class B 15,784,454 168,633,848 38,414,696 544,596,082
- -------------------------------------------------------------------------------------------------------------------------
Class C 5,922,957 63,436,977 15,458,538 219,941,831
- -------------------------------------------------------------------------------------------------------------------------
Class R** 3,975 36,381 -- --
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class*** 19,795 192,879 -- --
=========================================================================================================================
Reacquired:
Class A (68,970,741) (726,391,309) (58,620,165) (777,903,667)
- -------------------------------------------------------------------------------------------------------------------------
Class B (46,891,521)* (472,407,257)* (35,112,835) (445,857,922)
- -------------------------------------------------------------------------------------------------------------------------
Class C (16,701,794) (172,908,945) (13,300,112) (170,868,852)
- -------------------------------------------------------------------------------------------------------------------------
Class R** (3) (25) -- --
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class*** (2,515) (24,724) -- --
=========================================================================================================================
(73,988,002) $(739,016,301) 6,736,131 $229,455,253
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
* Includes automatic conversion of 1,170,222 shares of Class B shares in the
amount of $12,298,772 to 1,132,609 shares of Class A shares in the amount of
$12,298,772.
** Class R shares commenced operations as of June 3, 2002.
*** Institutional Class shares commenced operations as of March 15, 2002.
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A(A)
------------------------------------------------------------------------
YEAR ENDED
OCTOBER 31,
------------------------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.22 $ 17.29 $ 15.49 $ 12.05 $ 10.32
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(b) (0.04) (0.05)(b) 0.01 0.04(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.96) (6.03) 1.85 3.47 1.92
=================================================================================================================================
Total from investment operations (2.00) (6.07) 1.80 3.48 1.96
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.01) (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.03) (0.21)
=================================================================================================================================
Total distributions -- -- -- (0.04) (0.23)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Net asset value, end of period $ 9.22 $ 11.22 $ 17.29 $ 15.49 $ 12.05
=================================================================================================================================
Total return(c) (17.82)% (35.11)% 11.60% 29.01% 19.36%
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,402,589 $2,067,602 $3,163,453 $2,299,551 $1,085,648
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.40%(d) 1.28% 1.19% 1.19% 1.22%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.33)%(d) (0.29)% (0.31)% 0.03% 0.33%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 28% 31% 22% 22% 27%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information for all periods prior to October 31, 2000 have
been restated to reflect a 3 for 1 stock split, effected in the form of
a 200% stock dividend, on September 8, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with generally accepted accounting
principles and does not include sales charges.
(d) Ratios are based on average daily net assets of $1,862,049,115.
FS-37
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B(A)
-------------------------------------------------------------------------
YEAR ENDED
OCTOBER 31,
-------------------------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.87 $ 16.87 $ 15.22 $ 11.91 $ 10.25
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(b) (0.13) (0.17)(b) (0.10)(b) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.89) (5.87) 1.82 3.44 1.91
=================================================================================================================================
Total from investment operations (1.99) (6.00) 1.65 3.34 1.87
=================================================================================================================================
Less distributions from net realized gains -- -- -- (0.03) (0.21)
=================================================================================================================================
Net asset value, end of period $ 8.88 $ 10.87 $ 16.87 $ 15.22 $ 11.91
=================================================================================================================================
Total return(c) (18.31)% (35.57)% 10.87% 28.08% 18.52%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,198,513 $1,806,464 $2,746,149 $1,891,171 $745,862
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.05%(d) 1.94% 1.88% 1.91% 1.94%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.98)%(d) (0.94)% (1.00)% (0.68)% (0.38)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 28% 31% 22% 22% 27%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information for all periods prior to October 31, 2000 have
been restated to reflect a 3 for 1 stock split, effected in the form of
a 200% stock dividend, on September 8, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with generally accepted accounting
principles and does not include contingent deferred sales charges.
(d) Ratios are based on average daily net assets of $1,616,746,189.
<Table>
<Caption>
CLASS C(A)
-----------------------------------------------------------------
YEAR ENDED
OCTOBER 31,
-----------------------------------------------------------------
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.87 $ 16.86 $ 15.21 $ 11.91 $ 10.25
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(b) (0.13) (0.17)(b) (0.10)(b) (0.04)(b)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.89) (5.86) 1.82 3.43 1.91
===============================================================================================================================
Total from investment operations (1.99) (5.99) 1.65 3.33 1.87
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Less distributions:
Distributions from net realized gains -- -- -- (0.03) (0.21)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.88 $ 10.87 $ 16.86 $ 15.21 $ 11.91
===============================================================================================================================
Total return(c) (18.31)% (35.53)% 10.82% 28.09% 18.52%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $302,555 $487,838 $720,186 $349,951 $ 87,554
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 2.05%(d) 1.94% 1.88% 1.90% 1.94%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.98)%(d) (0.94)% (1.00)% (0.68)% (0.38)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 28% 31% 22% 22% 27%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Per share information for all periods prior to October 31, 2000 have
been restated to reflect a 3 for 1 stock split, effected in the form of
a 200% stock dividend, on September 8, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with generally accepted accounting
principles and does not include contingent deferred sales charges.
(d) Ratios are based on average daily net assets of $419,687,377.
FS-38
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-------------
JUNE 3, 2002
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2002
- ---------------------------------------------------------------------------
Net asset value, beginning of period $10.53
- ---------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a)
- ---------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.29)
===========================================================================
Total from investment operations (1.31)
===========================================================================
Net asset value, end of period $ 9.22
===========================================================================
Total return(b) (12.44)%
===========================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 37
___________________________________________________________________________
===========================================================================
Ratio of expenses to average net assets 1.55%(c)
===========================================================================
Ratio of net investment income (loss) to average net assets (0.49)%(c)
___________________________________________________________________________
===========================================================================
Portfolio turnover rate 28%
___________________________________________________________________________
===========================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $15,364.
FS-39
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
MARCH 15, 2002
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2002
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.13
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02(a)
- ---------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.89)
=================================================================================
Total from investment operations (2.87)
=================================================================================
Net asset value, end of period $ 9.26
=================================================================================
Total return(b) (23.66)%
=================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 160
_________________________________________________________________________________
=================================================================================
Ratio of expenses to average net assets 0.77%(c)
=================================================================================
Ratio of net investment income to average net assets 0.30%(c)
_________________________________________________________________________________
=================================================================================
Portfolio turnover rate 28%
_________________________________________________________________________________
=================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $57,632.
FS-40
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Capital Development Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Capital Development Fund (a portfolio AIM Equity Funds), including the schedule
of investments, as of October 31, 2002, and the related statement of operations
for the year then ended, and the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the periods presented through October 31, 2000 were
audited by other auditors whose report dated December 6, 2000, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Capital Development Fund as of October 31, 2002, 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.
/s/ ERNST & YOUNG LLP
Houston, Texas
December 10, 2002
FS-41
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER EQUITY
INTERESTS-82.50%
Advertising-1.12%
Lamar Advertising Co.(a) 284,000 $ 9,638,960
========================================================================
Air Freight & Logistics-2.12%
Robinson (C.H.) Worldwide, Inc. 371,600 10,988,212
- ------------------------------------------------------------------------
Ryder System, Inc. 314,500 7,217,775
========================================================================
18,205,987
========================================================================
Apparel Retail-0.76%
Ross Stores, Inc. 155,400 6,503,490
========================================================================
Application Software-1.16%
Fair, Issac and Co., Inc. 259,700 9,990,659
========================================================================
Banks-2.91%
Compass Bancshares, Inc. 293,600 9,483,280
- ------------------------------------------------------------------------
Huntington Bancshares Inc. 524,300 9,914,513
- ------------------------------------------------------------------------
Sovereign Bancorp, Inc. 400,000 5,632,000
========================================================================
25,029,793
========================================================================
Biotechnology-0.26%
Invitrogen Corp.(a) 81,300 2,261,766
========================================================================
Broadcasting & Cable TV-1.95%
Cox Radio, Inc.-Class A(a) 300,000 7,122,000
- ------------------------------------------------------------------------
Entercom Communications Corp.(a) 100,000 4,922,000
- ------------------------------------------------------------------------
Lin TV Corp.-Class A(a) 228,600 4,716,018
========================================================================
16,760,018
========================================================================
Building Products-1.01%
American Standard Cos. Inc.(a) 129,600 8,644,320
========================================================================
Casinos & Gambling-0.96%
Harrah's Entertainment, Inc.(a) 197,400 8,290,800
========================================================================
Commercial Printing-0.00%
American Bank Note Holographics, Inc.-Wts.,
expiring 06/18/03(a) 29,695 297
========================================================================
Computer & Electronics Retail-1.51%
Best Buy Co., Inc.(a) 180,300 3,715,983
- ------------------------------------------------------------------------
CDW Computer Centers, Inc.(a) 173,800 9,214,876
========================================================================
12,930,859
========================================================================
Consumer Finance-1.18%
AmeriCredit Corp.(a) 902,100 6,846,939
- ------------------------------------------------------------------------
Saxon Capital Acquisition Corp. (Acquired
07/27/01; Cost $3,120,900)(a)(b)(c) 309,000 3,306,300
========================================================================
10,153,239
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Data Processing Services-6.35%
Alliance Data Systems Corp.(a) 590,200 $ 10,033,400
- ------------------------------------------------------------------------
BISYS Group, Inc. (The)(a) 494,100 8,844,390
- ------------------------------------------------------------------------
Ceridian Corp.(a) 628,600 8,662,108
- ------------------------------------------------------------------------
Certegy Inc.(a) 381,350 8,008,350
- ------------------------------------------------------------------------
Concord EFS, Inc.(a) 273,800 3,909,864
- ------------------------------------------------------------------------
DST Systems, Inc.(a) 146,200 4,495,650
- ------------------------------------------------------------------------
Iron Mountain Inc.(a) 375,000 10,578,750
========================================================================
54,532,512
========================================================================
Diversified Chemicals-0.71%
Engelhard Corp. 275,300 6,097,895
========================================================================
Diversified Financial Services-2.07%
Affiliated Managers Group, Inc.(a) 98,600 5,119,312
- ------------------------------------------------------------------------
LaBranche & Co. Inc.(a) 146,000 3,943,460
- ------------------------------------------------------------------------
Principal Financial Group, Inc. 311,000 8,723,550
========================================================================
17,786,322
========================================================================
Drug Retail-1.25%
CVS Corp. 388,500 10,773,105
========================================================================
Electric Utilities-1.02%
FPL Group, Inc. 147,900 8,723,142
========================================================================
Electrical Components & Equipment-1.12%
Rockwell Automation, Inc. 579,100 9,584,105
========================================================================
Electronic Equipment & Instruments-4.14%
Amphenol Corp.-Class A(a) 185,800 7,153,300
- ------------------------------------------------------------------------
Tektronix, Inc.(a) 528,400 9,336,828
- ------------------------------------------------------------------------
Varian Inc.(a) 350,000 10,293,500
- ------------------------------------------------------------------------
Vishay Intertechnology, Inc.(a) 467,700 4,817,310
- ------------------------------------------------------------------------
Waters Corp.(a) 157,100 3,955,778
========================================================================
35,556,716
========================================================================
Environmental Services-1.04%
Republic Services, Inc.(a) 435,000 8,952,300
========================================================================
Food Distributors-1.03%
Performance Food Group Co.(a) 238,000 8,851,220
========================================================================
Food Retail-0.88%
Winn-Dixie Stores, Inc. 504,500 7,577,590
========================================================================
Footwear-1.02%
Reebok International Ltd.(a) 309,000 8,729,250
========================================================================
</Table>
FS-42
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Forest Products-0.47%
Louisiana-Pacific Corp.(a) 593,300 $ 3,998,842
========================================================================
General Merchandise Stores-1.07%
Dollar Tree Stores, Inc.(a) 349,200 9,180,468
========================================================================
Health Care Distributors & Services-1.30%
AdvancePCS(a) 238,400 5,983,840
- ------------------------------------------------------------------------
Lincare Holdings Inc.(a) 153,100 5,216,117
========================================================================
11,199,957
========================================================================
Health Care Equipment-2.41%
Bard (C.R.), Inc. 222,400 12,438,832
- ------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 290,000 8,294,000
========================================================================
20,732,832
========================================================================
Health Care Facilities-1.49%
LifePoint Hospitals, Inc.(a) 149,100 4,674,285
- ------------------------------------------------------------------------
Triad Hospitals, Inc.(a) 222,700 8,128,550
========================================================================
12,802,835
========================================================================
Household Appliances-2.46%
Black & Decker Corp. (The) 248,000 11,596,480
- ------------------------------------------------------------------------
Snap-on Inc. 364,500 9,495,225
========================================================================
21,091,705
========================================================================
Industrial Machinery-2.36%
Flowserve Corp.(a) 158,000 1,851,760
- ------------------------------------------------------------------------
Pall Corp. 534,100 9,277,317
- ------------------------------------------------------------------------
SPX Corp.(a) 217,600 9,141,376
========================================================================
20,270,453
========================================================================
Integrated Oil & Gas-0.85%
Murphy Oil Corp. 87,100 7,301,593
========================================================================
IT Consulting & Services-2.99%
Affiliated Computer Services, Inc.-Class A(a) 22,800 1,049,940
- ------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 224,300 4,972,731
- ------------------------------------------------------------------------
Titan Corp. (The)(a) 798,600 10,293,954
- ------------------------------------------------------------------------
Unisys Corp.(a) 1,074,600 9,381,258
========================================================================
25,697,883
========================================================================
Leisure Products-1.69%
Brunswick Corp. 315,500 6,492,990
- ------------------------------------------------------------------------
Hasbro, Inc. 782,700 7,999,194
========================================================================
14,492,184
========================================================================
Life & Health Insurance-0.38%
Nationwide Financial Services, Inc.-Class A 117,100 3,243,670
========================================================================
Managed Health Care-2.91%
Anthem, Inc.(a) 153,000 9,639,000
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Managed Health Care-(Continued)
Caremark Rx, Inc.(a) 490,900 $ 8,688,930
- ------------------------------------------------------------------------
Coventry Health Care, Inc.(a) 200,000 6,692,000
========================================================================
25,019,930
========================================================================
Movies & Entertainment-0.25%
Macrovision Corp.(a) 165,300 2,132,370
========================================================================
Mutual Funds-1.96%
iShares Nasdaq Biotechnology Index Fund(a) 158,900 8,119,790
- ------------------------------------------------------------------------
S&P MidCap 400 Depositary Receipts Trust
Series 1 112,000 8,708,000
========================================================================
16,827,790
========================================================================
Networking Equipment-0.25%
Emulex Corp.(a) 119,600 2,146,820
========================================================================
Office Electronics-1.46%
Zebra Technologies Corp.-Class A(a) 203,700 12,531,624
========================================================================
Oil & Gas Drilling-2.18%
GlobalSantaFe Corp. 394,400 9,426,160
- ------------------------------------------------------------------------
Pride International, Inc.(a) 672,900 9,339,852
========================================================================
18,766,012
========================================================================
Oil & Gas Equipment & Services-1.57%
BJ Services Co.(a) 285,700 8,665,281
- ------------------------------------------------------------------------
Key Energy Services, Inc.(a) 539,500 4,817,735
========================================================================
13,483,016
========================================================================
Oil & Gas Exploration & Production-1.80%
Devon Energy Corp. 171,000 8,635,500
- ------------------------------------------------------------------------
Ocean Energy, Inc. 367,200 6,840,936
========================================================================
15,476,436
========================================================================
Oil & Gas Refining, Marketing &
Transportation-0.57%
Valero Energy Corp. 138,900 4,890,669
========================================================================
Paper Products-1.00%
Bowater Inc. 253,000 8,574,170
========================================================================
Pharmaceuticals-1.59%
Medicis Pharmaceutical Corp.-Class A(a) 97,600 4,479,840
- ------------------------------------------------------------------------
Mylan Laboratories Inc. 292,400 9,201,828
========================================================================
13,681,668
========================================================================
Property & Casualty Insurance-2.04%
PMI Group, Inc. (The) 281,500 8,388,700
- ------------------------------------------------------------------------
Radian Group Inc. 259,500 9,152,565
========================================================================
17,541,265
========================================================================
Publishing-2.45%
Belo Corp.-Class A 499,000 11,526,900
- ------------------------------------------------------------------------
</Table>
FS-43
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Publishing-(Continued)
New York Times Co. (The)-Class A 197,300 $ 9,551,293
========================================================================
21,078,193
========================================================================
Real Estate Investment Trusts-2.88%
American Financial Realty Trust (Acquired
09/04/02; Cost $9,401,000)(a)(c) 940,100 10,106,075
- ------------------------------------------------------------------------
FBR Asset Investment Corp. 337,800 10,134,000
- ------------------------------------------------------------------------
Plum Creek Timber Co., Inc. 200,000 4,522,000
========================================================================
24,762,075
========================================================================
Restaurants-0.79%
Brinker International, Inc.(a) 237,700 6,748,303
========================================================================
Semiconductors-1.82%
Microchip Technology Inc. 449,762 10,974,193
- ------------------------------------------------------------------------
QLogic Corp.(a) 134,100 4,661,316
========================================================================
15,635,509
========================================================================
Specialty Chemicals-1.18%
International Flavors & Fragrances Inc. 301,000 10,098,550
========================================================================
Specialty Stores-1.54%
Advance Auto Parts, Inc.(a) 152,500 8,166,375
- ------------------------------------------------------------------------
Copart, Inc.(a) 472,700 5,043,709
========================================================================
13,210,084
========================================================================
Systems Software-1.22%
Adobe Systems Inc. 200,900 4,749,276
- ------------------------------------------------------------------------
Symantec Corp.(a) 143,500 5,740,000
========================================================================
10,489,276
========================================================================
Total Domestic Common Stocks & Other
Equity Interests (Cost $653,444,191) 708,680,527
========================================================================
FOREIGN STOCKS & OTHER EQUITY INTERESTS-9.75%
Bermuda-3.76%
Everest Re Group, Ltd. (Reinsurance) 158,700 9,207,774
- ------------------------------------------------------------------------
Platinum Underwriters Holdings, Ltd.
(Insurance Brokers)(a) 243,400 6,109,340
- ------------------------------------------------------------------------
Willis Group Holdings Ltd. (Insurance
Brokers)(a) 238,100 7,285,860
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Bermuda-(Continued)
XL Capital Ltd.-Class A (Property & Casualty
Insurance) 127,900 $ 9,739,585
========================================================================
32,342,559
========================================================================
Canada-1.77%
Biovail Corp. (Pharmaceuticals)(a) 101,400 3,209,310
- ------------------------------------------------------------------------
Celestica Inc. (Electronic Equipment &
Instruments)(a) 143,500 1,980,300
- ------------------------------------------------------------------------
Potash Corp. of Saskatchewan Inc.
(Fertilizers & Agricultural Chemicals) 147,800 9,998,670
========================================================================
15,188,280
========================================================================
Cayman Islands-2.17%
ACE Ltd. (Property & Casualty Insurance) 268,617 8,259,973
- ------------------------------------------------------------------------
Garmin Ltd. (Consumer Electronics)(a) 495,000 10,355,400
========================================================================
18,615,373
========================================================================
France-0.49%
Business Objects S.A.-ADR (Application
Software)(a) 285,500 4,253,950
========================================================================
Germany-0.66%
Altana A.G. (Pharmaceuticals) 117,500 5,619,688
- ------------------------------------------------------------------------
Altana A.G.-ADR (Pharmaceuticals)(a) 1,000 48,050
========================================================================
5,667,738
========================================================================
United Kingdom-0.90%
Shire Pharmaceuticals Group PLC-ADR
(Pharmaceuticals)(a) 331,300 7,739,168
========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $81,147,708) 83,807,068
========================================================================
MONEY MARKET FUNDS-6.58%
STIC Liquid Assets Portfolio(d) 28,252,214 28,252,214
- ------------------------------------------------------------------------
STIC Prime Portfolio(d) 28,252,214 28,252,214
========================================================================
Total Money Market Funds (Cost
$56,504,428) 56,504,428
========================================================================
TOTAL INVESTMENTS-98.83% (Cost $791,096,327) 848,992,023
========================================================================
OTHER ASSETS LESS LIABILITIES-1.17% 10,046,397
========================================================================
NET ASSETS-100.00% $859,038,420
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(c) Security not registered under the Securities Act of 1933, as amended ("the
1933 Act") (e.g., the security was purchased in a Rule 144A transaction or a
Regulation D transaction); the security may be resold only pursuant to an
exemption from registration under the 1933 Act, typically to qualified
institutional buyers. The aggregate market value of these securities at
10/31/02 was $13,412,375, which represented 1.56% of the Fund's net assets.
The Fund has no rights to demand registration of these securities.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-44
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$791,096,327)* $ 848,992,023
- -------------------------------------------------------------
Foreign currencies, at value (cost $123) 124
- -------------------------------------------------------------
Receivables for:
Investments sold 36,591,218
- -------------------------------------------------------------
Fund shares sold 990,971
- -------------------------------------------------------------
Dividends 335,817
- -------------------------------------------------------------
Investment for deferred compensation plan 35,228
- -------------------------------------------------------------
Collateral for securities loaned 176,899,625
- -------------------------------------------------------------
Other assets 50,717
=============================================================
Total assets 1,063,895,723
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 24,494,742
- -------------------------------------------------------------
Fund shares reacquired 2,275,994
- -------------------------------------------------------------
Deferred compensation plan 35,228
- -------------------------------------------------------------
Collateral upon return of securities loaned 176,899,625
- -------------------------------------------------------------
Accrued distribution fees 785,683
- -------------------------------------------------------------
Accrued trustees' fees 1,128
- -------------------------------------------------------------
Accrued transfer agent fees 312,124
- -------------------------------------------------------------
Accrued operating expenses 52,779
=============================================================
Total liabilities 204,857,303
=============================================================
Net assets applicable to shares outstanding $ 859,038,420
_____________________________________________________________
=============================================================
NET ASSETS:
Class A $ 456,267,590
_____________________________________________________________
=============================================================
Class B $ 346,455,510
_____________________________________________________________
=============================================================
Class C $ 56,298,292
_____________________________________________________________
=============================================================
Class R $ 9,583
_____________________________________________________________
=============================================================
Institutional Class $ 7,445
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 35,650,215
_____________________________________________________________
=============================================================
Class B 28,385,003
_____________________________________________________________
=============================================================
Class C 4,615,576
_____________________________________________________________
=============================================================
Class R 749
_____________________________________________________________
=============================================================
Institutional Class 580
_____________________________________________________________
=============================================================
Class A:
Net asset value per share $ 12.80
- -------------------------------------------------------------
Offering price per share:
(Net asset value of $12.80 divided by
94.50%) $ 13.54
_____________________________________________________________
=============================================================
Class B:
Net asset value and offering price per
share $ 12.21
_____________________________________________________________
=============================================================
Class C:
Net asset value and offering price per
share $ 12.20
_____________________________________________________________
=============================================================
Class R:
Net asset value and offering price per
share $ 12.79
_____________________________________________________________
=============================================================
Institutional Class:
Net asset value and offering price per
share $ 12.84
_____________________________________________________________
=============================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $173,201,778
were on loan to brokers.
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$23,403) $ 10,192,451
- -------------------------------------------------------------
Dividends from affiliated money market funds 1,079,090
- -------------------------------------------------------------
Interest 403
- -------------------------------------------------------------
Security lending income 815,917
=============================================================
Total investment income 12,087,861
=============================================================
EXPENSES:
Advisory fees 7,368,692
- -------------------------------------------------------------
Administrative services fees 205,580
- -------------------------------------------------------------
Custodian fees 75,325
- -------------------------------------------------------------
Distribution fees -- Class A 2,050,963
- -------------------------------------------------------------
Distribution fees -- Class B 4,539,281
- -------------------------------------------------------------
Distribution fees -- Class C 690,638
- -------------------------------------------------------------
Distribution fees -- Class R 20
- -------------------------------------------------------------
Transfer agent fees 3,325,906
- -------------------------------------------------------------
Transfer agent fees -- Institutional Class 14
- -------------------------------------------------------------
Trustees' fees 13,919
- -------------------------------------------------------------
Other 447,889
=============================================================
Total expenses 18,718,227
=============================================================
Less: Fees waived and expenses reimbursed (11,473)
- -------------------------------------------------------------
Expenses paid indirectly (33,031)
=============================================================
Net expenses 18,673,723
=============================================================
Net investment income (loss) (6,585,862)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (28,754,591)
- -------------------------------------------------------------
Foreign currencies 43,447
- -------------------------------------------------------------
Option contracts written 1,068,505
=============================================================
(27,642,639)
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (101,336,943)
- -------------------------------------------------------------
Foreign currencies 10,628
- -------------------------------------------------------------
Option contracts written (288,959)
=============================================================
(101,615,274)
=============================================================
Net gain (loss) from investment securities,
foreign currencies and option contracts (129,257,913)
=============================================================
Net increase (decrease) in net assets
resulting from operations $(135,843,775)
_____________________________________________________________
=============================================================
</Table>
See Notes to Financial Statements.
FS-45
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (6,585,862) $ (6,818,556)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts (27,642,639) (4,802,278)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (101,615,274) (306,202,141)
==============================================================================================
Net increase (decrease) in net assets resulting from
operations (135,843,775) (317,822,975)
==============================================================================================
Distributions to shareholders from net realized gains:
Class A -- (96,954,437)
- ----------------------------------------------------------------------------------------------
Class B -- (81,364,674)
- ----------------------------------------------------------------------------------------------
Class C -- (11,018,702)
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A (49,872,882) 77,378,574
- ----------------------------------------------------------------------------------------------
Class B (51,574,661) 52,952,759
- ----------------------------------------------------------------------------------------------
Class C (497,034) 13,238,100
- ----------------------------------------------------------------------------------------------
Class R 12,300 --
- ----------------------------------------------------------------------------------------------
Institutional Class 10,000 --
==============================================================================================
Net increase (decrease) in net assets (237,766,052) (363,591,355)
==============================================================================================
NET ASSETS:
Beginning of year 1,096,804,472 1,460,395,827
==============================================================================================
End of year $ 859,038,420 $1,096,804,472
______________________________________________________________________________________________
==============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 842,029,553 $ 950,485,964
- ----------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (70,846) (62,566)
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and option contracts (40,816,886) (13,130,799)
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and option contracts 57,896,599 159,511,873
==============================================================================================
$ 859,038,420 $1,096,804,472
______________________________________________________________________________________________
==============================================================================================
</Table>
See Notes to Financial Statements.
FS-46
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Capital Development Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers five different classes of shares: Class A shares, Class B
shares, Class C shares, Class R shares and the Institutional Class. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge. Class R shares and
Institutional Class shares are sold at net asset value. 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 preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-
FS-47
upon price at a future date. The Fund may enter into a foreign currency
contract to attempt to minimize the risk to the Fund from adverse changes
in the relationship between currencies. The Fund may also enter into a
foreign currency contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. dollar
price of that security. The Fund could be exposed to risk if counterparties
to the contracts are unable to meet the terms of their contracts or if the
value of the foreign currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
H. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged.
I. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million. AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market fund of which the
Fund has invested. For the year ended October 31, 2002, AIM waived fees of
$11,465.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2002, AIM was
paid $205,580 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended October 31, 2002, AFS
retained $1,974,790 for such services. For the year ended October 31, 2002, AFS
reimbursed fees of $8 on the Institutional Class.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and the 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 shares, Class B shares, Class C shares and Class R
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.35% of the Fund's average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B and C shares and 0.50% of the average daily net assets of Class R
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own the appropriate class of shares
of the Fund. Any amounts not paid as a service fee under the Plans would
constitute an asset-based sales charge. NASD Rules also impose a cap on the
total sales charges, including asset-based sales charges that may be paid by any
class of shares of the Fund. Pursuant to the master distribution agreements, for
the year ended October 31, 2002, the Class A, Class B, Class C and Class R
shares paid $2,050,963, $4,539,281, $690,638 and $20, respectively.
AIM Distributors retained commissions of $167,124 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 2002,
AIM Distributors retained $2,583, $0, $12,777 and $0 in contingent deferred
sales charges imposed on redemptions of Class A, Class B, Class C and Class R
shares, respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $7,589 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the year ended October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $16,963 and reductions in
custodian fees of $16,068 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $33,031.
FS-48
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended October 31,
2002, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At October 31, 2002, securities with an aggregate value of $173,201,778 were
on loan to brokers. The loans were secured by cash collateral of $176,899,625
received by the Fund and invested in affiliated money market funds as follows:
$88,449,813 in STIC Liquid Assets Portfolio and $88,449,812 in STIC Prime
Portfolio. For the year ended October 31, 2002, the Fund received fees of
$815,917 for securities lending.
NOTE 7--CALL OPTION CONTRACTS
Transactions in call options written during the year ended October 31, 2002 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------
Beginning of year 4,067 $ 1,099,367
- -------------------------------------------------------------
Written 5,747 1,799,011
- -------------------------------------------------------------
Closed (8,577) (2,821,687)
- -------------------------------------------------------------
Expired (1,237) (76,691)
=============================================================
End of year -- $ --
_____________________________________________________________
=============================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS BENEFICIAL INTEREST
Distributions to Shareholders:
The tax character of distributions paid during the years ended October 31, 2002
and 2001 were as follows:
<Table>
<Caption>
2002 2001
- ----------------------------------------------------------------
Distributions paid from:
Ordinary Income $ -- $ 97,976,430
- ----------------------------------------------------------------
Long-Term Capital Gain -- 91,361,383
================================================================
$ -- $189,337,813
________________________________________________________________
================================================================
</Table>
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
Tax Components of Beneficial Interest:
<Table>
Unrealized appreciation -- investments $ 56,060,721
- -------------------------------------------------------------
Temporary book/tax differences (70,846)
- -------------------------------------------------------------
Capital loss carryforward (38,981,008)
- -------------------------------------------------------------
Shares of beneficial interest 842,029,553
=============================================================
$859,038,420
_____________________________________________________________
=============================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is due
to differences in the timing of recognition of gains and losses on investments
for tax and book purposes. The Fund's unrealized appreciation difference is
attributable primarily to the tax deferral of losses on wash sales. Amount
includes appreciation on foreign currencies of $901.
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 deferral of trustee compensation and
retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
October 31, 2009 $11,152,255
- -----------------------------------------------------------
October 31, 2010 27,828,753
===========================================================
$38,981,008
___________________________________________________________
===========================================================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 2002 was
$1,263,469,101 and $1,362,774,725, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of investment
securities $107,514,652
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (51,454,832)
=============================================================
Net unrealized appreciation of investment
securities $ 56,059,820
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $792,932,203.
</Table>
FS-49
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions, a
net operating loss reclassification, excise tax paid and other items, on October
31, 2002, undistributed net investment income was increased by $6,577,582,
undistributed net realized gains decreased by $43,448 and shares of beneficial
interest decreased by $6,534,134. This reclassification had no effect on the net
assets of the Fund.
NOTE 11--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 8,723,183 $ 137,031,183 10,419,720 $ 176,330,665
- --------------------------------------------------------------------------------------------------------------------------
Class B 3,358,008 50,474,614 3,656,256 60,895,695
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,443,905 21,757,217 1,125,563 18,758,747
- --------------------------------------------------------------------------------------------------------------------------
Class R* 749 12,300 -- --
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class** 580 10,000 -- --
==========================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 5,235,028 90,980,110
- --------------------------------------------------------------------------------------------------------------------------
Class B -- -- 4,475,584 75,098,584
- --------------------------------------------------------------------------------------------------------------------------
Class C -- -- 616,947 10,344,899
==========================================================================================================================
Reacquired:
Class A (12,317,285) (186,904,065) (11,277,708) (189,932,201)
- --------------------------------------------------------------------------------------------------------------------------
Class B (7,163,019) (102,049,275) (5,128,289) (83,041,520)
- --------------------------------------------------------------------------------------------------------------------------
Class C (1,519,831) (22,254,251) (974,815) (15,865,546)
==========================================================================================================================
(7,473,710) $(101,922,277) 8,148,286 $ 143,569,433
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
** Institutional Class shares commenced sales on March 15, 2002.
FS-50
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.69 $ 21.79 $ 15.24 $ 12.89 $ 14.57
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.04) (0.13) (0.10)(a) (0.06)(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.85) (4.27) 6.68 2.45 (1.62)
============================================================================================================================
Total from investment operations (1.89) (4.31) 6.55 2.35 (1.68)
============================================================================================================================
Less distributions from net realized gains -- (2.79) -- -- --
============================================================================================================================
Net asset value, end of period $ 12.80 $ 14.69 $ 21.79 $ 15.24 $ 12.89
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) (12.87)% (21.76)% 42.98% 18.23% (11.53)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $456,268 $576,660 $759,838 $579,514 $717,263
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 1.38%(c) 1.33% 1.28% 1.38% 1.28%
============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.29)%(c) (0.21)% (0.60)% (0.70)% (0.40)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 120% 130% 101% 117% 78%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and does not include sales charges.
(c) Ratios are based on average daily net assets of $585,989,327.
<Table>
<Caption>
CLASS B
--------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.10 $ 21.16 $ 14.90 $ 12.70 $ 14.46
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.15) (0.26) (0.20)(a) (0.16)(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.75) (4.12) 6.52 2.40 (1.60)
============================================================================================================================
Total from investment operations (1.89) (4.27) 6.26 2.20 (1.76)
============================================================================================================================
Less distributions from net realized gains -- (2.79) -- -- --
============================================================================================================================
Net asset value, end of period $ 12.21 $ 14.10 $ 21.16 $ 14.90 $ 12.70
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) (13.40)% (22.29)% 42.01% 17.32% (12.17)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $346,456 $454,018 $617,576 $451,508 $493,993
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 2.03%(c) 1.99% 1.99% 2.12% 2.02%
============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.94)%(c) (0.87)% (1.30)% (1.44)% (1.14)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 120% 130% 101% 117% 78%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and does not include contingent deferred sales charges.
(c) Ratios are based on average daily net assets of $453,928,113.
FS-51
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.10 $ 21.15 $ 14.89 $ 12.69 $ 14.45
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.14) (0.25) (0.20)(a) (0.16)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.76) (4.12) 6.51 2.40 (1.60)
=======================================================================================================================
Total from investment operations (1.90) (4.26) 6.26 2.20 (1.76)
=======================================================================================================================
Less distributions from net realized gains -- (2.79) -- -- --
=======================================================================================================================
Net asset value, end of period $ 12.20 $ 14.10 $ 21.15 $ 14.89 $ 12.69
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(b) (13.48)% (22.24)% 42.04% 17.34% (12.18)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $56,298 $66,127 $82,982 $53,832 $48,293
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets 2.03%(c) 1.99% 1.99% 2.12% 2.02%
=======================================================================================================================
Ratio of net investment income (loss) to average net assets (0.94)%(c) (0.87)% (1.30)% (1.44)% (1.14)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate 120% 130% 101% 117% 78%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and does not include contingent deferred sales charges.
(c) Ratios are based on average daily net assets of $69,063,774.
<Table>
<Caption>
CLASS R
----------------------
JUNE 3, 2002
(DATE SALES COMMENCED)
TO OCTOBER 31,
2002
- ------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.62
- ------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a)
- ------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (3.80)
====================================================================================
Total from investment operations (3.83)
====================================================================================
Net asset value, end of period $ 12.79
____________________________________________________________________________________
====================================================================================
Total return(b) (23.05)%
____________________________________________________________________________________
====================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10
____________________________________________________________________________________
====================================================================================
Ratio of expenses to average net assets 1.54%(c)
====================================================================================
Ratio of net investment income (loss) to average net assets (0.44)%(c)
____________________________________________________________________________________
====================================================================================
Portfolio turnover rate 120%
____________________________________________________________________________________
====================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $9,839.
FS-52
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------
MARCH 15, 2002
(DATE SALES COMMENCED)
TO OCTOBER 31,
2002
- ------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.25
- ------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02(a)
- ------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (4.43)
====================================================================================
Total from investment operations (4.41)
====================================================================================
Net asset value, end of period $ 12.84
____________________________________________________________________________________
====================================================================================
Total return(b) (25.57)%
____________________________________________________________________________________
====================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 7
____________________________________________________________________________________
====================================================================================
Ratio of expenses to average net assets
With fee waivers and expenses reimbursed 0.84%(c)
- ------------------------------------------------------------------------------------
Without fee waivers and expenses reimbursed 0.99%(c)
====================================================================================
Ratio of net investment income (loss) to average net assets 0.25%(c)
____________________________________________________________________________________
====================================================================================
Portfolio turnover rate 120%
____________________________________________________________________________________
====================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $8,687.
FS-53
Report of Independent Auditors
To the Shareholders of AIM Charter Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Charter Fund (a portfolio AIM Equity Funds), including the schedule of
investments, as of October 31, 2002, and the related statement of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the periods presented through October 31, 2000 were
audited by other auditors whose report dated December 6, 2000, expressed an
unqualified opinion on those financial highlights
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Charter Fund as of October 31, 2002, the results of its operations for the year
then ended, and the changes in its net assets and financial highlights for each
of the two years in the period then ended in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
December 10, 2002
FS-54
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-89.02%
Advertising-1.33%
Omnicom Group Inc. 800,000 $ 46,104,000
============================================================================
Aerospace & Defense-3.91%
Lockheed Martin Corp. 262,200 15,181,380
- ----------------------------------------------------------------------------
Northrop Grumman Corp. 560,000 57,752,800
- ----------------------------------------------------------------------------
Raytheon Co. 2,126,000 62,717,000
============================================================================
135,651,180
============================================================================
Apparel Retail-1.40%
Limited Brands 3,105,000 48,655,350
============================================================================
Banks-2.55%
Bank of America Corp. 530,000 36,994,000
- ----------------------------------------------------------------------------
Washington Mutual, Inc. 1,440,000 51,494,400
============================================================================
88,488,400
============================================================================
Biotechnology-0.80%
Amgen Inc.(a) 600,000 27,936,000
============================================================================
Brewers-1.82%
Anheuser-Busch Cos., Inc. 1,200,000 63,312,000
============================================================================
Building Products-2.25%
American Standard Cos. Inc.(a) 615,000 41,020,500
- ----------------------------------------------------------------------------
Masco Corp. 1,804,500 37,100,520
============================================================================
78,121,020
============================================================================
Computer & Electronics Retail-0.83%
Best Buy Co., Inc.(a) 1,400,000 28,854,000
============================================================================
Computer Hardware-2.07%
International Business Machines Corp. 910,000 71,835,400
============================================================================
Construction Materials-0.91%
Vulcan Materials Co. 940,000 31,546,400
============================================================================
Data Processing Services-2.67%
Automatic Data Processing, Inc. 1,330,000 56,564,900
- ----------------------------------------------------------------------------
Convergys Corp.(a) 2,420,000 36,009,600
============================================================================
92,574,500
============================================================================
Diversified Financial Services-3.71%
Citigroup Inc. 1,400,000 51,730,000
- ----------------------------------------------------------------------------
Morgan Stanley 750,000 29,190,000
- ----------------------------------------------------------------------------
Principal Financial Group, Inc. 1,715,000 48,105,750
============================================================================
129,025,750
============================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------
Electric Utilities-0.35%
TXU Corp. 850,000 $ 12,197,500
============================================================================
Electrical Components & Equipment-1.54%
Emerson Electric Co. 1,113,400 53,643,612
============================================================================
Environmental Services-1.29%
Waste Management, Inc. 1,940,000 44,658,800
============================================================================
Food Retail-2.26%
Kroger Co. (The)(a) 2,950,000 43,778,000
- ----------------------------------------------------------------------------
Safeway Inc.(a) 1,500,000 34,650,000
============================================================================
78,428,000
============================================================================
Footwear-1.07%
NIKE, Inc.-Class B 790,000 37,280,100
============================================================================
General Merchandise Stores-2.84%
Target Corp. 1,600,000 48,192,000
- ----------------------------------------------------------------------------
Wal-Mart Stores, Inc. 940,000 50,337,000
============================================================================
98,529,000
============================================================================
Health Care Distributors & Services-2.22%
IMS Health Inc. 2,956,000 44,458,240
- ----------------------------------------------------------------------------
Quest Diagnostics Inc.(a) 510,000 32,553,300
============================================================================
77,011,540
============================================================================
Health Care Equipment-0.90%
St. Jude Medical, Inc.(a) 880,000 31,336,800
============================================================================
Health Care Supplies-1.89%
Alcon, Inc. (Switzerland)(a) 1,600,000 65,632,000
============================================================================
Hotels, Resorts & Cruise Lines-0.82%
Carnival Corp. 1,090,000 28,470,800
============================================================================
Household Products-1.58%
Procter & Gamble Co. (The) 620,000 54,839,000
============================================================================
Housewares & Specialties-0.59%
Newell Rubbermaid Inc. 630,200 20,431,084
============================================================================
Industrial Machinery-2.71%
Dover Corp. 1,840,000 46,147,200
- ----------------------------------------------------------------------------
Illinois Tool Works Inc. 780,000 47,892,000
============================================================================
94,039,200
============================================================================
</Table>
FS-55
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------
Integrated Oil & Gas-2.84%
ChevronTexaco Corp. 480,000 $ 32,462,400
- ----------------------------------------------------------------------------
Exxon Mobil Corp. 1,970,000 66,310,200
============================================================================
98,772,600
============================================================================
Leisure Products-0.73%
Mattel, Inc. 1,380,000 25,336,800
============================================================================
Life & Health Insurance-1.37%
Prudential Financial, Inc.(a) 1,630,000 47,596,000
============================================================================
Oil & Gas Drilling-1.14%
GlobalSantaFe Corp. 1,660,000 39,674,000
============================================================================
Oil & Gas Equipment & Services-1.00%
Baker Hughes Inc. 1,200,000 34,860,000
============================================================================
Oil & Gas Refining, Marketing &
Transportation-0.93%
Valero Energy Corp. 920,000 32,393,200
============================================================================
Packaged Foods & Meats-9.45%
ConAgra Foods, Inc. 2,640,000 64,020,000
- ----------------------------------------------------------------------------
General Mills, Inc. 1,930,000 79,747,600
- ----------------------------------------------------------------------------
Kellogg Co. 1,810,000 57,666,600
- ----------------------------------------------------------------------------
Kraft Foods Inc.-Class A 1,450,000 57,275,000
- ----------------------------------------------------------------------------
Sara Lee Corp. 3,045,000 69,517,350
============================================================================
328,226,550
============================================================================
Personal Products-3.43%
Avon Products, Inc. 1,370,000 66,431,300
- ----------------------------------------------------------------------------
Gillette Co. (The) 1,770,000 52,887,600
============================================================================
119,318,900
============================================================================
Pharmaceuticals-6.25%
Abbott Laboratories 750,000 31,402,500
- ----------------------------------------------------------------------------
Johnson & Johnson 815,000 47,881,250
- ----------------------------------------------------------------------------
Pfizer Inc. 1,670,000 53,055,900
- ----------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 620,000 48,006,600
- ----------------------------------------------------------------------------
Wyeth 1,100,000 36,850,000
============================================================================
217,196,250
============================================================================
Property & Casualty Insurance-2.28%
MGIC Investment Corp. 659,300 27,664,228
- ----------------------------------------------------------------------------
Travelers Property Casualty Corp.-Class A(a) 856,486 11,365,569
- ----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------
Property & Casualty Insurance-(Continued)
Travelers Property Casualty Corp.-Class B(a) 1,054,271 $ 14,253,744
- ----------------------------------------------------------------------------
XL Capital Ltd.-Class A (Bermuda) 340,000 25,891,000
============================================================================
79,174,541
============================================================================
Publishing-1.05%
New York Times Co. (The)-Class A 750,000 36,307,500
============================================================================
Railroads-1.70%
Norfolk Southern Corp. 1,484,000 29,976,800
- ----------------------------------------------------------------------------
Union Pacific Corp. 490,000 28,934,500
============================================================================
58,911,300
============================================================================
Semiconductor Equipment-0.98%
KLA-Tencor Corp.(a) 960,000 34,204,800
============================================================================
Semiconductors-3.35%
Intel Corp. 3,000,000 51,900,000
- ----------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan)(a) 2,266,000 17,720,120
- ----------------------------------------------------------------------------
Texas Instruments Inc. 1,160,000 18,397,600
- ----------------------------------------------------------------------------
Xilinx, Inc.(a) 1,500,000 28,485,000
============================================================================
116,502,720
============================================================================
Soft Drinks-1.50%
Coca-Cola Co. (The) 1,120,000 52,057,600
============================================================================
Specialty Chemicals-1.01%
Rohm & Haas Co. 1,050,000 34,933,500
============================================================================
Systems Software-5.70%
Computer Associates International, Inc. 5,360,000 79,649,600
- ----------------------------------------------------------------------------
Microsoft Corp.(a) 1,640,000 87,690,800
- ----------------------------------------------------------------------------
Oracle Corp.(a) 3,000,000 30,570,000
============================================================================
197,910,400
============================================================================
Total Common Stocks & Other Equity
Interests (Cost $3,380,933,906) 3,091,978,097
============================================================================
<Caption>
PRINCIPAL
AMOUNT
CONVERTIBLE DEBENTURES-0.09%
Computer Hardware-0.09%
Candescent Technologies Corp., Sr. Conv.
Unsec. Gtd. Sub. Deb.,
8.00%, 05/01/03 (Acquired
04/17/98-04/19/01; Cost
$47,529,750)(b)(c)(d) $42,800,000 3,217,100
============================================================================
Total Convertible Debentures (Cost
$49,098,968) 3,217,100
============================================================================
</Table>
FS-56
<Table>
<Caption>
- ----------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
MONEY MARKET FUNDS-9.55%
STIC Liquid Assets Portfolio(e) 165,830,838 $ 165,830,838
- ----------------------------------------------------------------------------
STIC Prime Portfolio(e) 165,830,838 165,830,838
============================================================================
Total Money Market Funds (Cost
$331,661,676) 331,661,676
============================================================================
TOTAL INVESTMENTS-98.66% (Cost
$3,761,694,550) 3,426,856,873
============================================================================
OTHER ASSETS LESS LIABILITIES-1.34% 46,543,813
============================================================================
NET ASSETS-100.00% $3,473,400,686
____________________________________________________________________________
============================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Conv. - Convertible
Deb. - Debentures
Gtd. - Guaranteed
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The aggregate market value of these securities at 10/31/02 was
$3,217,100, which represented 0.09% of the Fund's net assets. The Fund has
no rights to demand registration of these securities.
(c) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-57
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$3,761,694,550)* $3,426,856,873
- -------------------------------------------------------------
Receivables for:
Investments sold 54,192,843
- -------------------------------------------------------------
Fund shares sold 1,191,488
- -------------------------------------------------------------
Dividends 4,035,682
- -------------------------------------------------------------
Investment for deferred compensation plan 116,150
- -------------------------------------------------------------
Collateral for securities loaned 18,062,100
- -------------------------------------------------------------
Other assets 63,991
=============================================================
Total assets 3,504,519,127
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 9,109,903
- -------------------------------------------------------------
Deferred compensation plan 116,150
- -------------------------------------------------------------
Collateral upon return of securities
loaned 18,062,100
- -------------------------------------------------------------
Accrued distribution fees 2,369,539
- -------------------------------------------------------------
Accrued trustees' fees 2,478
- -------------------------------------------------------------
Accrued transfer agent fees 1,154,915
- -------------------------------------------------------------
Accrued operating expenses 303,356
=============================================================
Total liabilities 31,118,441
=============================================================
Net assets applicable to shares outstanding $3,473,400,686
_____________________________________________________________
=============================================================
NET ASSETS:
Class A $2,096,865,957
_____________________________________________________________
=============================================================
Class B $1,204,617,059
_____________________________________________________________
=============================================================
Class C $ 170,444,220
_____________________________________________________________
=============================================================
Class R $ 16,387
_____________________________________________________________
=============================================================
Institutional Class $ 1,457,063
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 219,052,553
_____________________________________________________________
=============================================================
Class B 130,317,602
_____________________________________________________________
=============================================================
Class C 18,386,548
_____________________________________________________________
=============================================================
Class R 1,714
_____________________________________________________________
=============================================================
Institutional Class 148,611
_____________________________________________________________
=============================================================
Class A:
Net asset value per share $ 9.57
- -------------------------------------------------------------
Offering price per share:
(Net asset value of $9.57 divided
by 94.50%) $ 10.13
_____________________________________________________________
=============================================================
Class B:
Net asset value and offering price per
share $ 9.24
_____________________________________________________________
=============================================================
Class C:
Net asset value and offering price per
share $ 9.27
_____________________________________________________________
=============================================================
Class R:
Net asset value and offering price per
share $ 9.56
_____________________________________________________________
=============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.80
_____________________________________________________________
=============================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $18,300,061
were on loan to brokers.
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$88,345) $ 54,348,250
- -------------------------------------------------------------
Dividends from affiliated money market funds 6,593,048
- -------------------------------------------------------------
Interest 107,071
- -------------------------------------------------------------
Security lending income 165,508
=============================================================
Total investment income 61,213,877
_____________________________________________________________
=============================================================
EXPENSES:
Advisory fees 29,583,893
- -------------------------------------------------------------
Administrative services fees 468,551
- -------------------------------------------------------------
Custodian fees 285,376
- -------------------------------------------------------------
Distribution fees -- Class A 8,613,574
- -------------------------------------------------------------
Distribution fees -- Class B 15,924,539
- -------------------------------------------------------------
Distribution fees -- Class C 2,261,077
- -------------------------------------------------------------
Distribution fees -- Class R 23
- -------------------------------------------------------------
Transfer agent fees 11,653,652
- -------------------------------------------------------------
Transfer agent fees -- Institutional Class 2,686
- -------------------------------------------------------------
Trustees' fees 32,769
- -------------------------------------------------------------
Other 1,020,807
=============================================================
Total expenses 69,846,947
=============================================================
Less: Fees waived and expenses reimbursed (58,911)
- -------------------------------------------------------------
Expenses paid indirectly (69,299)
=============================================================
Net expenses 69,718,737
=============================================================
Net investment income (loss) (8,504,860)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain (loss) from:
Investment securities 304,600,971
- -------------------------------------------------------------
Foreign currencies (17,130)
=============================================================
304,583,841
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (628,244,716)
- -------------------------------------------------------------
Foreign currencies 33,301
=============================================================
(628,211,415)
=============================================================
Net gain (loss) from investment securities
and foreign currencies (323,627,574)
=============================================================
Net increase (decrease) in net assets
resulting from operations $(332,132,434)
_____________________________________________________________
=============================================================
</Table>
See Notes to Financial Statements.
FS-58
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- --------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (8,504,860) $ (35,217,915)
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts 304,583,841 (1,051,836,206)
- --------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (628,211,415) (2,495,895,336)
==================================================================================================
Net increase (decrease) in net assets resulting from
operations (332,132,434) (3,582,949,457)
==================================================================================================
Distributions to shareholders from net realized gains:
Class A -- (282,256,150)
- --------------------------------------------------------------------------------------------------
Class B -- (155,149,624)
- --------------------------------------------------------------------------------------------------
Class C -- (21,295,588)
- --------------------------------------------------------------------------------------------------
Institutional Class -- (157,658)
- --------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (870,998,051) (161,661,243)
- --------------------------------------------------------------------------------------------------
Class B (391,079,522) (2,882,485)
- --------------------------------------------------------------------------------------------------
Class C (61,301,813) 28,949,621
- --------------------------------------------------------------------------------------------------
Class R 17,606 --
- --------------------------------------------------------------------------------------------------
Institutional Class (60,090) (227,735)
==================================================================================================
Net increase (decrease) in net assets (1,655,554,304) (4,177,630,319)
==================================================================================================
NET ASSETS:
Beginning of year 5,128,954,990 9,306,585,309
==================================================================================================
End of year $ 3,473,400,686 $ 5,128,954,990
__________________________________________________________________________________________________
==================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 4,585,710,984 $ 5,916,415,607
- --------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (2,131,563) (892,327)
- --------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and option contracts (775,341,125) (1,078,954,767)
- --------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and foreign currencies (334,837,610) 292,386,477
==================================================================================================
$ 3,473,400,686 $ 5,128,954,990
__________________________________________________________________________________________________
==================================================================================================
</Table>
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Charter Fund (the "Fund") is a series portfolio of AIM Equity Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers five different classes of shares: Class A shares, Class B
shares, Class C shares, Class R shares and the Institutional Class. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge. Class R shares and
Institutional Class shares are sold at net asset value. 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 preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any
FS-59
sales on a particular day, the security is valued at the closing bid price
on that day. Each security traded in the over-the-counter market (but not
securities reported on the NASDAQ National Market System) is valued at the
closing bid price furnished by independent pricing services or market
makers. Each security reported on the NASDAQ National Market System is
valued at the last sales price as of the close of the customary trading
session on the valuation date or absent a last sales price, at the closing
bid price. Debt obligations (including convertible bonds) are valued on the
basis of prices provided by an independent pricing service. Prices 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 special
securities, dividend rate, yield, quality, type of issue, coupon rate,
maturity, individual trading characteristics and other market data.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices. Securities for which market quotations are not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers in a manner specifically
authorized by the Board of Trustees. Short-term obligations having 60 days
or less to maturity and commercial paper are valued at amortized cost which
approximates market value. For purposes of determining net asset value per
share, futures and option contracts generally will be valued 15 minutes
after the close of the customary trading session of the New York Stock
Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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. Premiums and
discounts are amortized and/or accreted for financial reporting purposes.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
H. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
FS-60
NOTE 2--CHANGE IN ACCOUNTING PRINCIPLE
As required, effective November 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
premium on debt securities. Prior to November 1, 2001, the Fund did not amortize
premiums on debt securities. The cumulative effect of this accounting change had
no impact on total net assets of the Fund, but resulted in a $987,328 reduction
in the cost of securities and a corresponding $987,328 increase in net
unrealized gains and losses, based on securities held by the Fund on November 1,
2001.
The effect of this change in the current period was to decrease net investment
income by $154,475 and to increase net realized gains and losses by $154,475. As
a result the net investment income per share, the net realized and unrealized
gains and losses per share, and the ratio of net investment income to average
net assets were unchanged.
NOTE 3--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment agreement, the
Fund pays an advisory fee to AIM at the annual rate of 1.00% of the first $30
million of the Fund's average daily net assets, plus 0.75% of the Fund's average
daily net assets in excess of $30 million to and including $150 million, plus
0.625% of the Fund's average daily net assets in excess of $150 million. AIM has
agreed to waive advisory fees payable by the Fund to AIM at the annual rate of
0.025% for each $5 billion increment in net assets over $5 billion, up to a
maximum waiver of 0.175% on net assets in excess of $35 billion. 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 fund of which the
Fund has invested. For the year ended October 31, 2002, AIM waived fees of
$58,255. Under the terms of a master sub-advisory agreement between AIM and
A I M Capital Management, Inc. ("AIM Capital"), AIM pays AIM Capital 50% of the
amount paid by the Fund to AIM.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2002, AIM was
paid $468,551 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended October 31, 2002, AFS
retained $6,433,443 for such services. For the year ended October 31, 2002, AFS
reimbursed fees of $656 on the Institutional Class.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and the 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 shares, Class B shares, Class C shares and Class R
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.30% of the Fund's average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B and C shares and 0.50% of the average daily net assets of Class R
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own the appropriate class of shares
of the Fund. Any amounts not paid as a service fee under the Plans would
constitute an asset-based sales charge. NASD Rules also impose a cap on the
total sales charges, including asset-based sales charges that may be paid by any
class of shares of the Fund. Pursuant to the master distribution agreements, for
the year ended October 31, 2002, the Class A, Class B, Class C and Class R
shares paid $8,613,574, $15,924,539, $2,261,077 and $23, respectively.
AIM Distributors retained commissions of $387,132 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 2002,
AIM Distributors retained $36,917, $2,641, $29,800 and $0 in contingent deferred
sales charges imposed on redemptions of Class A, Class B, Class C and Class R
shares, respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $17,145
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 4--INDIRECT EXPENSES
For the year ended October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $69,012 and reductions in
custodian fees of $287 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $69,299.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 6--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended October 31,
2002, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S.
FS-61
Government or any of its agencies. Cash collateral pursuant to these loans is
invested in short-term money market instruments or affiliated money market
funds. 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. 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. Therefore, the value of the collateral may be temporarily less than the
value of the securities on loan.
At October 31, 2002, securities with an aggregate value of $18,300,061 were on
loan to brokers. The loans were secured by cash collateral of $18,062,100
received by the Fund and invested in STIC Liquid Assets Portfolio, an affiliated
money market fund. For the year ended October 31, 2002, the Fund received fees
of $165,508 for securities lending.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
The tax character of distributions paid during the years ended October 31, 2002
and 2001 were as follows:
<Table>
<Caption>
2002 2001
- ---------------------------------------------------------------
Distributions paid from long-term
capital gain $ -- $458,859,020
_______________________________________________________________
===============================================================
</Table>
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation
(depreciation) -- investments $ (340,653,684)
- -----------------------------------------------------------
Temporary book/tax differences (325,492)
- -----------------------------------------------------------
Capital loss carryforward (771,331,122)
- -----------------------------------------------------------
Shares of beneficial interest 4,585,710,984
===========================================================
Total Net Assets $3,473,400,686
___________________________________________________________
===========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the tax
deferral of losses on wash sales and the treatment of defaulted bonds. Amount
includes appreciation on foreign currency of $66.
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 results of the deferral of Trustee compensation and
retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
-------------------------------
October 31, 2009 $771,331,122
_______________________________
===============================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 2002 was
$4,385,524,178 and $6,035,095,988, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 204,500,096
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (545,153,846)
=============================================================
Net unrealized appreciation (depreciation) of
investment securities $(340,653,750)
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $3,767,510,623.
</Table>
FS-62
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions,
bond premium amortization, net operating loss and other items, on October 31,
2002, undistributed net investment income was increased by $8,252,952,
undistributed net realized gains decreased by $970,199 and shares of beneficial
interest decreased by $7,282,753. This reclassification had no effect on the net
assets of the Fund.
NOTE 11--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
------------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 16,910,821* $ 182,696,524* 37,578,186 $ 517,083,181
- -----------------------------------------------------------------------------------------------------------------------------
Class B 9,302,039 97,387,968 24,357,854 333,276,040
- -----------------------------------------------------------------------------------------------------------------------------
Class C 2,633,061 27,700,439 7,575,697 105,353,193
- -----------------------------------------------------------------------------------------------------------------------------
Class R** 1,719 17,663 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class 45,275 481,439 21,223 287,988
=============================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 17,611,530 266,615,003
- -----------------------------------------------------------------------------------------------------------------------------
Class B -- -- 9,886,847 146,422,053
- -----------------------------------------------------------------------------------------------------------------------------
Class C -- -- 1,369,533 20,351,280
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- 8,709 133,843
=============================================================================================================================
Reacquired:
Class A (99,779,666) (1,053,694,575) (74,345,004) (945,359,427)
- -----------------------------------------------------------------------------------------------------------------------------
Class B (47,954,479)* (488,467,490)* (39,590,160) (482,580,578)
- -----------------------------------------------------------------------------------------------------------------------------
Class C (8,599,959) (89,002,252) (7,831,344) (96,754,852)
- -----------------------------------------------------------------------------------------------------------------------------
Class R** (5) (57) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class (51,011) (541,529) (52,054) (649,566)
=============================================================================================================================
(127,492,205) $(1,323,421,870) (23,408,983) $(135,821,842)
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
* Includes automatic conversion of 739,880 shares of Class B shares in the
amount of $7,724,451 to 717,246 shares of Class A shares in the amount of
$7,724,451.
** Class R shares commenced sales on June 3, 2002.
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.46 $ 18.07 $ 17.16 $ 13.32 $ 13.41
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) (0.03) (0.04)(b) 0.02 0.12
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.90) (6.70) 2.30 4.39 1.23
=================================================================================================================================
Total from investment operations (0.89) (6.73) 2.26 4.41 1.35
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.03) (0.10)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.88) (1.35) (0.54) (1.34)
=================================================================================================================================
Total distributions -- (0.88) (1.35) (0.57) (1.44)
=================================================================================================================================
Net asset value, end of period $ 9.57 $ 10.46 $ 18.07 $ 17.16 $ 13.32
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (8.51)% (38.75)% 13.60% 34.05% 11.20%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,096,866 $3,159,304 $5,801,869 $4,948,666 $3,706,938
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.22%(d) 1.16% 1.06% 1.05% 1.08%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.22%(d) 1.17% 1.08% 1.07% 1.10%
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets 0.09%(a)(d) (0.24)% (0.20)% 0.11% 0.95%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 103% 78% 80% 107% 154%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with generally accepted accounting
principles and does not include sales charges.
(d) Ratios are based on average daily net assets of $2,871,191,238.
FS-63
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.18 $ 17.72 $ 16.97 $ 13.24 $ 13.37
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.13) (0.17)(b) (0.10) 0.02
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.86) (6.53) 2.27 4.37 1.22
=================================================================================================================================
Total from investment operations (0.94) (6.66) 2.10 4.27 1.24
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.88) (1.35) (0.54) (1.34)
=================================================================================================================================
Total distributions -- (0.88) (1.35) (0.54) (1.37)
=================================================================================================================================
Net asset value, end of period $ 9.24 $ 10.18 $ 17.72 $ 16.97 $ 13.24
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (9.23)% (39.14)% 12.76% 33.06% 10.33%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,204,617 $1,719,470 $3,088,611 $2,206,752 $1,408,687
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.92%(d) 1.86% 1.80% 1.80% 1.84%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.92%(d) 1.87% 1.82% 1.82% 1.86%
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.61)%(a)(d) (0.94)% (0.94)% (0.64)% 0.19%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 103% 78% 80% 107% 154%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with generally accepted accounting
principles and does not include contingent deferred sales charges.
(d) Ratios are based on average daily net assets of $1,592,453,859.
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.21 $ 17.77 $ 17.01 $ 13.27 $ 13.39
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.13) (0.17)(b) (0.09) 0.02
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.86) (6.55) 2.28 4.37 1.23
=================================================================================================================================
Total from investment operations (0.94) (6.68) 2.11 4.28 1.25
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.88) (1.35) (0.54) (1.34)
=================================================================================================================================
Total distributions -- (0.88) (1.35) (0.54) (1.37)
=================================================================================================================================
Net asset value, end of period $ 9.27 $ 10.21 $ 17.77 $ 17.01 $ 13.27
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (9.21)% (39.14)% 12.78% 33.06% 10.39%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $170,444 $248,533 $412,872 $138,467 $37,846
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.92%(d) 1.86% 1.80% 1.80% 1.84%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.92%(d) 1.87% 1.82% 1.82% 1.86%
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (0.61)%(a)(d) (0.94)% (0.94)% (0.64)% 0.19%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 103% 78% 80% 107% 154%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with generally accepted accounting
principles and does not include contingent deferred sales charges.
(d) Ratios are based on average daily net assets of $226,107,746.
FS-64
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-------------
JUNE 3, 2002
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2002
- -------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.94
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income --(a)
- -------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.38)
===============================================================================
Total from investment operations (1.38)
===============================================================================
Net asset value, end of period $ 9.56
_______________________________________________________________________________
===============================================================================
Total return(b) (12.61)%
_______________________________________________________________________________
===============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 16
_______________________________________________________________________________
===============================================================================
Ratio of expenses to average net assets:
With fee waivers 1.42%(c)
- -------------------------------------------------------------------------------
Without fee waivers 1.42%(c)
===============================================================================
Ratio of net investment income (loss) to average net assets (0.11)%(a)(c)
_______________________________________________________________________________
===============================================================================
Portfolio turnover rate 103%
_______________________________________________________________________________
===============================================================================
</Table>
(a) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(b) Includes adjustments in accordance with generally accepted accounting
principles and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $11,405.
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------------------------------
YEAR ENDED OCTOBER 31
------------------------------------------------------------
2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.67 $ 18.33 $17.33 $ 13.42 $ 13.48
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.06(a) 0.04 0.52 0.09 0.18
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.93) (6.82) 1.83 4.43 1.24
==========================================================================================================================
Total from investment operations (0.87) (6.78) 2.35 4.52 1.42
==========================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.07) (0.14)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.88) (1.35) (0.54) (1.34)
==========================================================================================================================
Total distributions -- (0.88) (1.35) (0.61) (1.48)
==========================================================================================================================
Net asset value, end of period $ 9.80 $ 10.67 $18.33 $ 17.33 $ 13.42
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) (8.15)% (38.46)% 14.02% 34.61% 11.69%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,457 $ 1,648 $3,234 $66,801 $43,815
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursement 0.79%(c) 0.68% 0.66% 0.65% 0.66%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursement 0.83%(c) 0.69% 0.68% 0.67% 0.67%
==========================================================================================================================
Ratio of net investment income to average net assets 0.52%(a)(c) 0.25% 0.20% 0.51% 1.37%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 103% 78% 80% 107% 154%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios prior to November 1, 2001
have not been restated to reflect this change in presentation.
(b) Includes adjustments in accordance with generally accepted accounting
principles.
(c) Ratios are based on average daily net assets of $1,665,295.
FS-65
Report of Independent Auditors
To the Shareholders of AIM Constellation Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Constellation Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 2002, and the related statement of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the periods presented through October 31, 2000 were
audited by other auditors whose report dated December 6, 2000, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Constellation Fund as of October 31, 2002, 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.
/s/ ERNST & YOUNG LLP
Houston, Texas
December 10, 2002
FS-66
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.29%
Advertising-1.32%
Lamar Advertising Co.(a) 3,000,000 $ 101,820,000
============================================================================
Aerospace & Defense-4.22%
L-3 Communications Holdings, Inc.(a) 1,820,000 85,540,000
- ----------------------------------------------------------------------------
Lockheed Martin Corp. 3,000,000 173,700,000
- ----------------------------------------------------------------------------
Northrop Grumman Corp. 643,500 66,364,155
============================================================================
325,604,155
============================================================================
Airlines-0.57%
Southwest Airlines Co. 3,000,000 43,800,000
============================================================================
Apparel Retail-1.78%
Gap, Inc. (The) 658,700 7,752,899
- ----------------------------------------------------------------------------
Limited Brands 3,000,000 47,010,000
- ----------------------------------------------------------------------------
Ross Stores, Inc. 500,000 20,925,000
- ----------------------------------------------------------------------------
TJX Cos., Inc. (The) 3,000,000 61,560,000
============================================================================
137,247,899
============================================================================
Application Software-2.89%
Electronic Arts Inc.(a) 1,100,000 71,632,000
- ----------------------------------------------------------------------------
Intuit Inc.(a) 2,500,000 129,800,000
- ----------------------------------------------------------------------------
Mercury Interactive Corp.(a) 803,700 21,193,569
============================================================================
222,625,569
============================================================================
Banks-3.44%
Bank of America Corp. 1,250,000 87,250,000
- ----------------------------------------------------------------------------
Fifth Third Bancorp 1,280,000 81,280,000
- ----------------------------------------------------------------------------
Washington Mutual, Inc. 2,000,000 71,520,000
- ----------------------------------------------------------------------------
Wells Fargo & Co. 500,000 25,235,000
============================================================================
265,285,000
============================================================================
Biotechnology-2.93%
Amgen Inc.(a) 2,352,600 109,537,056
- ----------------------------------------------------------------------------
Cephalon, Inc.(a) 871,700 43,794,208
- ----------------------------------------------------------------------------
IDEC Pharmaceuticals Corp.(a) 1,585,900 72,983,118
============================================================================
226,314,382
============================================================================
Broadcasting & Cable TV-1.19%
Clear Channel Communications, Inc.(a) 1,000,000 37,050,000
- ----------------------------------------------------------------------------
Hispanic Broadcasting Corp.(a) 750,000 16,125,000
- ----------------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 1,500,000 38,865,000
============================================================================
92,040,000
============================================================================
Casinos & Gambling-0.58%
MGM Mirage Inc.(a) 1,436,100 44,662,710
============================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------
Computer & Electronics Retail-1.33%
CDW Computer Centers, Inc.(a) 1,929,000 $ 102,275,580
============================================================================
Computer Hardware-1.48%
Dell Computer Corp.(a) 4,000,000 114,440,000
============================================================================
Construction, Farm Machinery & Heavy
Trucks-0.75%
Deere & Co. 1,250,000 57,987,500
============================================================================
Consumer Finance-0.72%
MBNA Corp. 2,714,500 55,131,495
============================================================================
Data Processing Services-3.27%
Concord EFS, Inc.(a) 1,500,000 21,420,000
- ----------------------------------------------------------------------------
Fiserv, Inc.(a) 6,000,000 187,440,000
- ----------------------------------------------------------------------------
Paychex, Inc. 1,500,000 43,230,000
============================================================================
252,090,000
============================================================================
Department Stores-0.57%
Kohl's Corp.(a) 756,500 44,217,425
============================================================================
Diversified Chemicals-0.36%
Eastman Chemical Co. 764,900 27,796,466
============================================================================
Diversified Financial Services-5.84%
Citigroup Inc. 1,200,000 44,340,000
- ----------------------------------------------------------------------------
Fannie Mae 500,000 33,430,000
- ----------------------------------------------------------------------------
Freddie Mac 750,000 46,185,000
- ----------------------------------------------------------------------------
Goldman Sachs Group, Inc. 750,000 53,700,000
- ----------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 1,505,400 57,129,930
- ----------------------------------------------------------------------------
Moody's Corp. 1,856,000 87,417,600
- ----------------------------------------------------------------------------
Morgan Stanley 1,443,300 56,173,236
- ----------------------------------------------------------------------------
SLM Corp. 701,000 72,020,740
============================================================================
450,396,506
============================================================================
Drug Retail-0.88%
Walgreen Co. 2,000,000 67,500,000
============================================================================
Electronic Equipment & Instruments-0.91%
Molex Inc. 1,500,000 39,615,000
- ----------------------------------------------------------------------------
Vishay Intertechnology, Inc.(a) 3,000,000 30,900,000
============================================================================
70,515,000
============================================================================
Employment Services-0.29%
Robert Half International Inc.(a) 1,353,700 22,606,790
============================================================================
Food Distributors-0.51%
Sysco Corp. 1,250,000 39,600,000
============================================================================
</Table>
FS-67
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------
General Merchandise Stores-2.09%
Family Dollar Stores, Inc. 1,750,000 $ 53,882,500
- ----------------------------------------------------------------------------
Wal-Mart Stores, Inc. 2,000,000 107,100,000
============================================================================
160,982,500
============================================================================
Health Care Distributors & Services-1.54%
AdvancePCS(a) 908,200 22,795,820
- ----------------------------------------------------------------------------
Cardinal Health, Inc. 1,385,200 95,869,692
============================================================================
118,665,512
============================================================================
Health Care Equipment-3.27%
Biomet, Inc. 3,770,675 111,084,085
- ----------------------------------------------------------------------------
Medtronic, Inc. 2,500,000 112,000,000
- ----------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 819,000 29,164,590
============================================================================
252,248,675
============================================================================
Health Care Facilities-2.15%
HCA Inc. 1,353,200 58,850,668
- ----------------------------------------------------------------------------
Health Management Associates, Inc.-Class A 3,115,700 59,572,184
- ----------------------------------------------------------------------------
Tenet Healthcare Corp.(a) 1,636,500 47,049,375
============================================================================
165,472,227
============================================================================
Home Improvement Retail-1.22%
Lowe's Cos., Inc. 2,250,000 93,892,500
============================================================================
Homebuilding-1.88%
Centex Corp. 600,000 27,288,000
- ----------------------------------------------------------------------------
D.R. Horton, Inc. 1,200,000 23,124,000
- ----------------------------------------------------------------------------
Lennar Corp. 600,000 33,102,000
- ----------------------------------------------------------------------------
NVR, Inc.(a) 100,000 33,900,000
- ----------------------------------------------------------------------------
Pulte Homes, Inc. 600,000 27,552,000
============================================================================
144,966,000
============================================================================
Household Products-1.26%
Procter & Gamble Co. (The) 1,100,000 97,295,000
============================================================================
Housewares & Specialties-0.76%
Newell Rubbermaid Inc. 1,800,000 58,356,000
============================================================================
Industrial Conglomerates-0.66%
3M Co. 400,000 50,776,000
============================================================================
Industrial Machinery-0.75%
Danaher Corp. 500,000 28,925,000
- ----------------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 750,000 29,250,000
============================================================================
58,175,000
============================================================================
Integrated Oil & Gas-0.40%
Exxon Mobil Corp. 920,500 30,984,030
============================================================================
Internet Retail-0.41%
eBay Inc.(a) 500,000 31,630,000
============================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------
IT Consulting & Services-0.92%
Affiliated Computer Services, Inc.-Class A(a) 439,000 $ 20,215,950
- ----------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 2,298,500 50,957,745
============================================================================
71,173,695
============================================================================
Life & Health Insurance-0.38%
AFLAC Inc. 950,000 28,918,000
============================================================================
Managed Health Care-3.69%
Caremark Rx, Inc.(a) 5,000,000 88,500,000
- ----------------------------------------------------------------------------
UnitedHealth Group Inc. 850,000 77,307,500
- ----------------------------------------------------------------------------
WellPoint Health Networks Inc.(a) 1,583,600 119,102,556
============================================================================
284,910,056
============================================================================
Motorcycle Manufacturers-1.19%
Harley-Davidson, Inc. 1,750,000 91,525,000
============================================================================
Multi-Line Insurance-1.98%
American International Group, Inc. 2,440,800 152,672,040
============================================================================
Networking Equipment-1.16%
Cisco Systems, Inc.(a) 8,000,000 89,440,000
============================================================================
Oil & Gas Drilling-1.23%
Nabors Industries, Ltd. (Bermuda)(a) 1,000,000 34,970,000
- ----------------------------------------------------------------------------
Noble Corp. (Cayman Islands)(a) 1,000,000 32,320,000
- ----------------------------------------------------------------------------
Transocean Inc. 1,250,000 27,475,000
============================================================================
94,765,000
============================================================================
Oil & Gas Equipment & Services-0.75%
Smith International, Inc.(a) 900,000 28,134,000
- ----------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 750,000 30,030,000
============================================================================
58,164,000
============================================================================
Oil & Gas Exploration & Production-0.35%
Apache Corp. 500,000 27,030,000
============================================================================
Packaged Foods & Meats-0.18%
Unilever PLC (United Kingdom)(a) 1,405,150 13,887,950
============================================================================
Personal Products-0.48%
Gillette Co. (The) 1,250,000 37,350,000
============================================================================
Pharmaceuticals-6.91%
Forest Laboratories, Inc.(a)(b) 1,309,300 128,298,307
- ----------------------------------------------------------------------------
Johnson & Johnson 714,300 41,965,125
- ----------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(a)(c) 2,000,000 91,800,000
- ----------------------------------------------------------------------------
Pfizer Inc. 5,789,800 183,941,946
- ----------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 1,122,400 86,907,432
============================================================================
532,912,810
============================================================================
</Table>
FS-68
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------
Property & Casualty Insurance-0.24%
XL Capital Ltd.-Class A (Bermuda) 238,000 $ 18,123,700
============================================================================
Publishing-0.49%
Gannett Co., Inc. 500,000 37,965,000
============================================================================
Restaurants-2.75%
Brinker International, Inc.(a) 2,710,600 76,953,934
- ----------------------------------------------------------------------------
Darden Restaurants, Inc. 1,625,800 30,857,684
- ----------------------------------------------------------------------------
Outback Steakhouse, Inc. 1,707,400 58,136,970
- ----------------------------------------------------------------------------
Wendy's International, Inc. 750,000 23,760,000
- ----------------------------------------------------------------------------
Yum! Brands, Inc.(a) 1,000,000 22,530,000
============================================================================
212,238,588
============================================================================
Semiconductor Equipment-4.97%
Applied Materials, Inc.(a) 8,500,000 127,755,000
- ----------------------------------------------------------------------------
KLA-Tencor Corp.(a) 1,739,400 61,974,822
- ----------------------------------------------------------------------------
Lam Research Corp.(a) 4,000,000 50,360,000
- ----------------------------------------------------------------------------
Novellus Systems, Inc.(a) 3,000,000 94,800,000
- ----------------------------------------------------------------------------
Teradyne, Inc.(a) 4,000,000 48,440,000
============================================================================
383,329,822
============================================================================
Semiconductors-8.40%
Altera Corp.(a) 5,000,000 58,600,000
- ----------------------------------------------------------------------------
Analog Devices, Inc.(a) 4,658,000 124,834,400
- ----------------------------------------------------------------------------
Integrated Device Technology, Inc.(a) 2,694,900 26,617,527
- ----------------------------------------------------------------------------
Intel Corp. 4,000,000 69,200,000
- ----------------------------------------------------------------------------
Linear Technology Corp. 3,000,000 82,920,000
- ----------------------------------------------------------------------------
Maxim Integrated Products, Inc. 2,000,000 63,680,000
- ----------------------------------------------------------------------------
Microchip Technology Inc. 6,000,052 146,401,269
- ----------------------------------------------------------------------------
Micron Technology, Inc.(a) 3,000,000 48,000,000
- ----------------------------------------------------------------------------
Texas Instruments Inc. 1,745,500 27,683,630
============================================================================
647,936,826
============================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------
Soft Drinks-1.08%
Coca-Cola Co. (The) 1,800,000 $ 83,664,000
============================================================================
Specialty Stores-3.53%
AutoZone, Inc.(a) 707,500 60,682,275
- ----------------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 2,600,000 92,196,000
- ----------------------------------------------------------------------------
CarMax, Inc.(a) 1,000,000 16,390,000
- ----------------------------------------------------------------------------
Office Depot, Inc.(a) 2,000,000 28,780,000
- ----------------------------------------------------------------------------
Staples, Inc.(a) 4,786,900 74,196,950
============================================================================
272,245,225
============================================================================
Systems Software-3.47%
Microsoft Corp.(a) 5,000,000 267,350,000
============================================================================
Tobacco-0.48%
Philip Morris Cos. Inc. 900,000 36,675,000
============================================================================
Wireless Telecommunication Services-0.44%
Nextel Communications, Inc.-Class A(a) 3,000,000 33,840,000
============================================================================
Total Common Stocks & Other Equity
Interests (Cost $7,420,902,017) 7,503,516,633
============================================================================
MONEY MARKET FUNDS-3.21%
STIC Liquid Assets Portfolio(d) 123,937,638 123,937,638
- ----------------------------------------------------------------------------
STIC Prime Portfolio(d) 123,937,638 123,937,638
============================================================================
Total Money Market Funds (Cost
$247,875,276) 247,875,276
============================================================================
TOTAL INVESTMENTS-100.50% (Cost
$7,668,777,293) 7,751,391,909
============================================================================
OTHER ASSETS LESS LIABILITIES-(0.50%) (38,679,071)
============================================================================
NET ASSETS-100.00% $7,712,712,838
____________________________________________________________________________
============================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 7.
(c) The investment Company Act of 1940 defines affiliates as those companies in
which a fund holds 5% or more of the outstanding voting securities. The Fund
has not owned enough of the outstanding voting securities of the issuer to
have control (as defined in the Investment Company Act of 1940) of that
issuer. The market value as of 10/31/02 represented 1.19% of the Fund's net
assets. The following is a summary of the transactions with affiliates for
the year ended October 31, 2002.
<Table>
<Caption>
MARKET CHANGE IN MARKET
VALUE PURCHASES SALES UNREALIZED VALUE DIVIDEND REALIZED
10/31/2001 AT COST AT COST APPR./(DEPR.) 10/31/2002 INCOME GAIN/(LOSS)
- --------------------------------------------------------------------------------------------------------------------- ------------
Lamar Advertising Co.......... $141,300,000 $ -- $ (71,607,551) $(69,692,449) $ -- $ -- $(15,840,701)
Medicis Pharmaceutical
Corp.-Class A..-............ 115,380,000 -- -- (23,580,000) 91,800,000 $ -- --
- -----------------------------------------------------------------------------------------------------------------------------------
$256,680,000 $91,800,000 $ -- $(15,840,701)
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-69
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost $7,668,777,293)* $7,751,391,909
- ---------------------------------------------------------------------
Receivables for:
Investments sold 74,463,938
- ---------------------------------------------------------------------
Fund shares sold 4,847,030
- ---------------------------------------------------------------------
Dividends 2,968,987
- ---------------------------------------------------------------------
Investment for deferred compensation plan 240,854
- ---------------------------------------------------------------------
Collateral for securities loaned 165,293,972
- ---------------------------------------------------------------------
Other assets 96,627
=====================================================================
Total assets 7,999,303,317
_____________________________________________________________________
=====================================================================
LIABILITIES:
Payables for:
Investments purchased 92,727,322
- ---------------------------------------------------------------------
Fund shares reacquired 17,298,062
- ---------------------------------------------------------------------
Options written (premiums received $398,595) 275,303
- ---------------------------------------------------------------------
Deferred compensation plan 240,854
- ---------------------------------------------------------------------
Collateral upon return of securities loaned 165,293,972
- ---------------------------------------------------------------------
Accrued distribution fees 4,085,668
- ---------------------------------------------------------------------
Accrued trustees' fees 4,118
- ---------------------------------------------------------------------
Accrued transfer agent fees 5,381,201
- ---------------------------------------------------------------------
Accrued operating expenses 1,283,979
=====================================================================
Total liabilities 286,590,479
=====================================================================
Net assets applicable to shares outstanding $7,712,712,838
_____________________________________________________________________
=====================================================================
NET ASSETS:
Class A $6,780,054,557
_____________________________________________________________________
=====================================================================
Class B $ 625,293,580
_____________________________________________________________________
=====================================================================
Class C $ 184,393,109
_____________________________________________________________________
=====================================================================
Class R $ 225,741
_____________________________________________________________________
=====================================================================
Institutional Class $ 122,745,851
_____________________________________________________________________
=====================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 394,113,108
_____________________________________________________________________
=====================================================================
Class B 38,221,650
_____________________________________________________________________
=====================================================================
Class C 11,274,294
_____________________________________________________________________
=====================================================================
Class R 13,078
_____________________________________________________________________
=====================================================================
Institutional Class 6,669,472
_____________________________________________________________________
=====================================================================
Class A:
Net asset value per share $ 17.20
- ---------------------------------------------------------------------
Offering price per share:
(Net asset value of $17.20 divided by 94.50%) $ 18.20
_____________________________________________________________________
=====================================================================
Class B:
Net asset value and offering price per share $ 16.36
_____________________________________________________________________
=====================================================================
Class C:
Net asset value and offering price per share $ 16.36
_____________________________________________________________________
=====================================================================
Class R:
Net asset value and offering price per share $ 17.26
_____________________________________________________________________
=====================================================================
Institutional Class:
Net asset value and offering price per share $ 18.40
_____________________________________________________________________
=====================================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $158,495,812
were on loan to brokers.
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$141,553) $ 46,976,801
- ---------------------------------------------------------------------
Dividends from affiliated money market funds 5,128,250
- ---------------------------------------------------------------------
Interest 1,921
- ---------------------------------------------------------------------
Security lending income 375,840
=====================================================================
Total investment income 52,482,812
=====================================================================
EXPENSES:
Advisory fees 63,117,935
- ---------------------------------------------------------------------
Administrative services fees 629,514
- ---------------------------------------------------------------------
Custodian fees 517,119
- ---------------------------------------------------------------------
Distribution fees -- Class A 26,651,431
- ---------------------------------------------------------------------
Distribution fees -- Class B 7,863,981
- ---------------------------------------------------------------------
Distribution fees -- Class C 2,406,943
- ---------------------------------------------------------------------
Distribution fees -- Class R 104
- ---------------------------------------------------------------------
Transfer agent fees 30,950,844
- ---------------------------------------------------------------------
Transfer agent fees -- Institutional Class 161,290
- ---------------------------------------------------------------------
Trustees' fees 59,978
- ---------------------------------------------------------------------
Other 2,613,142
=====================================================================
Total expenses 134,972,281
=====================================================================
Less: Fees waived (1,334,866)
- ---------------------------------------------------------------------
Expenses paid indirectly (150,045)
=====================================================================
Net expenses 133,487,370
=====================================================================
Net investment income (loss) (81,004,558)
=====================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain (loss) from investment
securities (1,231,119,667)
- ---------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of:
Investment securities 143,330,722
- ---------------------------------------------------------------------
Foreign currencies (17,825)
- ---------------------------------------------------------------------
Option contracts written 123,292
=====================================================================
143,436,189
=====================================================================
Net gain (loss) from investment securities,
foreign currencies and option contracts (1,087,683,478)
=====================================================================
Net increase (decrease) in net assets resulting
from operations $(1,168,688,036)
_____________________________________________________________________
=====================================================================
</Table>
See Notes to Financial Statements.
FS-70
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (81,004,558) $ (76,893,890)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (1,231,119,667) (1,225,239,040)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts 143,436,189 (7,717,578,312)
================================================================================================
Net increase (decrease) in net assets resulting from
operations (1,168,688,036) (9,019,711,242)
================================================================================================
Distributions to shareholders from net realized gains:
Class A -- (3,284,079,983)
- ------------------------------------------------------------------------------------------------
Class B -- (239,710,222)
- ------------------------------------------------------------------------------------------------
Class C -- (79,328,549)
- ------------------------------------------------------------------------------------------------
Institutional Class -- (47,688,484)
- ------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (1,905,685,542) 1,798,697,583
- ------------------------------------------------------------------------------------------------
Class B (89,586,163) 360,350,428
- ------------------------------------------------------------------------------------------------
Class C (44,303,197) 104,195,656
- ------------------------------------------------------------------------------------------------
Class R 204,500 --
- ------------------------------------------------------------------------------------------------
Institutional Class (10,243,640) 31,147,864
================================================================================================
Net increase (decrease) in net assets (3,218,302,078) (10,376,126,949)
================================================================================================
NET ASSETS:
Beginning of year 10,931,014,916 21,307,141,865
================================================================================================
End of year $ 7,712,712,838 $10,931,014,916
________________________________________________________________________________________________
================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $10,096,779,185 $12,227,372,518
- ------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (770,211) (744,944)
- ------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (2,466,016,219) (1,234,896,552)
- ------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and option contracts 82,720,083 (60,716,106)
================================================================================================
$ 7,712,712,838 $10,931,014,916
________________________________________________________________________________________________
================================================================================================
</Table>
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Constellation Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers five different classes of shares: Class A shares, Class B
shares, Class C shares, Class R shares and the Institutional Class. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge. Class R shares and the
Institutional Class shares are sold at net asset value. 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 preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any
FS-71
sales on a particular day, the security is valued at the closing bid price
on that day. Each security traded in the over-the-counter market (but not
securities reported on the NASDAQ National Market System) is valued at the
closing bid price furnished by independent pricing services or market
makers. Each security reported on the NASDAQ National Market System is
valued at the last sales price as of the close of the customary trading
session on the valuation date or absent a last sales price, at the closing
bid price. Debt obligations (including convertible bonds) are valued on the
basis of prices provided by an independent pricing service. Prices 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 special
securities, dividend rate, yield, quality, type of issue, coupon rate,
maturity, individual trading characteristics and other market data.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices. Securities for which market quotations are not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers in a manner specifically
authorized by the Board of Trustees. Short-term obligations having 60 days
or less to maturity and commercial paper are valued at amortized cost which
approximates market value. For purposes of determining net asset value per
share, futures and option contracts generally will be valued 15 minutes
after the close of the customary trading session of the New York Stock
Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
H. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
FS-72
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment agreement, the
Fund pays an advisory fee to AIM at the annual rate of 1.00% of the first $30
million of the Fund's average daily net assets, plus 0.75% of the Fund's average
daily net assets in excess of $30 million to and including $150 million, plus
0.625% of the Fund's average daily net assets in excess of $150 million. AIM has
agreed to waive advisory fees payable by the Fund to AIM at the annual rate of
0.025% for each $5 billion increment in net assets over $5 billion, up to a
maximum waiver of 0.175% on net assets in excess of $35 billion. 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 fund of which the
Fund has invested. For the year ended October 31, 2002, AIM waived fees of
$1,334,866. Under the terms of a master sub-advisory agreement between AIM and
A I M Capital Management, Inc. ("AIM Capital"), AIM pays AIM Capital 50% of the
amount paid by the Fund to AIM.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2002, AIM was
paid $629,514 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended October 31, 2002, AFS
retained $13,879,506 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and the 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 shares, Class B shares, Class C shares and Class R
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.30% of the Fund's average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B and C shares and 0.50% of the average daily net assets of Class R
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own the appropriate class of shares
of the Fund. Any amounts not paid as a service fee under the Plans would
constitute an asset-based sales charge. NASD Rules also impose a cap on the
total sales charges, including asset-based sales charges that may be paid by any
class of shares of the Fund. Pursuant to the master distribution agreements, for
the year ended October 31, 2002, the Class A, Class B, Class C and Class R
shares paid $26,651,431, $7,863,981, $2,406,943 and $104, respectively.
AIM Distributors retained commissions of $1,272,976 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 2002,
AIM Distributors retained $146,648, $851, $36,358 and $0 in contingent deferred
sales charges imposed on redemptions of Class A, Class B, Class C and Class R
shares, respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $31,003
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the year ended October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $147,794 and reductions in
custodian fees of $2,251 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $150,045.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended October 31,
2002, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At October 31, 2002, securities with an aggregate value of $158,495,812 were
on loan to brokers. The loans were secured by cash collateral of $165,293,972
received by the Fund and invested in affiliated money market funds as follows:
$140,355,489 in STIC Liquid Assets Portfolio and $24,938,483 in STIC Prime
Portfolio. For the year ended October 31, 2002, the Fund received fees of
$375,840 for securities lending.
FS-73
NOTE 7--CALL OPTION CONTRACTS
Transactions in call options written during the year ended October 31, 2002 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ----------------------------------------------------------
Beginning of year -- $ --
- ----------------------------------------------------------
Written 1,551 398,595
==========================================================
End of year 1,551 $398,595
__________________________________________________________
==========================================================
</Table>
Open call options written at October 31, 2002 were as follows:
<Table>
<Caption>
OCTOBER 31,
CONTRACT STRIKE NUMBER OF PREMIUMS 2002 UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE APPRECIATION
- ---------------------------------------------------------------------------------------------
Forest Laboratories,
Inc. Nov-02 $100 1,551 $398,595 $275,303 $123,292
_____________________________________________________________________________________________
=============================================================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
The tax character of distributions paid during the years ended October 31, 2002
and 2001 were as follows:
<Table>
<Caption>
2002 2001
------------------------
Distributions paid from long-term
capital gain $ -- $3,650,807,238
_______________________________________________________________
===============================================================
</Table>
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
<Caption>
Unrealized appreciation -- investments $ 64,763,381
- --------------------------------------------------------------
Temporary book/tax differences (770,211)
- --------------------------------------------------------------
Capital loss carryforward (2,448,059,517)
- --------------------------------------------------------------
Shares of beneficial interest 10,096,779,185
==============================================================
$ 7,712,712,838
______________________________________________________________
==============================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is due
to differences in the timing of recognition of gains and losses on investments
for tax and book purposes. The Fund's unrealized appreciation difference is
attributable to the tax deferral of losses on wash sales. Amount includes
appreciation on foreign currencies and option contacts written of $105,467.
The temporary book/tax differences are the 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 deferral of trustee compensation and
retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -------------------------------------------------------------
October 31, 2009 $1,224,074,030
- -------------------------------------------------------------
October 31, 2010 1,223,985,487
=============================================================
$2,448,059,517
_____________________________________________________________
=============================================================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 2002 was
$5,527,191,684 and $7,640,311,238, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
<Caption>
Aggregate unrealized appreciation of
investment securities $ 1,338,956,260
- --------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,274,298,346)
==============================================================
Net unrealized appreciation of investment
securities $ 64,657,914
______________________________________________________________
==============================================================
Cost of investments for tax purposes is
$7,686,733,995.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of a net operating loss
reclassification, on October 31, 2002, undistributed net investment income was
increased by $80,979,291 and shares of beneficial interest decreased by
$80,979,291. This reclassification had no effect on the net assets of the Fund.
FS-74
NOTE 11--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 49,193,225* $ 974,921,543* 69,882,787 $ 1,870,548,957
- --------------------------------------------------------------------------------------------------------------------------------
Class B 5,811,283 111,506,491 12,298,051 324,078,409
- --------------------------------------------------------------------------------------------------------------------------------
Class C 2,391,741 46,150,281 4,478,320 117,760,474
- --------------------------------------------------------------------------------------------------------------------------------
Class R** 13,083 204,591 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class 6,254,346 139,801,926 1,273,391 37,026,988
================================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 107,528,397 3,125,797,826
- --------------------------------------------------------------------------------------------------------------------------------
Class B -- -- 8,229,796 230,503,608
- --------------------------------------------------------------------------------------------------------------------------------
Class C -- -- 2,703,433 75,693,277
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- 1,529,945 47,137,606
================================================================================================================================
Reacquired:
Class A (147,108,087) (2,880,607,085) (128,320,077) (3,197,649,200)
- --------------------------------------------------------------------------------------------------------------------------------
Class B (10,919,779)* (201,092,654)* (8,314,571) (194,231,589)
- --------------------------------------------------------------------------------------------------------------------------------
Class C (4,824,172) (90,453,478) (3,756,367) (89,258,095)
- --------------------------------------------------------------------------------------------------------------------------------
Class R** (5) (91) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class (6,757,582) (150,045,566) (1,955,216) (53,016,730)
================================================================================================================================
(105,945,947) $(2,049,614,042) 65,577,889 $ 2,294,391,531
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
* Includes automatic conversion of 234,440 shares of Class B shares in the
amount of $4,426,684 to 223,534 shares of Class A shares in the amount of
$4,426,684.
** Class R shares commenced sales on June 3, 2002.
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.72 $ 43.50 $ 34.65 $ 26.37 $ 29.23
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.12) (0.26) (0.17) (0.14)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.37) (16.24) 12.39 9.18 (0.62)
=================================================================================================================================
Total from investment operations (2.52) (16.36) 12.13 9.01 (0.76)
=================================================================================================================================
Less distributions from net realized gains -- (7.42) (3.28) (0.73) (2.10)
=================================================================================================================================
Net asset value, end of period $ 17.20 $ 19.72 $ 43.50 $ 34.65 $ 26.37
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (12.78)% (43.10)% 36.56% 34.81% (2.30)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,780,055 $9,703,277 $19,268,977 $14,292,905 $12,391,844
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.26%(c) 1.14% 1.08% 1.10% 1.10%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.27%(c) 1.17% 1.11% 1.12% 1.12%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.74)%(c) (0.46)% (0.61)% (0.50)% (0.47)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 57% 75% 88% 62% 76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and does not include sales charges.
(c) Ratios are based on average daily net assets of $8,883,810,424.
FS-75
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------
NOVEMBER 3, 1997
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
---------------------------------------------- OCTOBER 31,
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.89 $ 42.28 $ 34.00 $ 26.11 $ 30.04
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.27)(a) (0.28) (0.58)(a) (0.42) (0.37)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.26) (15.69) 12.14 9.04 (1.46)
=================================================================================================================================
Total from investment operations (2.53) (15.97) 11.56 8.62 (1.83)
=================================================================================================================================
Less distributions from net realized gains -- (7.42) (3.28) (0.73) (2.10)
=================================================================================================================================
Net asset value, end of period $ 16.36 $ 18.89 $ 42.28 $ 34.00 $ 26.11
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (13.39)% (43.49)% 35.51% 33.64% (5.86)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $625,294 $818,343 $1,315,524 $589,718 $275,676
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.96%(c) 1.86% 1.85% 1.98% 1.98%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.97%(c) 1.89% 1.88% 2.00% 2.00%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (1.44)%(c) (1.17)% (1.38)% (1.38)% (1.36)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 57% 75% 88% 62% 76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles, does not include contingent deferred sales charged and is
not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$786,398,084.
(d) Annualized.
<Table>
<Caption>
CLASS C
-------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.88 $ 42.27 $ 33.99 $ 26.10 $ 29.18
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.27)(a) (0.29) (0.59)(a) (0.42) (0.37)(a)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.25) (15.68) 12.15 9.04 (0.61)
=====================================================================================================================
Total from investment operations (2.52) (15.97) 11.56 8.62 (0.98)
=====================================================================================================================
Less distributions from net realized gains -- (7.42) (3.28) (0.73) (2.10)
=====================================================================================================================
Net asset value, end of period $ 16.36 $ 18.88 $ 42.27 $ 33.99 $ 26.10
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(b) (13.35)% (43.51)% 35.52% 33.65% (3.12)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $184,393 $258,786 $434,544 $161,490 $76,522
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.96%(c) 1.86% 1.85% 1.98% 1.97%
- ---------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.97%(c) 1.89% 1.88% 2.00% 1.99%
=====================================================================================================================
Ratio of net investment income (loss) to average net assets (1.44)%(c) (1.17)% (1.38)% (1.38)% (1.35)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate 57% 75% 88% 62% 76%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and does not include contingent deferred sales charges.
(c) Ratios are based on average daily net assets of $240,694,256.
FS-76
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-------------
JUNE 3, 2002
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2002
- ---------------------------------------------------------------------------
Net asset value, beginning of period $ 19.82
- ---------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a)
- ---------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.49)
===========================================================================
Total from investment operations (2.56)
===========================================================================
Net asset value, end of period $ 17.26
___________________________________________________________________________
===========================================================================
Total return(b) (12.92)%
___________________________________________________________________________
===========================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 226
___________________________________________________________________________
===========================================================================
Ratio of expenses to average net assets:
With fee waivers 1.53%(c)
- ---------------------------------------------------------------------------
Without fee waivers 1.54%(c)
===========================================================================
Ratio of net investment income (loss) to average net assets (1.01)%(c)
___________________________________________________________________________
===========================================================================
Portfolio turnover rate 57%
___________________________________________________________________________
===========================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $50,620.
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2002 2001 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.00 $ 45.55 $ 36.01 $ 27.25 $ 30.00
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) 0.01 (0.09) (0.01) --
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.54) (17.14) 12.91 9.50 (0.65)
======================================================================================================================
Total from investment operations (2.60) (17.13) 12.82 9.49 (0.65)
======================================================================================================================
Less distributions from net realized gains -- (7.42) (3.28) (0.73) (2.10)
======================================================================================================================
Net asset value, end of period $ 18.40 $ 21.00 $ 45.55 $ 36.01 $ 27.25
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) (12.38)% (42.80)% 37.14% 35.46% (1.85)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $122,746 $150,609 $288,097 $244,369 $189,039
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 0.80%(c) 0.65% 0.65% 0.64% 0.63%
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers 0.81%(c) 0.68% 0.68% 0.66% 0.65%
======================================================================================================================
Ratio of net investment income (loss) to average net assets (0.28)%(c) 0.03% (0.18)% (0.04)% (0.01)%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 57% 75% 88% 62% 76%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles.
(c) Ratios are based on average daily net assets of $145,946,095.
FS-77
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of AIM Core Strategies Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM Core
Strategies Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 2002, and the related statement of operations,
the statement of changes in net assets and the financial highlights for the
period then ended. Those financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of October 31, 2002, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Core Strategies Fund as of October 31, 2002, and the results of its operations,
the changes in its net assets and the financial highlights for the period then
ended in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
Houston, Texas
December 10, 2002
FS-78
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
COMMON STOCKS--97.44%
AEROSPACE & DEFENSE--2.28%
Lockheed Martin Corp.(a) 140 $ 8,106
- -----------------------------------------------------------------------------------------------
Northrop Grumman Corp. 50 5,156
- -----------------------------------------------------------------------------------------------
Rockwell Collins, Inc. 220 4,957
===============================================================================================
18,219
===============================================================================================
AIR FREIGHT & LOGISTICS--0.60%
FedEx Corp. 90 4,787
===============================================================================================
APPAREL RETAIL--0.92%
Abercrombie & Fitch Co.-Class A(b) 100 1,782
- -----------------------------------------------------------------------------------------------
Gap, Inc. (The) 250 2,942
- -----------------------------------------------------------------------------------------------
Limited Brands 170 2,664
===============================================================================================
7,388
===============================================================================================
APPAREL, ACCESSORIES & LUXURY GOODS--0.30%
Jones Apparel Group, Inc.(b) 70 2,425
===============================================================================================
AUTO PARTS & EQUIPMENT--0.25%
ArvinMeritor, Inc. 130 1,969
===============================================================================================
BANKS--7.29%
BancorpSouth, Inc. 130 2,463
- -----------------------------------------------------------------------------------------------
Bank of America Corp. 200 13,960
- -----------------------------------------------------------------------------------------------
Bank One Corp. 200 7,714
- -----------------------------------------------------------------------------------------------
Fifth Third Bancorp 90 5,715
- -----------------------------------------------------------------------------------------------
Huntington Bancshares Inc. 460 8,699
- -----------------------------------------------------------------------------------------------
National City Corp. 280 7,596
- -----------------------------------------------------------------------------------------------
U.S. Bancorp. 160 3,374
- -----------------------------------------------------------------------------------------------
Washington Mutual, Inc. 150 5,364
- -----------------------------------------------------------------------------------------------
Whitney Holding Corp. 100 3,396
===============================================================================================
58,281
===============================================================================================
BIOTECHNOLOGY--1.29%
Amgen Inc.(b) 90 4,190
- -----------------------------------------------------------------------------------------------
Gilead Sciences, Inc.(b) 120 4,169
- -----------------------------------------------------------------------------------------------
Invitrogen Corp.(b) 70 1,947
===============================================================================================
10,306
===============================================================================================
BROADCASTING & CABLE TV--0.46%
Clear Channel Communications, Inc.(b) 100 3,705
===============================================================================================
CASINOS & GAMBLING--0.68%
Harrah's Entertainment, Inc.(b) 130 5,460
===============================================================================================
COMPUTER & ELECTRONICS RETAIL--0.27%
GameStop Corp.(b) 120 2,148
===============================================================================================
</Table>
FS-79
<Table>
<Caption>
MARKET
SHARES VALUE
COMPUTER HARDWARE--3.48%
Dell Computer Corp.(b) 640 18,310
- -----------------------------------------------------------------------------------------------
International Business Machines Corp. 120 9,473
===============================================================================================
27,783
===============================================================================================
COMPUTER STORAGE & PERIPHERALS--0.24%
Network Appliance, Inc.(a)(b) 210 1,884
===============================================================================================
CONSTRUCTION MATERIALS--0.30%
Lafarge North America Inc. 80 2,372
===============================================================================================
CONSUMER FINANCE--1.18%
Capital One Financial Corp. 90 2,742
- -----------------------------------------------------------------------------------------------
MBNA Corp. 330 6,702
===============================================================================================
9,444
===============================================================================================
DATA PROCESSING SERVICES--0.93%
Automatic Data Processing, Inc. 80 3,402
- -----------------------------------------------------------------------------------------------
CheckFree Corp.(b) 250 4,070
===============================================================================================
7,472
===============================================================================================
DEPARTMENT STORES--0.73%
Kohl's Corp.(b) 40 2,338
- -----------------------------------------------------------------------------------------------
Saks Inc.(b) 320 3,472
===============================================================================================
5,810
===============================================================================================
DIVERSIFIED COMMERCIAL SERVICES--1.80%
Dun & Bradstreet Corp. (The)(b) 140 5,117
- -----------------------------------------------------------------------------------------------
Equifax Inc. 200 4,712
- -----------------------------------------------------------------------------------------------
H&R Block, Inc. 50 2,219
- -----------------------------------------------------------------------------------------------
Pittston Brink's Group 110 2,329
===============================================================================================
14,377
===============================================================================================
DIVERSIFIED FINANCIAL SERVICES--6.51%
American Express Co. 200 7,274
- -----------------------------------------------------------------------------------------------
Bear Stearns Cos., Inc. (The) 40 2,442
- -----------------------------------------------------------------------------------------------
Citigroup Inc. 420 15,519
- -----------------------------------------------------------------------------------------------
Fannie Mae 235 15,712
- -----------------------------------------------------------------------------------------------
Freddie Mac(a) 180 11,084
===============================================================================================
52,031
===============================================================================================
DIVERSIFIED METALS & MINING--0.19%
Peabody Energy Corp. 60 1,545
===============================================================================================
DRUG RETAIL--0.83%
CVS Corp. 240 6,655
===============================================================================================
ELECTRIC UTILITIES--3.72%
Entergy Corp. 300 13,227
- -----------------------------------------------------------------------------------------------
Southern Co. (The) 555 16,483
===============================================================================================
29,710
===============================================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.03%
Jabil Circuit, Inc.(a)(b) 150 2,314
- -----------------------------------------------------------------------------------------------
Thermo Electron Corp.(b) 320 5,885
===============================================================================================
8,199
===============================================================================================
</Table>
FS-80
<Table>
<Caption>
MARKET
SHARES VALUE
FOOD DISTRIBUTORS--1.03%
Performance Food Group Co.(b) 110 4,091
- -----------------------------------------------------------------------------------------------
Sysco Corp. 130 4,118
===============================================================================================
8,209
===============================================================================================
FOOD RETAIL--0.45%
Albertson's, Inc. 160 3,570
===============================================================================================
GENERAL MERCHANDISE STORES--2.34%
Costco Wholesale Corp.(b) 110 3,732
- -----------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 280 14,994
===============================================================================================
18,726
===============================================================================================
HEALTH CARE DISTRIBUTORS & SERVICES--0.90%
Cardinal Health, Inc. 30 2,076
- -----------------------------------------------------------------------------------------------
Express Scripts, Inc.(b) 50 2,709
- -----------------------------------------------------------------------------------------------
McKesson Corp. 80 2,385
===============================================================================================
7,170
===============================================================================================
HEALTH CARE EQUIPMENT--0.25%
Fisher Scientific International Inc.(b) 70 2,002
===============================================================================================
HEALTH CARE FACILITIES--1.14%
HCA Inc. 130 5,654
- -----------------------------------------------------------------------------------------------
Tenet Healthcare Corp.(b) 120 3,450
===============================================================================================
9,104
===============================================================================================
HOME IMPROVEMENT RETAIL--1.84%
Home Depot, Inc. (The) 350 10,108
- -----------------------------------------------------------------------------------------------
Lowe's Cos., Inc. 110 4,590
===============================================================================================
14,698
===============================================================================================
HOTELS, RESORTS & CRUISE LINES--0.82%
Carnival Corp. 250 6,530
===============================================================================================
HOUSEHOLD PRODUCTS--2.89%
Clorox Co. 120 5,392
- -----------------------------------------------------------------------------------------------
Procter & Gamble Co. (The) 200 17,690
===============================================================================================
23,082
===============================================================================================
INDUSTRIAL CONGLOMERATES--3.03%
General Electric Co. 960 24,240
===============================================================================================
INSURANCE BROKERS--0.63%
Platinum Underwriters Holdings Ltd. (Bermuda)(b) 200 5,020
===============================================================================================
INTEGRATED OIL & GAS--4.76%
ChevronTexaco Corp. 60 4,058
- -----------------------------------------------------------------------------------------------
Exxon Mobil Corp. 650 21,879
- -----------------------------------------------------------------------------------------------
Marathon Oil Corp. 400 8,360
- -----------------------------------------------------------------------------------------------
Occidental Petroleum Corp. 130 3,709
===============================================================================================
38,006
===============================================================================================
INTEGRATED TELECOMMUNICATION SERVICES--3.12%
AT&T Corp. 380 4,955
- -----------------------------------------------------------------------------------------------
BellSouth Corp. 125 3,269
- -----------------------------------------------------------------------------------------------
SBC Communications Inc. 430 11,034
- -----------------------------------------------------------------------------------------------
Verizon Communications Inc. 150 5,664
===============================================================================================
24,922
===============================================================================================
</Table>
FS-81
<Table>
<Caption>
MARKET
SHARES VALUE
IT CONSULTING & SERVICES--0.30%
SunGard Data Systems Inc.(b) 110 2,439
===============================================================================================
LEISURE PRODUCTS--0.30%
Mattel, Inc. 130 2,387
===============================================================================================
LIFE & HEALTH INSURANCE--2.09%
AFLAC Inc. 250 7,610
- -----------------------------------------------------------------------------------------------
John Hancock Financial Services, Inc. 110 3,223
- -----------------------------------------------------------------------------------------------
MetLife, Inc. 160 3,821
- -----------------------------------------------------------------------------------------------
UnumProvident Corp. 100 2,052
===============================================================================================
16,706
===============================================================================================
MANAGED HEALTH CARE--1.38%
Anthem, Inc.(b) 40 2,520
- -----------------------------------------------------------------------------------------------
Caremark Rx, Inc.(b) 120 2,124
- -----------------------------------------------------------------------------------------------
UnitedHealth Group Inc. 70 6,367
===============================================================================================
11,011
===============================================================================================
METAL & GLASS CONTAINERS--0.84%
Pactiv Corp.(b) 340 6,746
===============================================================================================
MOVIES & ENTERTAINMENT--0.37%
Fox Entertainment Group, Inc.-Class A(b) 120 2,929
===============================================================================================
MULTI-LINE INSURANCE--1.72%
American International Group, Inc.(a) 220 13,761
===============================================================================================
MULTI-UTILITIES & UNREGULATED POWER--0.22%
SCANA Corp. 60 1,751
===============================================================================================
NETWORKING EQUIPMENT--1.31%
Cisco Systems, Inc.(b) 940 10,509
===============================================================================================
OFFICE ELECTRONICS--0.62%
IKON Office Solutions, Inc. 700 4,956
===============================================================================================
OFFICE SERVICES & SUPPLIES--0.76%
Pitney Bowes, Inc. 180 6,039
===============================================================================================
OIL & GAS DRILLING--0.30%
Transocean Inc. 110 2,418
===============================================================================================
OIL & GAS EXPLORATION & PRODUCTION--1.23%
XTO Energy, Inc. 410 9,861
===============================================================================================
PACKAGED FOODS & MEATS--0.88%
ConAgra Foods, Inc. 290 7,033
===============================================================================================
PHARMACEUTICALS--9.33%
Abbott Laboratories 120 5,024
- -----------------------------------------------------------------------------------------------
Johnson & Johnson 480 28,200
- -----------------------------------------------------------------------------------------------
King Pharmaceuticals, Inc.(b) 120 1,842
- -----------------------------------------------------------------------------------------------
Merck & Co., Inc. 170 9,221
- -----------------------------------------------------------------------------------------------
Pfizer Inc. 850 27,005
- -----------------------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(b) 120 3,299
===============================================================================================
74,591
===============================================================================================
</Table>
FS-82
<Table>
<Caption>
MARKET
SHARES VALUE
PROPERTY & CASUALTY INSURANCE--0.20%
Allstate Corp. (The) 40 1,591
===============================================================================================
RAILROADS--0.74%
Union Pacific Corp. 100 5,905
===============================================================================================
REAL ESTATE INVESTMENT TRUSTS--0.73%
Host Marriott Corp.(b) 160 1,312
- -----------------------------------------------------------------------------------------------
Plum Creek Timber Co., Inc. 200 4,522
===============================================================================================
5,834
===============================================================================================
RESTAURANTS--1.77%
Brinker International, Inc.(b) 200 5,678
- -----------------------------------------------------------------------------------------------
Darden Restaurants, Inc. 195 3,701
- -----------------------------------------------------------------------------------------------
McDonald's Corp. 90 1,630
- -----------------------------------------------------------------------------------------------
Yum! Brands, Inc.(b) 140 3,154
===============================================================================================
14,163
===============================================================================================
SEMICONDUCTORS--2.15%
Intel Corp. 700 12,110
- -----------------------------------------------------------------------------------------------
Maxim Integrated Products, Inc. 100 3,184
- -----------------------------------------------------------------------------------------------
Texas Instruments Inc. 120 1,903
===============================================================================================
17,197
===============================================================================================
SOFT DRINKS--2.54%
Coca-Cola Co. (The) 220 10,226
- -----------------------------------------------------------------------------------------------
Pepsi Bottling Group, Inc. (The) 210 5,660
- -----------------------------------------------------------------------------------------------
PepsiCo, Inc. 100 4,410
===============================================================================================
20,296
===============================================================================================
SPECIALTY STORES--0.18%
Blockbuster Inc.-Class A 60 1,438
===============================================================================================
SYSTEMS SOFTWARE--5.53%
Computer Associates International, Inc. 250 3,715
- -----------------------------------------------------------------------------------------------
Microsoft Corp.(b) 510 27,270
- -----------------------------------------------------------------------------------------------
Oracle Corp.(b) 750 7,643
- -----------------------------------------------------------------------------------------------
Symantec Corp.(b) 140 5,600
===============================================================================================
44,228
===============================================================================================
TELECOMMUNICATIONS EQUIPMENT--1.63%
Advanced Fibre Communications, Inc.(b) 420 6,795
- -----------------------------------------------------------------------------------------------
Motorola, Inc. 300 2,751
- -----------------------------------------------------------------------------------------------
QUALCOMM Inc.(b) 100 3,452
===============================================================================================
12,998
===============================================================================================
TOBACCO--0.51%
Philip Morris Cos. Inc. 100 4,075
===============================================================================================
TRADING COMPANIES & DISTRIBUTORS--0.45%
MSC Industrial Direct Co., Inc.-Class A(b) 280 3,629
===============================================================================================
WIRELESS TELECOMMUNICATION SERVICES--0.88%
AT&T Wireless Services Inc.(b) 370 2,542
- -----------------------------------------------------------------------------------------------
Nextel Communications, Inc.-Class A(a)(b) 400 4,512
===============================================================================================
7,054
===============================================================================================
Total Common Stocks (Cost $875,821) 778,794
===============================================================================================
</Table>
FS-83
<Table>
<Caption>
MARKET
SHARES VALUE
TOTAL INVESTMENTS--97.44% (Cost $875,821) 778,794
===============================================================================================
OTHER ASSETS LESS LIABILITIES--2.56% 20,432
===============================================================================================
NET ASSETS--100.00% $799,226
_______________________________________________________________________________________________
===============================================================================================
</Table>
Notes to Schedule of Investments:
(a) A portion of this security is subject to call options written. See Note 8.
(b) Non-income producing security.
See Notes to Financial Statements.
FS-84
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost $875,821) $ 778,794
- ----------------------------------------------------------------------------------------------------
Cash 26,063
- ----------------------------------------------------------------------------------------------------
Receivables for:
Dividends 975
- ----------------------------------------------------------------------------------------------------
Amount due from advisor 10,270
- ----------------------------------------------------------------------------------------------------
Investment for deferred compensation plan 1,520
- ----------------------------------------------------------------------------------------------------
Other assets 879
====================================================================================================
Total assets 818,501
____________________________________________________________________________________________________
====================================================================================================
LIABILITIES:
Payables for:
Investments purchased 4,500
- ----------------------------------------------------------------------------------------------------
Options written (premiums received $405) 328
- ----------------------------------------------------------------------------------------------------
Deferred compensation plan 1,520
- ----------------------------------------------------------------------------------------------------
Accrued trustees' fees 824
- ----------------------------------------------------------------------------------------------------
Accrued transfer agent fees 5
- ----------------------------------------------------------------------------------------------------
Accrued operating expenses 12,098
====================================================================================================
Total liabilities 19,275
====================================================================================================
Net assets applicable to shares outstanding $ 799,226
____________________________________________________________________________________________________
====================================================================================================
NET ASSETS:
Class A $ 319,688
____________________________________________________________________________________________________
====================================================================================================
Class B $ 239,769
____________________________________________________________________________________________________
====================================================================================================
Class C $ 239,769
____________________________________________________________________________________________________
====================================================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 40,001
____________________________________________________________________________________________________
====================================================================================================
Class B 30,001
____________________________________________________________________________________________________
====================================================================================================
Class C 30,001
____________________________________________________________________________________________________
====================================================================================================
Class A :
Net asset value per share $ 7.99
- ----------------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $7.99 divided by 94.50%) $ 8.46
____________________________________________________________________________________________________
====================================================================================================
Class B :
Net asset value and offering price per share $ 7.99
____________________________________________________________________________________________________
====================================================================================================
Class C :
Net asset value and offering price per share $ 7.99
____________________________________________________________________________________________________
====================================================================================================
</Table>
See Notes to Financial Statements.
FS-85
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE PERIOD DECEMBER 31, 2001 (DATE OPERATIONS COMMENCED) TO OCTOBER 31, 2002
<Table>
INVESTMENT INCOME:
Dividends $ 9,409
- ----------------------------------------------------------------------------------------------------
Dividends from affiliated money market funds 152
- ----------------------------------------------------------------------------------------------------
Interest 181
====================================================================================================
Total investment income 9,742
====================================================================================================
EXPENSES:
Advisory fees 5,619
- ----------------------------------------------------------------------------------------------------
Administrative services fees 41,781
- ----------------------------------------------------------------------------------------------------
Custodian fees 1,524
- ----------------------------------------------------------------------------------------------------
Distribution fees--Class A 1,049
- ----------------------------------------------------------------------------------------------------
Distribution fees--Class B 2,248
- ----------------------------------------------------------------------------------------------------
Distribution fees--Class C 2,248
- ----------------------------------------------------------------------------------------------------
Transfer agent fees 324
- ----------------------------------------------------------------------------------------------------
Trustees' fees 7,377
- ----------------------------------------------------------------------------------------------------
Printing 19,321
- ----------------------------------------------------------------------------------------------------
Professional fees 20,567
- ----------------------------------------------------------------------------------------------------
Other 3,579
====================================================================================================
Total expenses 105,637
====================================================================================================
Less: Fees waived and expenses reimbursed (92,015)
- ----------------------------------------------------------------------------------------------------
Expenses paid indirectly (500)
====================================================================================================
Net expenses 13,122
====================================================================================================
Net investment income (loss) (3,380)
====================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (101,863)
- ----------------------------------------------------------------------------------------------------
Option contracts written 1,389
====================================================================================================
(100,474)
====================================================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (97,027)
- ----------------------------------------------------------------------------------------------------
Option contracts written 77
====================================================================================================
(96,950)
====================================================================================================
Net gain (loss) from investment securities
and option contracts (197,424)
====================================================================================================
Net increase (decrease) in net assets resulting from operations $ (200,804)
____________________________________________________________________________________________________
====================================================================================================
</Table>
See Notes to Financial Statements.
FS-86
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period December 31, 2001 (Date operations commenced) to October 31, 2002
<Table>
<Caption>
2002
----------
OPERATIONS:
Net investment income (loss) $ (3,380)
- -------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities
and option contracts (100,474)
- -------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities
and option contracts (96,950)
=================================================================================================
Net increase (decrease) in net assets resulting from operations (200,804)
=================================================================================================
Share transactions-net:
Class A 400,010
- -------------------------------------------------------------------------------------------------
Class B 300,010
- -------------------------------------------------------------------------------------------------
Class C 300,010
=================================================================================================
Net increase in net assets 799,226
=================================================================================================
NET ASSETS
Beginning of period --
=================================================================================================
End of period $ 799,226
_________________________________________________________________________________________________
=================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 984,957
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 11,693
- -------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities
and option contracts (100,474)
- -------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment securities
and option contracts (96,950)
=================================================================================================
$ 799,226
_________________________________________________________________________________________________
=================================================================================================
</Table>
See Notes to Financial Statements.
FS-87
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
October 31, 2002
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
AIM Core Strategies Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
commenced operations December 31, 2001 and consists of three different classes
of shares that are not currently available for sale: Class A shares, Class B
shares and Class C 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 to
provide long-term growth of capital.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
FS-88
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. Premiums and
discounts are amortized and/or accreted for financial reporting purposes.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
F. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $1
billion of the Fund's average daily net assets, plus 0.70% of the Fund's next $1
billion of average daily net assets, plus 0.625% of the Fund's average daily
nest assets in excess of $2 billion. AIM has voluntarily agreed to waive fees
and/or reimburse expenses (excluding interest, taxes, dividends on short sales,
extraordinary items and increases in expenses due to expense offset
arrangements, if any) for Class A, Class B and Class C shares to the extent
necessary to limit the total annual fund operating expenses of Class A to 1.75%
which may be terminated or modified at any time. 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 fund of which the Fund has invested.
For the period December 31, 2001 (date operations commenced) through October 31,
2002, AIM waived fees of $5,619 and reimbursed fees of $80,851.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the period December 31, 2001 (date
operations commenced) through October 31, 2002, AIM was paid $41,781 for such
services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the
FS-89
period December 31, 2001 (date operations commenced) through October 31, 2002,
AFS retained $48 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. NASD rules
also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by the respective classes. AIM Distributors has
voluntarily agreed to waive all fees during the time the shares are not
available for sale. This waiver may be terminated or modified at any time.
Pursuant to the master distribution agreements, for the period December 31, 2001
(date operations commenced) through October 31, 2002, AIM Distributors waived
fees of $1,049, $2,248 and $2,248 for Class A, Class B and Class C shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the period December 31, 2001 (date operations commenced) through
October 31, 2002, the Fund paid legal fees of $2,356 for services rendered by
Kramer, Levin, Naftalis & Frankel LLP as counsel to the Board of Trustees. A
member of that firm is a trustee of the Trust.
NOTE 3 -- INDIRECT EXPENSES
For the period December 31, 2001 (date operations commenced) through October 31,
2002, the Fund received reductions in transfer agency fees from AFS (an
affiliate of AIM) of $255 and reductions in custodian fees of $245 under expense
offset arrangements which resulted in a reduction of the Fund's total expenses
of $500.
NOTE 4 -- TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5 -- TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the period December 31, 2001 (date operations commenced) through October
31, 2002.
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Undistributed ordinary income $ 13,740
Unrealized appreciation (depreciation) - investments (96,950)
Temporary book/tax differences (2,047)
Capital loss carryforward (100,474)
Shares of beneficial interest 984,957
---------
$ 799,226
=========
</Table>
Amount includes appreciation on option contracts written of $77.
FS-90
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 deferral of trustee compensation.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL
EXPIRATION LOSS CARRYFORWARD
- ------------------------ -----------------
October 31, 2010 $100,474
=================
</Table>
NOTE 6 -- INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period December 31, 2001 (date
operations commenced) through October 31, 2002 was $1,340,991 and $363,251,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of investment securities $ 33,053
- ------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (130,080)
==========================================================================================
Net unrealized appreciation (depreciation) of investment securities $ (97,027)
__________________________________________________________________________________________
==========================================================================================
Investments have the same cost for tax and financial statement purposes.
</Table>
NOTE 7 -- RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of stock issuance costs and other
items, on October 31, 2002, undistributed net investment income was increased by
$15,073 and shares of beneficial interest decreased by $15,073. This
reclassification had no effect on the net assets of the Fund.
NOTE 8 -- CALL OPTION CONTRACTS
Transactions in call options written during the period December 31, 2001 (date
operations commenced) through October 31, 2002 are summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
-------------------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
------------- ------------
Beginning of year -- $ --
- ------------------------------------------------------------------------------------------------
Written 43 2,228
- ------------------------------------------------------------------------------------------------
Closed (20) (1,199)
- ------------------------------------------------------------------------------------------------
Exercised (2) (56)
- ------------------------------------------------------------------------------------------------
Expired (11) (568)
================================================================================================
End of year 10 $ 405
________________________________________________________________________________________________
================================================================================================
</Table>
FS-91
Open call options written at October 31, 2002 were as follows:
<Table>
<Caption>
OCTOBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS 2002 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
- ----- -------- ------ --------- -------- ------------ --------------
American International Dec-02 $75 1 $78 $30 $48
Group, Inc.
- ------------------------------------------------------------------------------------------------------
Freddie Mac Dec-02 70 1 48 38 10
- ------------------------------------------------------------------------------------------------------
Jabil Circuit, Inc. Dec-02 20 1 33 32 1
- ------------------------------------------------------------------------------------------------------
Lockheed Martin Corp. Dec-02 70 1 48 43 5
- ------------------------------------------------------------------------------------------------------
Network Appliance, Inc. Dec-02 12.5 2 106 45 61
- ------------------------------------------------------------------------------------------------------
Nextel Communications, Dec-02 15 4 92 140 (48)
Inc.-Class A
======================================================================================================
10 $405 $328 $77
______________________________________________________________________________________________________
======================================================================================================
</Table>
NOTE 9 - SHARE INFORMATION
Changes in shares outstanding during the period December 31, 2001 (date
operations commenced) through October 31, 2002 were as follows:
<Table>
<Caption>
OCTOBER 31,
2002
-----------------------
SHARES AMOUNT
---------- ----------
Sold:
Class A* 40,001 $ 400,010
- ------------------------------------------------------------
Class B* 30,001 300,010
- ------------------------------------------------------------
Class C* 30,001 300,010
============================================================
100,003 $1,000,030
____________________________________________________________
============================================================
* Currently all shares are owned by AIM.
</Table>
FS-92
NOTE 10 - FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding during the period December 31, 2001 (date operations commenced)
through October 31, 2002.
<Table>
<Caption>
CLASS A
------------------------
DECEMBER 31, 2001 (DATE
OPERATIONS COMMENCED) TO
OCTOBER 31,
2002
------------------------
Net asset value, beginning of period $10.00
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)
- -------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (1.98)
=================================================================================================
Total from investment operations (2.01)
=================================================================================================
Net asset value, end of period $7.99
_________________________________________________________________________________________________
=================================================================================================
Total return(a) (20.10)%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $320
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.82%(b)
- -------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 13.71%(b)
_________________________________________________________________________________________________
=================================================================================================
Ratio of net investment income (loss) to average net assets (0.45)%(b)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate 42%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Includes adjustments in accordance with generally accepted accounting
principles, does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $358,625.
FS-93
NOTE 10 - FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------
DECEMBER 31, 2001 (DATE
OPERATIONS COMMENCED) TO
OCTOBER 31,
2002
------------------------
Net asset value, beginning of period $10.00
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)
- -------------------------------------------------------------------------------------------------
Net losses on securities (both realized and unrealized) (1.98)
=================================================================================================
Total from investment operations (2.01)
=================================================================================================
Net asset value, end of period $7.99
_________________________________________________________________________________________________
=================================================================================================
Total return(a) (20.10)%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $240
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.82%(b)
- -------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 14.36%(b)
_________________________________________________________________________________________________
=================================================================================================
Ratio of net investment income (loss) to average net assets (0.45)%(b)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate 42%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Includes adjustments in accordance with generally accepted accounting
principles, does not include contingent deferred sales charges and is not
annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $268,971.
FS-94
NOTE 10 - FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------
DECEMBER 31, 2001 (DATE
OPERATIONS COMMENCED) TO
OCTOBER 31,
2002
------------------------
Net asset value, beginning of period $10.00
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)
- -------------------------------------------------------------------------------------------------
Net losses on securities (both realized and unrealized) (1.98)
=================================================================================================
Total from investment operations (2.01)
=================================================================================================
Net asset value, end of period $7.99
_________________________________________________________________________________________________
=================================================================================================
Total return(a) (20.10)%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $240
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.82%(b)
- -------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 14.36%(b)
_________________________________________________________________________________________________
=================================================================================================
Ratio of net investment income (loss) to average net assets (0.45)%(b)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate 42%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Includes adjustments in accordance with generally accepted accounting
principles, does not include contingent deferred sales charges and is not
annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $268,971.
FS-95
Report of Independent Auditors
To the Shareholders of AIM Dent Demographic Trends Fund
and Board of Trustees of AIM Equity Funds
We have audited the accompanying statement of assets and liabilities of AIM Dent
Demographic Trends Fund (a portfolio AIM Equity Funds), including the schedule
of investments, as of October 31, 2002, and the related statement of operations
for the year then ended, and the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the periods presented from commencement of operations
through October 31, 2000 were audited by other auditors whose report dated
December 6, 2000, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Dent Demographic Trends Fund as of October 31, 2002, 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.
/s/ ERNST & YOUNG LLP
Houston, Texas
December 10, 2002
FS-96
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.13%
Advertising-1.08%
Lamar Advertising Co.(a) 160,000 $ 5,430,400
=========================================================================
Apparel Retail-2.37%
Abercrombie & Fitch Co.-Class A(a) 200,000 3,564,000
- -------------------------------------------------------------------------
AnnTaylor Stores Corp.(a) 103,800 2,432,034
- -------------------------------------------------------------------------
Gap, Inc. (The) 500,000 5,885,000
=========================================================================
11,881,034
=========================================================================
Apparel, Accessories & Luxury Goods-0.44%
Coach, Inc.(a) 75,000 2,231,250
=========================================================================
Application Software-1.94%
Activision, Inc.(a) 125,000 2,562,500
- -------------------------------------------------------------------------
Electronic Arts Inc.(a)(b) 27,500 1,790,800
- -------------------------------------------------------------------------
Intuit Inc.(a) 55,000 2,855,600
- -------------------------------------------------------------------------
PeopleSoft, Inc.(a) 140,000 2,534,000
=========================================================================
9,742,900
=========================================================================
Automobile Manufacturers-0.86%
Porsche A.G.-Pfd. (Germany) 9,000 4,316,023
=========================================================================
Banks-2.77%
Bank of America Corp. 60,000 4,188,000
- -------------------------------------------------------------------------
Kookmin Bank (South Korea) 150,000 4,975,490
- -------------------------------------------------------------------------
Synovus Financial Corp. 230,000 4,712,700
=========================================================================
13,876,190
=========================================================================
Biotechnology-1.51%
Amgen Inc.(a) 70,000 3,259,200
- -------------------------------------------------------------------------
Charles River Laboratories International,
Inc.(a) 42,000 1,543,500
- -------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 80,000 2,779,200
=========================================================================
7,581,900
=========================================================================
Brewers-0.74%
Anheuser-Busch Cos., Inc. 70,000 3,693,200
=========================================================================
Broadcasting & Cable TV-1.54%
Clear Channel Communications, Inc.(a) 135,000 5,001,750
- -------------------------------------------------------------------------
Westwood One, Inc.(a) 75,000 2,722,500
=========================================================================
7,724,250
=========================================================================
Computer & Electronics Retail-0.79%
CDW Computer Centers, Inc.(a) 75,000 3,976,500
=========================================================================
Computer Hardware-3.84%
Dell Computer Corp.(a) 390,000 11,157,900
- -------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
Computer Hardware-(Continued)
Hewlett-Packard Co. 165,000 $ 2,607,000
- -------------------------------------------------------------------------
International Business Machines Corp. 70,000 5,525,800
=========================================================================
19,290,700
=========================================================================
Consumer Finance-1.11%
MBNA Corp. 275,000 5,585,250
=========================================================================
Data Processing Services-0.81%
Fiserv, Inc.(a) 130,000 4,061,200
=========================================================================
Department Stores-1.22%
Kohl's Corp.(a) 45,000 2,630,250
- -------------------------------------------------------------------------
Nordstrom, Inc. 175,000 3,486,000
=========================================================================
6,116,250
=========================================================================
Distillers & Vintners-0.63%
Constellation Brands, Inc.-Class A(a) 125,000 3,166,250
=========================================================================
Diversified Commercial Services-1.94%
Apollo Group, Inc.-Class A(a) 70,000 2,905,000
- -------------------------------------------------------------------------
H&R Block, Inc. 85,000 3,772,300
- -------------------------------------------------------------------------
Weight Watchers International, Inc.(a) 65,000 3,077,750
=========================================================================
9,755,050
=========================================================================
Diversified Financial Services-7.17%
American Express Co. 100,000 3,637,000
- -------------------------------------------------------------------------
Citigroup Inc. 145,000 5,357,750
- -------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 60,000 4,296,000
- -------------------------------------------------------------------------
J.P. Morgan Chase & Co. 225,000 4,668,750
- -------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 75,000 3,995,250
- -------------------------------------------------------------------------
Moody's Corp. 60,000 2,826,000
- -------------------------------------------------------------------------
Morgan Stanley 115,000 4,475,800
- -------------------------------------------------------------------------
SLM Corp. 40,000 4,109,600
- -------------------------------------------------------------------------
Stilwell Financial, Inc. 225,000 2,634,750
=========================================================================
36,000,900
=========================================================================
Drug Retail-0.39%
CVS Corp. 70,000 1,941,100
=========================================================================
Employment Services-0.67%
Robert Half International Inc.(a) 200,000 3,340,000
=========================================================================
Food Distributors-0.79%
Sysco Corp. 125,000 3,960,000
=========================================================================
Food Retail-0.51%
Whole Foods Market, Inc.(a) 55,000 2,565,970
=========================================================================
</Table>
FS-97
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
General Merchandise Stores-1.06%
Family Dollar Stores, Inc. 75,000 $ 2,309,250
- -------------------------------------------------------------------------
Target Corp. 100,000 3,012,000
=========================================================================
5,321,250
=========================================================================
Health Care Distributors & Services-0.78%
AdvancePCS(a) 80,000 2,008,000
- -------------------------------------------------------------------------
Express Scripts, Inc.(a) 35,000 1,896,300
=========================================================================
3,904,300
=========================================================================
Health Care Equipment-4.03%
Becton, Dickinson & Co. 75,000 2,213,250
- -------------------------------------------------------------------------
Boston Scientific Corp.(a) 75,000 2,822,250
- -------------------------------------------------------------------------
Medtronic, Inc. 160,000 7,168,000
- -------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 73,000 2,599,530
- -------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 48,000 2,314,560
- -------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 75,000 3,091,500
=========================================================================
20,209,090
=========================================================================
Health Care Facilities-1.60%
HCA Inc. 105,000 4,566,450
- -------------------------------------------------------------------------
Tenet Healthcare Corp.(a) 120,000 3,450,000
=========================================================================
8,016,450
=========================================================================
Health Care Supplies-0.98%
Alcon, Inc. (Switzerland)(a) 120,000 4,922,400
=========================================================================
Home Improvement Retail-1.30%
Home Depot, Inc. (The) 225,000 6,498,000
=========================================================================
Homebuilding-0.96%
KB Home 50,000 2,360,000
- -------------------------------------------------------------------------
Toll Brothers, Inc.(a) 120,000 2,457,600
=========================================================================
4,817,600
=========================================================================
Hotels, Resorts & Cruise Lines-1.36%
Royal Caribbean Cruises Ltd. 200,000 3,672,000
- -------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 135,000 3,145,500
=========================================================================
6,817,500
=========================================================================
Household Appliances-0.70%
Black & Decker Corp. (The) 75,000 3,507,000
=========================================================================
Household Products-1.88%
Colgate-Palmolive Co. 35,000 1,924,300
- -------------------------------------------------------------------------
Procter & Gamble Co. (The) 85,000 7,518,250
=========================================================================
9,442,550
=========================================================================
Integrated Telecommunication Services-0.91%
AT&T Corp. 350,000 4,564,000
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
Internet Retail-1.47%
Amazon.com, Inc.(a) 135,000 $ 2,613,600
- -------------------------------------------------------------------------
eBay Inc.(a) 75,000 4,744,500
=========================================================================
7,358,100
=========================================================================
Internet Software & Services-0.59%
Yahoo! Inc.(a) 200,000 2,984,000
=========================================================================
IT Consulting & Services-0.73%
Affiliated Computer Services, Inc.-Class A(a) 80,000 3,684,000
=========================================================================
Life & Health Insurance-0.70%
AFLAC Inc. 115,000 3,500,600
=========================================================================
Managed Health Care-3.08%
Aetna Inc. 62,500 2,518,750
- -------------------------------------------------------------------------
Anthem, Inc.(a) 80,000 5,040,000
- -------------------------------------------------------------------------
Caremark Rx, Inc.(a) 100,000 1,770,000
- -------------------------------------------------------------------------
First Health Group Corp.(a) 95,000 2,468,100
- -------------------------------------------------------------------------
UnitedHealth Group Inc. 40,000 3,638,000
=========================================================================
15,434,850
=========================================================================
Motorcycle Manufacturers-0.78%
Harley-Davidson, Inc. 75,000 3,922,500
=========================================================================
Multi-Line Insurance-1.97%
American International Group, Inc. 95,000 5,942,250
- -------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 100,000 3,950,000
=========================================================================
9,892,250
=========================================================================
Networking Equipment-2.47%
Cisco Systems, Inc.(a) 850,000 9,503,000
- -------------------------------------------------------------------------
Juniper Networks, Inc.(a) 500,000 2,912,500
=========================================================================
12,415,500
=========================================================================
Packaged Foods & Meats-0.61%
Sara Lee Corp. 135,000 3,082,050
=========================================================================
Pharmaceuticals-12.17%
Barr Laboratories, Inc.(a) 31,000 1,823,730
- -------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 40,000 3,919,600
- -------------------------------------------------------------------------
Johnson & Johnson 225,000 13,218,750
- -------------------------------------------------------------------------
Lilly (Eli) & Co. 65,000 3,607,500
- -------------------------------------------------------------------------
Pfizer Inc. 325,000 10,325,250
- -------------------------------------------------------------------------
Pharmacia Corp. 330,000 14,190,000
- -------------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom)(a) 110,000 2,569,600
- -------------------------------------------------------------------------
Taro Pharmaceutical Industries Ltd.
(Israel)(a) 52,000 1,807,000
- -------------------------------------------------------------------------
Teva Pharmaceutical industries Ltd.-ADR
(Israel) 57,000 4,413,510
- -------------------------------------------------------------------------
Wyeth 155,000 5,192,500
=========================================================================
61,067,440
=========================================================================
</Table>
FS-98
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
Publishing-0.53%
Tribune Co. 55,000 $ 2,642,750
=========================================================================
Restaurants-1.33%
Starbucks Corp.(a) 175,000 4,156,250
- -------------------------------------------------------------------------
Wendy's International, Inc. 80,000 2,534,400
=========================================================================
6,690,650
=========================================================================
Semiconductor Equipment-5.11%
Applied Materials, Inc.(a) 850,000 12,775,500
- -------------------------------------------------------------------------
Entegris Inc.(a) 225,000 1,937,250
- -------------------------------------------------------------------------
KLA-Tencor Corp.(a) 60,000 2,137,800
- -------------------------------------------------------------------------
Lam Research Corp.(a) 700,000 8,813,000
=========================================================================
25,663,550
=========================================================================
Semiconductors-6.69%
Analog Devices, Inc.(a) 250,000 6,700,000
- -------------------------------------------------------------------------
Intel Corp. 225,000 3,892,500
- -------------------------------------------------------------------------
Linear Technology Corp. 150,000 4,146,000
- -------------------------------------------------------------------------
Maxim Integrated Products, Inc. 125,000 3,980,000
- -------------------------------------------------------------------------
Microchip Technology Inc. 250,000 6,100,000
- -------------------------------------------------------------------------
Micron Technology, Inc.(a) 300,000 4,800,000
- -------------------------------------------------------------------------
STMicroelectronics N.V.-New York Shares
(Netherlands) 200,000 3,934,000
=========================================================================
33,552,500
=========================================================================
Specialty Stores-1.63%
Bed Bath & Beyond Inc.(a) 100,000 3,546,000
- -------------------------------------------------------------------------
Blockbuster Inc.-Class A 100,000 2,397,000
- -------------------------------------------------------------------------
Michaels Stores, Inc.(a) 50,000 2,248,000
=========================================================================
8,191,000
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
Systems Software-6.36%
Computer Associates International, Inc. 185,000 $ 2,749,100
- -------------------------------------------------------------------------
Microsoft Corp.(a) 370,000 19,783,900
- -------------------------------------------------------------------------
Oracle Corp.(a) 625,000 6,368,750
- -------------------------------------------------------------------------
Symantec Corp.(a) 75,000 3,000,000
=========================================================================
31,901,750
=========================================================================
Telecommunications Equipment-0.48%
QUALCOMM Inc.(a) 70,000 2,416,400
=========================================================================
Wireless Telecommunication Services-0.75%
AT&T Wireless Services Inc.(a) 300,000 2,061,000
- -------------------------------------------------------------------------
Nextel Communications, Inc.-Class A(a) 150,000 1,692,000
=========================================================================
3,753,000
=========================================================================
Total Common Stocks & Other Equity
Interests (Cost $488,560,430) 482,409,347
=========================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY BILLS-0.40%
1.57%, 12/19/02 (Cost $1,995,813)(c) $2,000,000 1,995,813
=========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-2.88%
STIC Liquid Assets Portfolio(d) 7,236,519 7,236,519
- -------------------------------------------------------------------------
STIC Prime Portfolio(d) 7,236,519 7,236,519
=========================================================================
Total Money Market Funds (Cost
$14,473,038) 14,473,038
=========================================================================
TOTAL INVESTMENTS-99.41% (Cost $505,029,281) 498,878,198
=========================================================================
OTHER ASSETS LESS LIABILITIES-0.59% 2,977,494
=========================================================================
NET ASSETS-100.00% $501,855,692
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Pfd. - Preferred
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 7.
(c) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-99
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$505,029,281)* $498,878,198
- -------------------------------------------------------------
Foreign currencies, at value (cost $3,692,571) 3,673,730
- -------------------------------------------------------------
Receivables for:
Investments sold 22,537,528
- -------------------------------------------------------------
Fund shares sold 237,461
- -------------------------------------------------------------
Dividends 184,367
- -------------------------------------------------------------
Investment for deferred compensation plan 20,129
- -------------------------------------------------------------
Collateral for securities loaned 6,832,380
- -------------------------------------------------------------
Other assets 89,980
=============================================================
Total assets 532,453,773
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 20,785,760
- -------------------------------------------------------------
Fund shares reacquired 1,861,765
- -------------------------------------------------------------
Options written (premiums received $69,460) 61,187
- -------------------------------------------------------------
Deferred compensation plan 20,129
- -------------------------------------------------------------
Collateral upon return of securities loaned 6,832,380
- -------------------------------------------------------------
Accrued distribution fees 452,708
- -------------------------------------------------------------
Accrued trustees' fees 1,176
- -------------------------------------------------------------
Accrued transfer agent fees 408,893
- -------------------------------------------------------------
Accrued operating expenses 174,083
=============================================================
Total liabilities 30,598,081
=============================================================
Net assets applicable to shares outstanding $501,855,692
_____________________________________________________________
=============================================================
NET ASSETS:
Class A $190,252,593
_____________________________________________________________
=============================================================
Class B $223,665,513
_____________________________________________________________
=============================================================
Class C $ 87,937,586
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 31,711,909
_____________________________________________________________
=============================================================
Class B 38,124,758
_____________________________________________________________
=============================================================
Class C 14,990,675
_____________________________________________________________
=============================================================
Class A:
Net asset value per share $ 6.00
- -------------------------------------------------------------
Offering price per share:
(Net asset value of $6.00 divided by
94.50%) $ 6.35
_____________________________________________________________
=============================================================
Class B:
Net asset value and offering price per share $ 5.87
_____________________________________________________________
=============================================================
Class C:
Net asset value and offering price per share $ 5.87
_____________________________________________________________
=============================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $6,590,119
were on loan to brokers.
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$35,121) $ 3,393,852
- -------------------------------------------------------------
Dividends from affiliated money market funds 560,524
- -------------------------------------------------------------
Interest 14,055
- -------------------------------------------------------------
Security lending income 255,265
=============================================================
Total investment income 4,223,696
=============================================================
EXPENSES:
Advisory fees 6,351,166
- -------------------------------------------------------------
Administrative services fees 145,864
- -------------------------------------------------------------
Custodian fees 137,576
- -------------------------------------------------------------
Distribution fees -- Class A 993,200
- -------------------------------------------------------------
Distribution fees -- Class B 3,310,084
- -------------------------------------------------------------
Distribution fees -- Class C 1,324,161
- -------------------------------------------------------------
Transfer agent fees 4,364,586
- -------------------------------------------------------------
Trustees' fees 12,401
- -------------------------------------------------------------
Other 428,170
=============================================================
Total expenses 17,067,208
=============================================================
Less: Fees waived (5,666)
- -------------------------------------------------------------
Expenses paid indirectly (12,587)
=============================================================
Net expenses 17,048,955
=============================================================
Net investment income (loss) (12,825,259)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES CONTRACTS AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (204,315,367)
- -------------------------------------------------------------
Foreign currencies (126,522)
- -------------------------------------------------------------
Futures contracts 760,783
- -------------------------------------------------------------
Option contracts written 967,974
=============================================================
(202,713,132)
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 63,154,998
- -------------------------------------------------------------
Foreign currencies (18,842)
- -------------------------------------------------------------
Option contracts written 8,273
=============================================================
63,144,429
=============================================================
Net gain (loss) from investment securities,
foreign currencies, futures contracts and
option contracts (139,568,703)
=============================================================
Net increase (decrease) in net assets
resulting from operations $(152,393,962)
_____________________________________________________________
=============================================================
</Table>
See Notes to Financial Statements.
FS-100
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (12,825,259) $ (17,536,932)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts (202,713,132) (545,282,682)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts 63,144,429 (352,555,160)
==============================================================================================
Net increase (decrease) in net assets resulting from
operations (152,393,962) (915,374,774)
==============================================================================================
Share transactions-net:
Class A (64,886,914) (4,824,124)
- ----------------------------------------------------------------------------------------------
Class B (75,460,458) 19,065,645
- ----------------------------------------------------------------------------------------------
Class C (35,199,684) 5,699,957
==============================================================================================
Net increase (decrease) in net assets (327,941,018) (895,433,296)
==============================================================================================
NET ASSETS:
Beginning of year 829,796,710 1,725,230,006
==============================================================================================
End of year $ 501,855,692 $ 829,796,710
______________________________________________________________________________________________
==============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,411,375,359 $1,599,864,940
- ----------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (36,813) (27,556)
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies, futures contracts and
option contracts (903,321,202) (700,734,593)
- ----------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and option contracts (6,161,652) (69,306,081)
==============================================================================================
$ 501,855,692 $ 829,796,710
______________________________________________________________________________________________
==============================================================================================
</Table>
See Notes to Financial Statements.
FS-101
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Dent Demographic Trends Fund (the "Fund") is a series portfolio of AIM
Equity Funds (the "Trust"). The Trust is a Delaware statutory trust registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of fifteen separate
portfolios, each having an unlimited number of shares of beneficial interest.
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with a contingent
deferred sales charge. 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 preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-
FS-102
upon price at a future date. The Fund may enter into a foreign currency
contract to attempt to minimize the risk to the Fund from adverse changes
in the relationship between currencies. The Fund may also enter into a
foreign currency contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. dollar
price of that security. The Fund could be exposed to risk if counterparties
to the contracts are unable to meet the terms of their contracts or if the
value of the foreign currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and that a change in value of the
contracts may not correlate with changes in the value of the securities
being hedged.
I. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). H.S. Dent Advisors, Inc. ("H.S. Dent") is the Fund's
subadvisor. Under the terms of the master investment advisory agreement, the
Fund pays an advisory fee to AIM at the annual rate of 0.85% of the first $2
billion of the Fund's average daily net assets, plus 0.80% of the Fund's average
daily net assets exceeding $2 billion. Under the terms of a subadvisory
agreement between AIM and H.S. Dent, AIM pays H.S. Dent at the annual rate of
0.13% of the first $1 billion of the Fund's average daily net assets, plus 0.10%
of the next $1 billion of the Fund's average daily net assets, plus 0.07% of the
Fund's average daily net assets exceeding $2 billion. AIM has voluntarily agreed
to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market fund of which the Fund has invested.
For the year ended October 31, 2002, AIM waived fees of $5,666.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2002, AIM was
paid $145,864 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended October 31, 2002, AFS
retained $2,443,344 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. NASD Rules
also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
master distribution agreements, for the year ended October 31, 2002, the Class
A, Class B and Class C shares paid $993,200, $3,310,084 and $1,324,161,
respectively.
AIM Distributors retained commissions of $131,333 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 2002,
AIM Distributors retained $3,253, $137 and $24,297 in contingent deferred sales
charges imposed on redemptions of Class A, Class B and Class C shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $6,862 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
FS-103
NOTE 3--INDIRECT EXPENSES
For the year ended October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $12,564 and reductions in
custodian fees of $23 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $12,587.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended October 31,
2002, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At October 31, 2002, securities with an aggregate value of $6,590,119 were on
loan to brokers. The loans were secured by cash collateral of $6,832,380
received by the Fund and invested in STIC Liquid Assets Portfolio, an affiliated
money market fund. For the year ended October 31, 2002, the Fund received fees
of $255,265 for securities lending.
NOTE 7--CALL OPTION CONTRACTS
Transactions in call options written during the year ended October 31, 2002 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------
Beginning of year -- $ --
- -------------------------------------------------------------
Written 25,223 3,895,258
- -------------------------------------------------------------
Closed (21,423) (3,028,231)
- -------------------------------------------------------------
Exercised (2,425) (574,834)
- -------------------------------------------------------------
Expired (1,100) (222,733)
=============================================================
End of year 275 $ 69,460
_____________________________________________________________
=============================================================
</Table>
Open call options written at October 31, 2002 were as follows:
<Table>
<Caption>
OCTOBER 31,
2002
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE APPRECIATION
- -------------------------------------------------------------------------------------------
Electronic Arts Inc. Dec-02 $70 275 $69,460 $61,187 $8,273
___________________________________________________________________________________________
===========================================================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2002 and 2001.
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation
(depreciation) -- investments $ (24,040,280)
- -------------------------------------------------------------
Temporary book/tax differences (36,813)
- -------------------------------------------------------------
Capital loss carryforward (885,442,574)
- -------------------------------------------------------------
Shares of beneficial interest 1,411,375,359
=============================================================
$ 501,855,692
_____________________________________________________________
=============================================================
</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) is primarily attributable to the tax deferral of
losses on wash sales. Amount includes appreciation (depreciation) on foreign
currencies and option contracts written of $(10,569).
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 deferral of trustee compensation and
retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
October 31, 2007 $ 3,389,675
- -----------------------------------------------------------
October 31, 2008 144,576,334
- -----------------------------------------------------------
October 31, 2009 541,794,870
- -----------------------------------------------------------
October 31, 2010 195,681,695
===========================================================
$885,442,574
___________________________________________________________
===========================================================
</Table>
FS-104
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 2002 was
$1,344,963,173 and $1,518,730,510, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of investment
securities $ 30,032,233
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (54,061,944)
=============================================================
Net unrealized appreciation (depreciation) of
investment securities $(24,029,711)
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $522,907,909.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions, a
net operating loss reclassification and other reclassifications, on October 31,
2002, undistributed net investment income (loss) was increased by $12,816,002,
undistributed net realized gain (loss) increased by $126,523 and shares of
beneficial interest decreased by $12,942,525. This reclassification had no
effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 5,752,818* $ 44,745,859* 12,849,753 $ 144,467,400
- --------------------------------------------------------------------------------------------------------------------------
Class B 3,503,829 26,984,220 11,680,092 132,373,521
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,824,515 14,029,736 6,058,052 68,141,585
==========================================================================================================================
Reacquired:
Class A (15,019,465) (109,632,773) (15,179,735) (149,291,524)
- --------------------------------------------------------------------------------------------------------------------------
Class B (14,355,627)* (102,444,678)* (11,736,735) (113,307,876)
- --------------------------------------------------------------------------------------------------------------------------
Class C (6,815,024) (49,229,420) (6,377,405) (62,441,628)
==========================================================================================================================
(25,108,954) $(175,547,056) (2,705,978) $ 19,941,478
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Includes automatic conversion of 217,773 shares of Class B shares in the
amount of $1,628,659 to 214,960 shares of Class A shares in the amount of
$1,628,659.
FS-105
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------
JUNE 7, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------- OCTOBER 31,
2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.62 $ 15.40 $ 12.14 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12) (0.12) (0.11) (0.03)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.50) (7.66) 3.37 2.17
=====================================================================================================================
Total from investment operations (1.62) (7.78) 3.26 2.14
=====================================================================================================================
Net asset value, end of period $ 6.00 $ 7.62 $ 15.40 $ 12.14
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(a) (21.26)% (50.52)% 26.85% 21.40%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $190,253 $312,377 $666,929 $163,872
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets 1.87%(b) 1.64% 1.50% 1.60%(c)(d)
=====================================================================================================================
Ratio of net investment income (loss) to average net assets (1.31)%(b) (1.04)% (0.93)% (1.00)%(d)
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate 189% 143% 90% 29%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) Includes adjustments in accordance with general accepted accounting
principles, 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 $283,771,505.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.65% (annualized).
(d) Annualized.
FS-106
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------
JUNE 7, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------- OCTOBER 31,
2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.50 $ 15.26 $ 12.11 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17) (0.18) (0.18) (0.04)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.46) (7.58) 3.33 2.15
=====================================================================================================================
Total from investment operations (1.63) (7.76) 3.15 2.11
=====================================================================================================================
Net asset value, end of period $ 5.87 $ 7.50 $ 15.26 $ 12.11
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(a) (21.73)% (50.85)% 26.01% 21.10%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $223,666 $367,494 $748,480 $177,430
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets 2.53%(b) 2.32% 2.17% 2.24%(c)(d)
=====================================================================================================================
Ratio of net investment income (loss) to average net assets (1.97)%(b) (1.72)% (1.60)% (1.64)%(d)
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate 189% 143% 90% 29%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) Includes adjustments in accordance with general accepted accounting
principles, does not include contingent deferred sales charges and is
not annualized for periods less than one year.
(b) Ratios are based on average daily net assets of $331,008,412.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.29% (annualized).
(d) Annualized.
FS-107
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------
JUNE 7, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
---------------------------------- OCTOBER 31,
2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.50 $ 15.26 $ 12.11 $ 10.00
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17) (0.19) (0.17) (0.04)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.46) (7.57) 3.32 2.15
====================================================================================================================
Total from investment operations (1.63) (7.76) 3.15 2.11
====================================================================================================================
Net asset value, end of period $ 5.87 $ 7.50 $ 15.26 $ 12.11
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(a) (21.73)% (50.85)% 26.01% 21.10%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $87,938 $149,925 $309,821 $51,605
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets 2.53%(b) 2.32% 2.17% 2.24%(c)(d)
====================================================================================================================
Ratio of net investment income (loss) to average net assets (1.97)%(b) (1.72)% (1.60)% (1.64)%(d)
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 189% 143% 90% 29%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Includes adjustments in accordance with general accepted accounting
principles, does not include contingent deferred sales charges and is
not annualized for periods less than one year.
(b) Ratios are based on average daily net assets of $132,416,045.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.29% (annualized).
(d) Annualized.
FS-108
Report of Independent Auditors
To the Shareholders of AIM Emerging Growth Fund
and Board of Trustees of AIM Equity Funds
We have audited the accompanying statement of assets and liabilities of AIM
Emerging Growth Fund (a portfolio AIM Equity Funds), including the schedule of
investments, as of October 31, 2002, and the related statement of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the periods presented from commencement of operations
through October 31, 2000 were audited by other auditors whose report dated
December 6, 2000, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Emerging Growth Fund as of October 31, 2002, 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.
/s/ ERNST & YOUNG LLP
Houston, Texas
December 10, 2002
FS-109
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-87.48%
Advertising-3.31%
Lamar Advertising Co.(a) 60,000 $ 2,036,400
- ------------------------------------------------------------------------
Omnicom Group Inc. 25,000 1,440,750
========================================================================
3,477,150
========================================================================
Aerospace & Defense-0.58%
Integrated Defense Technologies, Inc.(a) 30,000 420,900
- ------------------------------------------------------------------------
L-3 Communications Holdings, Inc.(a) 3,900 183,300
========================================================================
604,200
========================================================================
Air Freight & Logistics-0.67%
Pacer International, Inc.(a) 60,000 708,000
========================================================================
Airlines-0.51%
SkyWest, Inc. 35,000 530,985
========================================================================
Apparel Retail-3.71%
Abercrombie & Fitch Co.-Class A(a) 75,000 1,336,500
- ------------------------------------------------------------------------
Gap, Inc. (The) 135,000 1,588,950
- ------------------------------------------------------------------------
Talbots, Inc. (The) 35,000 970,200
========================================================================
3,895,650
========================================================================
Apparel, Accessories & Luxury Goods-0.73%
Polo Ralph Lauren Corp.(a) 40,000 761,600
========================================================================
Application Software-3.65%
Activision, Inc.(a) 50,000 1,025,000
- ------------------------------------------------------------------------
Mercury Interactive Corp.(a) 20,000 527,400
- ------------------------------------------------------------------------
National Instruments Corp.(a) 23,500 674,215
- ------------------------------------------------------------------------
PeopleSoft, Inc.(a) 60,000 1,086,000
- ------------------------------------------------------------------------
Siebel Systems, Inc.(a) 70,000 526,400
========================================================================
3,839,015
========================================================================
Banks-1.15%
Southwest Bancorp. of Texas, Inc.(a) 25,000 706,250
- ------------------------------------------------------------------------
UCBH Holdings, Inc. 12,000 502,680
========================================================================
1,208,930
========================================================================
Broadcasting & Cable TV-2.26%
Hispanic Broadcasting Corp.(a) 50,000 1,075,000
- ------------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 50,000 1,295,500
========================================================================
2,370,500
========================================================================
Building Products-0.51%
Masco Corp. 26,000 534,560
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Catalog Retail-0.73%
Insight Enterprises, Inc.(a) 100,000 $ 764,000
========================================================================
Computer & Electronics Retail-2.26%
Best Buy Co., Inc.(a) 45,000 927,450
- ------------------------------------------------------------------------
CDW Computer Centers, Inc.(a) 13,000 689,260
- ------------------------------------------------------------------------
Electronics Boutique Holdings Corp.(a) 30,000 756,030
========================================================================
2,372,740
========================================================================
Construction & Engineering-0.43%
Jacobs Engineering Group Inc.(a) 15,000 454,350
========================================================================
Consumer Finance-1.45%
MBNA Corp. 75,000 1,523,250
========================================================================
Data Processing Services-6.96%
Automatic Data Processing, Inc. 10,000 425,300
- ------------------------------------------------------------------------
BISYS Group, Inc. (The)(a) 100,000 1,790,000
- ------------------------------------------------------------------------
Certegy Inc.(a) 40,000 840,000
- ------------------------------------------------------------------------
DST Systems, Inc.(a) 40,000 1,230,000
- ------------------------------------------------------------------------
First Data Corp. 25,000 873,500
- ------------------------------------------------------------------------
Iron Mountain Inc.(a) 45,000 1,269,450
- ------------------------------------------------------------------------
NDCHealth Corp. 50,000 882,500
========================================================================
7,310,750
========================================================================
Diversified Commercial Services-1.37%
Coinstar, Inc.(a) 15,000 449,850
- ------------------------------------------------------------------------
Education Management Corp.(a) 10,000 367,000
- ------------------------------------------------------------------------
FTI Consulting, Inc.(a) 15,000 624,000
========================================================================
1,440,850
========================================================================
Electronic Equipment & Instruments-1.65%
Photon Dynamics, Inc.(a) 40,000 857,200
- ------------------------------------------------------------------------
Waters Corp.(a) 35,000 881,300
========================================================================
1,738,500
========================================================================
Employment Services-1.59%
Robert Half International Inc.(a) 100,000 1,670,000
========================================================================
General Merchandise Stores-1.25%
Dollar Tree Stores, Inc.(a) 50,000 1,314,500
========================================================================
Health Care Distributors & Services-4.92%
AdvancePCS(a) 75,000 1,882,500
- ------------------------------------------------------------------------
AMN Healthcare Services, Inc.(a) 60,000 867,600
- ------------------------------------------------------------------------
Express Scripts, Inc.(a) 5,000 270,900
- ------------------------------------------------------------------------
Laboratory Corp. of America Holdings(a) 15,000 361,500
- ------------------------------------------------------------------------
</Table>
FS-110
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Health Care Distributors & Services-(Continued)
McKesson Corp. 60,000 $ 1,788,600
========================================================================
5,171,100
========================================================================
Health Care Equipment-1.42%
Fisher Scientific International Inc.(a) 15,000 429,000
- ------------------------------------------------------------------------
Kyphon Inc.(a) 60,000 567,600
- ------------------------------------------------------------------------
Med-Design Corp. (The)(a) 100,000 500,000
========================================================================
1,496,600
========================================================================
Health Care Facilities-1.31%
HCA Inc. 10,000 434,900
- ------------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 15,000 470,250
- ------------------------------------------------------------------------
Tenet Healthcare Corp.(a) 16,500 474,375
========================================================================
1,379,525
========================================================================
Health Care Supplies-0.59%
Alcon, Inc. (Switzerland)(a) 15,000 615,300
========================================================================
Homebuilding-0.41%
Centex Corp. 9,500 432,060
========================================================================
Hotels, Resorts & Cruise Lines-1.75%
Intrawest Corp. (Canada) 75,000 1,020,000
- ------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 35,000 815,500
========================================================================
1,835,500
========================================================================
Housewares & Specialties-0.98%
Yankee Candle Co., Inc. (The)(a) 60,000 1,029,000
========================================================================
Industrial Machinery-0.40%
SPX Corp.(a) 10,000 420,100
========================================================================
Integrated Telecommunication Services-0.55%
Intrado Inc.(a) 60,000 580,200
========================================================================
Internet Software & Services-0.84%
Fidelity National Information Solutions,
Inc.(a) 25,000 478,500
- ------------------------------------------------------------------------
SmartForce PLC-ADR (Ireland)(a) 100,000 401,000
========================================================================
879,500
========================================================================
IT Consulting & Services-3.28%
Forrester Research, Inc.(a) 40,000 552,000
- ------------------------------------------------------------------------
ProQuest Co.(a) 30,000 581,100
- ------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 90,000 1,995,300
- ------------------------------------------------------------------------
Titan Corp. (The)(a) 25,000 322,250
========================================================================
3,450,650
========================================================================
Leisure Products-0.63%
Nautilus Group, Inc. (The)(a) 20,000 274,800
- ------------------------------------------------------------------------
Racing Champions Ertl Corp.(a) 30,000 390,000
========================================================================
664,800
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Movies & Entertainment-0.67%
AMC Entertainment Inc.(a) 100,000 $ 705,000
========================================================================
Multi-Utilities & Unregulated Power-0.85%
El Paso Corp. 60,000 465,000
- ------------------------------------------------------------------------
Mirant Corp.(a) 200,000 428,000
========================================================================
893,000
========================================================================
Networking Equipment-0.44%
Brocade Communications Systems, Inc.(a) 67,500 463,725
========================================================================
Office Services & Supplies-0.41%
Daisytek International Corp.(a) 50,000 425,500
========================================================================
Oil & Gas Drilling-4.45%
Nabors Industries, Ltd. (Bermuda)(a) 55,000 1,923,350
- ------------------------------------------------------------------------
Patterson-UTI Energy, Inc.(a) 35,000 1,012,200
- ------------------------------------------------------------------------
Pride International, Inc.(a) 125,000 1,735,000
========================================================================
4,670,550
========================================================================
Oil & Gas Equipment & Services-2.28%
Hanover Compressor Co.(a) 50,000 524,500
- ------------------------------------------------------------------------
Smith International, Inc.(a) 60,000 1,875,600
========================================================================
2,400,100
========================================================================
Oil & Gas Exploration & Production-2.68%
Quicksilver Resources Inc.(a) 25,000 550,000
- ------------------------------------------------------------------------
Spinnaker Exploration Co.(a) 75,000 1,443,750
- ------------------------------------------------------------------------
Ultra Petroleum Corp.(a) 100,000 823,000
========================================================================
2,816,750
========================================================================
Oil & Gas Refining, Marketing &
Transportation-0.38%
Premcor Inc.(a) 20,000 401,000
========================================================================
Personal Products-1.39%
Estee Lauder Cos. Inc. (The)-Class A 50,000 1,456,000
========================================================================
Pharmaceuticals-2.11%
King Pharmaceuticals, Inc.(a) 25,000 383,750
- ------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(a) 40,000 1,836,000
========================================================================
2,219,750
========================================================================
Property & Casualty Insurance-1.02%
ACE Ltd. (Cayman Islands) 35,000 1,076,250
========================================================================
Publishing-0.63%
Scholastic Corp.(a) 15,000 662,250
========================================================================
Restaurants-3.56%
AFC Enterprises, Inc.(a) 40,000 730,800
- ------------------------------------------------------------------------
CEC Entertainment Inc.(a) 35,000 973,000
- ------------------------------------------------------------------------
Darden Restaurants, Inc. 50,000 949,000
- ------------------------------------------------------------------------
</Table>
FS-111
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Restaurants-(Continued)
Outback Steakhouse, Inc. 32,000 $ 1,089,600
========================================================================
3,742,400
========================================================================
Semiconductor Equipment-2.83%
Cabot Microelectronics Corp.(a) 35,000 1,588,650
- ------------------------------------------------------------------------
Mykrolis Corp.(a) 50,000 280,500
- ------------------------------------------------------------------------
Novellus Systems, Inc.(a) 35,000 1,106,000
========================================================================
2,975,150
========================================================================
Semiconductors-2.65%
Broadcom Corp.-Class A(a) 70,000 838,600
- ------------------------------------------------------------------------
ChipPAC, Inc.-Class A(a) 150,000 397,650
- ------------------------------------------------------------------------
Micron Technology, Inc.(a) 75,000 1,200,000
- ------------------------------------------------------------------------
Semtech Corp.(a) 25,000 353,250
========================================================================
2,789,500
========================================================================
Specialty Stores-3.66%
Foot Locker, Inc.(a) 75,000 735,000
- ------------------------------------------------------------------------
Rent-A-Center, Inc.(a) 17,500 776,125
- ------------------------------------------------------------------------
Tiffany & Co. 30,000 785,400
- ------------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 65,000 1,547,000
========================================================================
3,843,525
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Systems Software-0.73%
VERITAS Software Corp.(a) 50,000 $ 762,500
========================================================================
Telecommunications Equipment-4.41%
Arris Group Inc.(a) 250,000 435,000
- ------------------------------------------------------------------------
Harmonic Inc.(a) 200,000 358,000
- ------------------------------------------------------------------------
UTStarcom, Inc.(a) 225,000 3,843,000
========================================================================
4,636,000
========================================================================
Trading Companies & Distributors-0.48%
Fastenal Co. 15,000 509,250
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $105,392,708) 91,922,065
========================================================================
MONEY MARKET FUNDS-13.05%
STIC Liquid Assets Portfolio(b) 6,856,431 6,856,431
- ------------------------------------------------------------------------
STIC Prime Portfolio(b) 6,856,431 6,856,431
========================================================================
Total Money Market Funds (Cost
$13,712,862) 13,712,862
========================================================================
TOTAL INVESTMENTS-100.53% (Cost $119,105,570) 105,634,927
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.53%) (559,283)
========================================================================
NET ASSETS-100.00% $105,075,644
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-112
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$119,105,570)* $105,634,927
- -------------------------------------------------------------
Receivables for:
Investments sold 6,038,726
- -------------------------------------------------------------
Fund shares sold 56,514
- -------------------------------------------------------------
Dividends 12,951
- -------------------------------------------------------------
Investment for deferred compensation plan 10,304
- -------------------------------------------------------------
Collateral for securities loaned 10,358,147
- -------------------------------------------------------------
Other assets 13,571
=============================================================
Total assets 122,125,140
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 6,159,639
- -------------------------------------------------------------
Fund shares reacquired 312,648
- -------------------------------------------------------------
Deferred compensation plan 10,304
- -------------------------------------------------------------
Collateral upon return of securities loaned 10,358,147
- -------------------------------------------------------------
Accrued distribution fees 95,392
- -------------------------------------------------------------
Accrued trustees' fees 614
- -------------------------------------------------------------
Accrued transfer agent fees 66,459
- -------------------------------------------------------------
Accrued operating expenses 46,293
=============================================================
Total liabilities 17,049,496
=============================================================
Net assets applicable to shares outstanding $105,075,644
_____________________________________________________________
=============================================================
NET ASSETS:
Class A $ 51,821,974
_____________________________________________________________
=============================================================
Class B $ 36,059,524
_____________________________________________________________
=============================================================
Class C $ 17,194,146
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 12,589,176
_____________________________________________________________
=============================================================
Class B 8,903,269
_____________________________________________________________
=============================================================
Class C 4,248,581
_____________________________________________________________
=============================================================
Class A:
Net asset value per share $ 4.12
- -------------------------------------------------------------
Offering price per share:
(Net asset value of $4.12 divided by
94.50%) $ 4.36
_____________________________________________________________
=============================================================
Class B:
Net asset value and offering price per
share $ 4.05
_____________________________________________________________
=============================================================
Class C:
Net asset value and offering price per
share $ 4.05
_____________________________________________________________
=============================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $9,896,883
were on loan to brokers.
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$1,983) $ 276,688
- -------------------------------------------------------------
Dividends from affiliated money market funds 169,106
- -------------------------------------------------------------
Security lending income 108,544
=============================================================
Total investment income 554,338
=============================================================
EXPENSES:
Advisory fees 1,352,147
- -------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------
Custodian fees 51,326
- -------------------------------------------------------------
Distribution fees -- Class A 274,207
- -------------------------------------------------------------
Distribution fees -- Class B 553,611
- -------------------------------------------------------------
Distribution fees -- Class C 253,702
- -------------------------------------------------------------
Transfer agent fees 826,456
- -------------------------------------------------------------
Trustees' fees 9,001
- -------------------------------------------------------------
Other 166,420
=============================================================
Total expenses 3,536,870
=============================================================
Less: Fees waived (1,704)
- -------------------------------------------------------------
Expenses paid indirectly (3,457)
=============================================================
Net expenses 3,531,709
=============================================================
Net investment income (loss) (2,977,371)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (43,958,840)
- -------------------------------------------------------------
Foreign currencies 6,853
- -------------------------------------------------------------
Option contracts written 463,689
=============================================================
(43,488,298)
=============================================================
Change in net unrealized appreciation of
investment securities 7,080,269
=============================================================
Net gain (loss) from investment securities,
foreign currencies and option contracts (36,408,029)
=============================================================
Net increase (decrease) in net assets
resulting from operations $(39,385,400)
_____________________________________________________________
=============================================================
</Table>
See Notes to Financial Statements.
FS-113
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,977,371) $ (3,685,565)
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts (43,488,298) (129,204,045)
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 7,080,269 (11,516,298)
============================================================================================
Net increase (decrease) in net assets resulting from
operations (39,385,400) (144,405,908)
============================================================================================
Distributions to shareholders from net realized gains:
Class A -- (6,485,823)
- --------------------------------------------------------------------------------------------
Class B -- (4,157,366)
- --------------------------------------------------------------------------------------------
Class C -- (1,871,035)
- --------------------------------------------------------------------------------------------
Share transactions-net:
Class A (10,076,931) 14,714,393
- --------------------------------------------------------------------------------------------
Class B (8,139,807) 15,848,783
- --------------------------------------------------------------------------------------------
Class C (2,937,370) 8,770,527
============================================================================================
Net increase (decrease) in net assets (60,539,508) (117,586,429)
============================================================================================
NET ASSETS:
Beginning of year 165,615,152 283,201,581
============================================================================================
End of year $ 105,075,644 $ 165,615,152
____________________________________________________________________________________________
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 294,868,387 $ 318,987,409
- --------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (14,890) (9,286)
- --------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and option contracts (176,307,210) (132,812,059)
- --------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (13,470,643) (20,550,912)
============================================================================================
$ 105,075,644 $ 165,615,152
____________________________________________________________________________________________
============================================================================================
</Table>
See Notes to Financial Statements.
FS-114
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Emerging Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers three different classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. 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 preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. 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
FS-115
currency contract to attempt to minimize the risk to the Fund from adverse
changes in the relationship between currencies. The Fund may also enter
into a foreign currency contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. dollar
price of that security. The Fund could be exposed to risk if counterparties
to the contracts are unable to meet the terms of their contracts or if the
value of the foreign currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
H. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged.
I. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.85% of
the first $1 billion of the Fund's average daily net assets plus 0.80% of the
Fund's average daily net assets over $1 billion. AIM has voluntarily agreed to
waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market fund of which the Fund has invested.
For the year ended October 31, 2002, AIM waived fees of $1,704.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2002, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended October 31, 2002, AFS
retained $499,378 for such services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and Class C shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B or Class C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. NASD
Rules also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
master distribution agreements, for the year ended October 31, 2002, the Class
A, Class B and Class C shares paid $274,207, $553,611 and $253,702,
respectively.
AIM Distributors retained commissions of $42,050 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 2002,
AIM Distributors retained $3,447, $204 and $4,490 in contingent deferred sales
charges imposed on redemptions of Class A, Class B and Class C shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $4,320 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the year ended October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $2,671 and reductions in custodian
fees of $786 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $3,457.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
FS-116
NOTE 5--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended October 31,
2002, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At October 31, 2002, securities with an aggregate value of $9,896,883 were on
loan to brokers. The loans were secured by cash collateral of $10,358,147
received by the Fund and invested in STIC Liquid Assets Portfolio, an affiliated
money market fund. For the year ended October 31, 2002, the Fund received fees
of $108,544 for securities lending.
NOTE 7--CALL OPTION CONTRACTS
Transactions in call options written during the year ended October 31, 2002 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------
Beginning of year -- $ --
- ------------------------------------------------------------
Written 14,180 1,198,094
- ------------------------------------------------------------
Closed (10,000) (873,109)
- ------------------------------------------------------------
Exercised (1,595) (126,208)
- ------------------------------------------------------------
Expired (2,585) (198,777)
============================================================
End of year -- $ --
____________________________________________________________
============================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
The tax character of distributions paid during the years ended October 31, 2002
and 2001 were as follows:
<Table>
<Caption>
2002 2001
- -------------------------------------------------------------
Distributions paid from ordinary Income $ -- $12,514,224
_____________________________________________________________
=============================================================
</Table>
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation
(depreciation)-investments $ (16,033,675)
- -------------------------------------------------------------
Temporary book/tax differences (14,890)
- -------------------------------------------------------------
Capital loss carryforward (173,744,178)
- -------------------------------------------------------------
Shares of beneficial interest 294,868,387
=============================================================
$ 105,075,644
_____________________________________________________________
=============================================================
</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) is attributable to the tax deferral of losses on
wash sales. The temporary book/tax differences are a result of timing
differences between book and tax recognition of income and/or expenses. The
Fund's temporary book/tax differences are the result of the deferral of trustee
compensation and retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -------------------------------
October 31, 2009 $128,445,323
- -------------------------------
October 31, 2010 45,298,855
===============================
$173,744,178
_______________________________
===============================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 2002 was
$604,899,388 and $636,322,122, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of investment
securities $ 5,215,259
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (21,248,934)
=============================================================
Net unrealized appreciation (depreciation) of
investment securities $(16,033,675)
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $121,668,602.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions, a
net operating loss reclassification and other items, on October 31, 2002,
undistributed net investment income (loss) was increased by $2,971,767,
undistributed net realized gain (loss) decreased by $6,853 and shares of
beneficial interest decreased by $2,964,914. This reclassification had no effect
on the net assets of the Fund.
FS-117
NOTE 11--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 8,175,285* $ 45,450,141* 10,878,561 $ 81,971,539
- ------------------------------------------------------------------------------------------------------------------------
Class B 1,711,610 9,848,093 4,634,109 35,853,848
- ------------------------------------------------------------------------------------------------------------------------
Class C 1,313,206 7,417,468 2,272,711 17,218,224
========================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 735,802 6,291,110
- ------------------------------------------------------------------------------------------------------------------------
Class B -- -- 472,976 4,025,501
- ------------------------------------------------------------------------------------------------------------------------
Class C -- -- 208,202 1,771,798
========================================================================================================================
Reacquired:
Class A (10,450,880) (55,527,072) (10,760,676) (73,548,256)
- ------------------------------------------------------------------------------------------------------------------------
Class B (3,545,284)* (17,987,900)* (3,422,165) (24,030,566)
- ------------------------------------------------------------------------------------------------------------------------
Class C (1,969,513) (10,354,838) (1,530,116) (10,219,495)
========================================================================================================================
(4,765,576) $(21,154,108) 3,489,404 $ 39,333,703
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
* Includes automatic conversion of 72,057 shares of Class B shares in the amount
of $388,408 to 70,830 shares of Class A shares in the amount of $388,408.
FS-118
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------
MARCH 31, 2000
YEAR ENDED (DATE OPERATIONS
OCTOBER 31, COMMENCED) TO
-------------------------- OCTOBER 31,
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.46 $ 10.50 $ 10.00
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.10) (0.04)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.26) (4.51) 0.54
==================================================================================================================
Total from investment operations (1.34) (4.61) 0.50
==================================================================================================================
Less distributions from net realized gains -- (0.43) --
==================================================================================================================
Net asset value, end of period $ 4.12 $ 5.46 $ 10.50
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(b) (24.54)% (45.37)% 5.00%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $51,822 $81,114 $147,101
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets 1.89%(c) 1.71%(d) 1.68%(e)
==================================================================================================================
Ratio of net investment income (loss) to average net assets (1.54)%(c) (1.32)% (1.04)%(e)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate 407% 242% 111%
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with general accepted accounting
principles, does not include sales charges and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $78,344,799.
(d) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 1.83%.
(e) Annualized.
FS-119
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------
MARCH 31, 2000
YEAR ENDED (DATE OPERATIONS
OCTOBER 31, COMMENCED) TO
-------------------------- OCTOBER 31,
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.40 $ 10.47 $ 10.00
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)(a) (0.14) (0.07)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.23) (4.50) 0.54
==================================================================================================================
Total from investment operations (1.35) (4.64) 0.47
==================================================================================================================
Less distributions from net realized gains -- (0.43) --
==================================================================================================================
Net asset value, end of period $ 4.05 $ 5.40 $ 10.47
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(b) (25.00)% (45.81)% 4.70%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $36,060 $58,019 $94,740
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets 2.55%(c) 2.36%(d) 2.37%(e)
==================================================================================================================
Ratio of net investment income (loss) to average net assets (2.19)%(c) (1.98)% (1.73)%(e)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate 407% 242% 111%
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with general accepted accounting
principles, does not include contingent deferred sales charges and is
not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $55,361,074.
(d) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 2.48%.
(e) Annualized.
FS-120
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------
MARCH 31, 2000
YEAR ENDED (DATE OPERATIONS
OCTOBER 31, COMMENCED) TO
-------------------------- OCTOBER 31,
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.40 $ 10.46 $ 10.00
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)(a) (0.14) (0.07)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.23) (4.49) 0.53
==================================================================================================================
Total from investment operations (1.35) (4.63) 0.46
==================================================================================================================
Less distributions from net realized gains -- (0.43) --
==================================================================================================================
Net asset value, end of period $ 4.05 $ 5.40 $ 10.46
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(b) (25.00)% (45.76)% 4.60%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $17,194 $26,483 $41,361
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets 2.55%(c) 2.36%(d) 2.37%(e)
==================================================================================================================
Ratio of net investment income (loss) to average net assets (2.19)%(c) (1.98)% (1.73)%(e)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate 407% 242% 111%
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with general accepted accounting
principles, does not include contingent deferred sales charges and is
not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $25,370,253.
(d) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 2.48%.
(e) Annualized.
FS-121
Report of Independent Auditors
To the Shareholders of AIM Large Cap Basic Value Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Large Cap Basic Value Fund (a portfolio AIM Equity Funds), including the
schedule of investments, as of October 31, 2002, and the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the two years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for the periods presented from commencement of operations through
October 31, 2000 were audited by other auditors whose report dated December 6,
2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Large Cap Basic Value Fund as of October 31, 2002, and the results of its
operations for the year then ended, and the changes in its net assets and
financial highlights for each of the two years in the period then ended in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
December 10, 2002
FS-122
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS-90.70%
Advertising-4.24%
Interpublic Group of Cos., Inc. (The) 241,500 $ 2,890,755
- ------------------------------------------------------------------------
Omnicom Group Inc. 82,300 4,742,949
========================================================================
7,633,704
========================================================================
Aerospace & Defense-1.74%
Honeywell International Inc. 130,600 3,126,564
========================================================================
Apparel Retail-2.33%
Gap, Inc. (The) 357,100 4,203,067
========================================================================
Banks-5.96%
Bank of America Corp. 56,900 3,971,620
- ------------------------------------------------------------------------
Bank of New York Co., Inc. (The) 113,000 2,938,000
- ------------------------------------------------------------------------
Bank One Corp. 99,000 3,818,430
========================================================================
10,728,050
========================================================================
Building Products-2.37%
Masco Corp. 207,800 4,272,368
========================================================================
Construction, Farm Machinery & Heavy
Trucks-1.58%
Deere & Co. 61,200 2,839,068
========================================================================
Consumer Electronics-1.20%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 122,270 2,164,179
========================================================================
Data Processing Services-4.05%
Ceridian Corp.(a) 212,300 2,925,494
- ------------------------------------------------------------------------
First Data Corp. 125,200 4,374,488
========================================================================
7,299,982
========================================================================
Diversified Commercial Services-3.26%
Cendant Corp.(a) 196,000 2,254,000
- ------------------------------------------------------------------------
H&R Block, Inc. 81,700 3,625,846
========================================================================
5,879,846
========================================================================
Diversified Financial Services-12.99%
Citigroup Inc. 175,293 6,477,076
- ------------------------------------------------------------------------
Freddie Mac 87,900 5,412,882
- ------------------------------------------------------------------------
J.P. Morgan Chase & Co. 190,000 3,942,500
- ------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 98,000 3,719,100
- ------------------------------------------------------------------------
Morgan Stanley 99,000 3,853,080
========================================================================
23,404,638
========================================================================
Electric Utilities-0.70%
PG&E Corp.(a) 116,500 1,264,025
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Environmental Services-3.06%
Waste Management, Inc. 239,750 $ 5,519,045
========================================================================
Food Retail-3.93%
Kroger Co. (The)(a) 273,100 4,052,804
- ------------------------------------------------------------------------
Safeway Inc.(a) 131,000 3,026,100
========================================================================
7,078,904
========================================================================
General Merchandise Stores-1.87%
Target Corp. 112,100 3,376,452
========================================================================
Health Care Distributors & Services-1.29%
McKesson Corp. 78,000 2,325,180
========================================================================
Industrial Conglomerates-5.38%
General Electric Co. 125,000 3,156,250
- ------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 452,400 6,541,704
========================================================================
9,697,954
========================================================================
Industrial Machinery-2.03%
Illinois Tool Works Inc. 59,600 3,659,440
========================================================================
Insurance Brokers-1.17%
Marsh & McLennan Cos., Inc. 45,100 2,106,621
========================================================================
Integrated Telecommunication Services-1.90%
AT&T Corp. 261,700 3,412,568
========================================================================
Life & Health Insurance-1.52%
Prudential Financial, Inc.(a) 94,000 2,744,800
========================================================================
Managed Health Care-1.71%
UnitedHealth Group Inc. 33,900 3,083,205
========================================================================
Movies & Entertainment-2.57%
Walt Disney Co. (The) 276,800 4,622,560
========================================================================
Multi-Utilities & Unregulated Power-1.79%
Duke Energy Corp. 157,000 3,216,930
========================================================================
Oil & Gas Drilling-4.83%
ENSCO International Inc. 159,000 4,299,360
- ------------------------------------------------------------------------
Transocean Inc. 200,277 4,402,089
========================================================================
8,701,449
========================================================================
Oil & Gas Equipment & Services-2.77%
Schlumberger Ltd. (Netherlands) 124,200 4,981,662
========================================================================
</Table>
FS-123
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Pharmaceuticals-3.13%
Pharmacia Corp. 54,857 $ 2,358,851
- ------------------------------------------------------------------------
Wyeth 98,000 3,283,000
========================================================================
5,641,851
========================================================================
Photographic Products-1.65%
Eastman Kodak Co. 90,100 2,968,795
========================================================================
Property & Casualty Insurance-3.11%
ACE Ltd. (Cayman Islands) 140,300 4,314,225
- ------------------------------------------------------------------------
MGIC Investment Corp. 30,600 1,283,976
========================================================================
5,598,201
========================================================================
Semiconductor Equipment-2.95%
Applied Materials, Inc.(a) 354,000 5,320,620
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Systems Software-2.41%
Computer Associates International, Inc. 291,500 $ 4,331,690
========================================================================
Telecommunications Equipment-1.21%
Motorola, Inc. 238,500 2,187,045
========================================================================
Total Common Stocks (Cost $201,602,876) 163,390,463
========================================================================
MONEY MARKET FUNDS-3.43%
STIC Liquid Assets Portfolio(b) 3,093,942 3,093,942
- ------------------------------------------------------------------------
STIC Prime Portfolio(b) 3,093,942 3,093,942
========================================================================
Total Money Market Funds (Cost
$6,187,884) 6,187,884
========================================================================
TOTAL INVESTMENTS-94.13% (Cost $207,790,760) 169,578,347
========================================================================
OTHER ASSETS LESS LIABILITIES-5.87% 10,567,874
========================================================================
NET ASSETS-100.00% $180,146,221
________________________________________________________________________
========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-124
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$207,790,760) $169,578,347
- -------------------------------------------------------------
Receivables for:
Fund shares sold 11,059,450
- -------------------------------------------------------------
Dividends 241,465
- -------------------------------------------------------------
Investment for deferred compensation plan 13,459
- -------------------------------------------------------------
Other assets 31,100
=============================================================
Total assets 180,923,821
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 511,579
- -------------------------------------------------------------
Deferred compensation plan 13,459
- -------------------------------------------------------------
Accrued distribution fees 169,586
- -------------------------------------------------------------
Accrued trustees' fees 958
- -------------------------------------------------------------
Accrued transfer agent fees 52,482
- -------------------------------------------------------------
Accrued operating expenses 29,536
=============================================================
Total liabilities 777,600
=============================================================
Net assets applicable to shares outstanding $180,146,221
_____________________________________________________________
=============================================================
NET ASSETS:
Class A $ 94,386,519
_____________________________________________________________
=============================================================
Class B $ 63,976,578
_____________________________________________________________
=============================================================
Class C $ 21,775,194
_____________________________________________________________
=============================================================
Class R $ 7,930
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 10,256,870
_____________________________________________________________
=============================================================
Class B 7,055,270
_____________________________________________________________
=============================================================
Class C 2,401,565
_____________________________________________________________
=============================================================
Class R 862
_____________________________________________________________
=============================================================
Class A:
Net asset value per share $ 9.20
- -------------------------------------------------------------
Offering price per share:
(Net asset value of $9.20 divided by
94.50%) $ 9.74
_____________________________________________________________
=============================================================
Class B:
Net asset value and offering price per share $ 9.07
_____________________________________________________________
=============================================================
Class C:
Net asset value and offering price per share $ 9.07
_____________________________________________________________
=============================================================
Class R:
Net asset value and offering price per share $ 9.20
_____________________________________________________________
=============================================================
</Table>
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$5,993) $ 2,746,176
- -------------------------------------------------------------
Dividends from affiliated money market funds 103,765
- -------------------------------------------------------------
Interest 38,013
- -------------------------------------------------------------
Security lending income 3,342
=============================================================
Total investment income 2,891,296
=============================================================
EXPENSES:
Advisory fees 1,168,281
- -------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------
Custodian fees 41,450
- -------------------------------------------------------------
Distribution fees -- Class A 349,059
- -------------------------------------------------------------
Distribution fees -- Class B 697,535
- -------------------------------------------------------------
Distribution fees -- Class C 252,255
- -------------------------------------------------------------
Distribution fees -- Class R 17
- -------------------------------------------------------------
Transfer agent fees 539,629
- -------------------------------------------------------------
Trustees' fees 9,513
- -------------------------------------------------------------
Other 188,007
=============================================================
Total expenses 3,295,746
=============================================================
Less: Fees waived (793)
- -------------------------------------------------------------
Expenses paid indirectly (2,928)
=============================================================
Net expenses 3,292,025
=============================================================
Net investment income (loss) (400,729)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (13,193,071)
- -------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (26,617,408)
=============================================================
Net gain (loss) from investment securities (39,810,479)
=============================================================
Net increase (decrease) in net assets resulting
from operations $(40,211,208)
_____________________________________________________________
=============================================================
</Table>
See Notes to Financial Statements.
FS-125
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (400,729) $ (169,797)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
option contracts (13,193,071) (3,723,278)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (26,617,408) (12,281,495)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations (40,211,208) (16,174,570)
==========================================================================================
Distributions to shareholders from net investment income:
Class A -- (42,840)
- ------------------------------------------------------------------------------------------
Class B -- (23,006)
- ------------------------------------------------------------------------------------------
Class C -- (9,037)
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A -- (23,272)
- ------------------------------------------------------------------------------------------
Class B -- (16,266)
- ------------------------------------------------------------------------------------------
Class C -- (6,794)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 47,013,800 70,108,784
- ------------------------------------------------------------------------------------------
Class B 19,109,813 62,478,722
- ------------------------------------------------------------------------------------------
Class C 6,186,422 21,795,123
- ------------------------------------------------------------------------------------------
Class R 10,003 --
==========================================================================================
Net increase in net assets 32,108,830 138,086,844
==========================================================================================
NET ASSETS:
Beginning of year 148,037,391 9,950,547
==========================================================================================
End of year $180,146,221 $148,037,391
__________________________________________________________________________________________
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $235,342,926 $163,417,511
- ------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (18,649) (12,543)
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and option contracts (16,965,643) (3,772,572)
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (38,212,413) (11,595,005)
==========================================================================================
$180,146,221 $148,037,391
__________________________________________________________________________________________
==========================================================================================
</Table>
See Notes to Financial Statements.
FS-126
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Large Cap Basic Value Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers four different classes of shares: Class A shares, Class B
shares, Class C shares and Class R shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Class R shares are sold at net asset value.
Matters affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund. The Fund's primary investment
objective is long-term growth of capital with a secondary objective of current
income.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
FS-127
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. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.60% of
the first $1 billion of the Fund's average daily net assets, plus 0.575% over $1
billion to and including $2 billion of the Fund's average daily net assets and
0.55% of the Fund's average daily net assets over $2 billion. AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market fund of which the
Fund has invested. For the year ended October 31, 2002, AIM waived fees of $793.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2002, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended October 31, 2002, AFS
retained $261,475 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C and Class R 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 shares, Class B shares, Class C shares and Class R shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.35% of the Fund's average daily net assets of Class A
shares, 1.00% of the average daily net assets of Class B and Class C shares and
0.50% of the average daily net assets of Class R shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B, Class C or Class R shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the master distribution agreements, for the year
ended October 31, 2002, the Class A, Class B, Class C and Class R shares paid
$349,059, $697,535, $252,255 and $17, respectively.
AIM Distributors retained commissions of $72,325 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 2002,
AIM Distributors retained $1,341, $136, $9,035, and $0 in contingent deferred
sales charges imposed on redemptions of Class A, Class B, Class C and Class R
shares, respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $4,327 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the year ended October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $2,920 and reductions in custodian
fees of $8 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $2,928.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended October 31,
2002, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At October 31, 2002, there were no securities on loan to brokers. For the year
ended October 31, 2002, the Fund received fees of $3,342 for securities lending.
FS-128
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
The tax character of distributions paid during the years ended October 31, 2002
and 2001 were as follows:
<Table>
<Caption>
2002 2001
- --------------------------------------------------------------
Distributions paid from ordinary income $ -- $121,215
______________________________________________________________
==============================================================
</Table>
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation
(depreciation)--investments $(39,118,476)
- -------------------------------------------------------------
Temporary book/tax differences (18,649)
- -------------------------------------------------------------
Capital loss carryforward (16,059,580)
- -------------------------------------------------------------
Shares of beneficial interest 235,342,926
=============================================================
$180,146,221
_____________________________________________________________
=============================================================
</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 book and tax purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the tax
deferral of losses on wash sales.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the deferral of trustee compensation and
retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
-------------------------------------------------------
October 31, 2009 $ 2,651,488
-------------------------------------------------------
October 31, 2010 13,408,092
=======================================================
$16,059,580
_______________________________________________________
=======================================================
</Table>
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 2002 was
$128,166,154 and $67,785,275, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of investment
securities $ 6,614,421
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (45,732,897)
=============================================================
Net unrealized appreciation (depreciation) of
investment securities $(39,118,476)
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $208,696,823.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of a net operating loss
reclassification on October 31, 2002, undistributed net investment income (loss)
was increased by $394,623 and shares of beneficial interest decreased by
$394,623. This reclassification had no effect on net assets of the Fund.
NOTE 10--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 12,415,160* $131,220,111* 7,153,461 $ 86,201,459
- ----------------------------------------------------------------------------------------------------------------------
Class B 4,427,046 47,877,276 6,008,413 71,939,323
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,524,511 16,806,696 2,229,528 26,797,760
- ----------------------------------------------------------------------------------------------------------------------
Class R** 862 10,003 -- --
======================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 5,215 60,966
- ----------------------------------------------------------------------------------------------------------------------
Class B -- -- 3,133 36,546
- ----------------------------------------------------------------------------------------------------------------------
Class C -- -- 1,248 14,550
- ----------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (8,433,346) (84,206,311) (1,372,417) (16,153,641)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,777,520)* (28,767,463)* (839,944) (9,497,147)
- ----------------------------------------------------------------------------------------------------------------------
Class C (1,028,142) (10,620,274) (429,406) (5,017,187)
======================================================================================================================
6,128,571 $ 72,320,038 12,759,231 $154,382,629
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Includes automatic conversion of 71,494 shares of Class B shares in the
amount of $788,677 to 69,318 shares of Class A shares in the amount of $788,677.
** Class R shares commenced sales on June 3, 2002.
FS-129
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------
JUNE 30, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
---------------------------------- OCTOBER 31,
2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.94 $ 12.05 $ 9.40 $10.00
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01(a) 0.02(a) 0.07(a) 0.03
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.75) (1.07) 2.88 (0.63)
=======================================================================================================================
Total from investment operations (1.74) (1.05) 2.95 (0.60)
=======================================================================================================================
Less distributions:
Dividends from net investment income -- (0.04) (0.18) --
- -----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.02) (0.12) --
=======================================================================================================================
Total distributions -- (0.06) (0.30) --
=======================================================================================================================
Net asset value, end of period $ 9.20 $ 10.94 $12.05 $ 9.40
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(b) (15.90)% (8.74)% 32.21% (6.00)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $94,387 $68,676 $5,888 $1,153
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.38%(c) 1.27% 1.25% 1.25%(d)
- -----------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.38%(c) 1.36% 8.21% 10.02%(d)
=======================================================================================================================
Ratio of net investment income to average net assets 0.11%(c) 0.17% 0.62% 0.87%(d)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate 37% 18% 57% 10%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles, does not include sales charges and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $99,731,035.
(d) Annualized.
FS-130
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------
AUGUST 1, 2000
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2002 2001 2000
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.86 $ 12.02 $10.85
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.06)(a) 0.00
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.73) (1.05) 1.17
========================================================================================================
Total from investment operations (1.79) (1.11) 1.17
========================================================================================================
Less distributions:
Dividends from net investment income -- (0.03) --
- --------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.02) --
========================================================================================================
Total distributions -- (0.05) --
========================================================================================================
Net asset value, end of period $ 9.07 $ 10.86 $12.02
________________________________________________________________________________________________________
========================================================================================================
Total return(b) (16.48)% (9.25)% 10.78%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $63,977 $58,681 $2,815
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.02%(c) 1.95% 1.93%(d)
- --------------------------------------------------------------------------------------------------------
Without fee waivers 2.02%(c) 2.04% 8.89%(d)
========================================================================================================
Ratio of net investment income (loss) to average net assets (0.53)%(c) (0.51)% (0.06)%(d)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate 37% 18% 57%
________________________________________________________________________________________________________
========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles, does not include contingent deferred sales charges and is
not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $69,753,529.
(d) Annualized.
FS-131
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------
AUGUST 1, 2000
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2002 2001 2000
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.85 $ 12.02 $10.85
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.06)(a) 0.00
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.72) (1.06) 1.17
========================================================================================================
Total from investment operations (1.78) (1.12) 1.17
========================================================================================================
Less distributions:
Dividends from net investment income -- (0.03) --
- --------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.02) --
========================================================================================================
Total distributions -- (0.05) --
========================================================================================================
Net asset value, end of period $ 9.07 $ 10.85 $12.02
________________________________________________________________________________________________________
========================================================================================================
Total return(b) (16.41)% (9.33)% 10.78%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $21,775 $20,680 $1,248
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.02%(c) 1.95% 1.93%(d)
- --------------------------------------------------------------------------------------------------------
Without fee waivers 2.02%(c) 2.04% 8.89%(d)
========================================================================================================
Ratio of net investment income (loss) to average net assets (0.53)%(c) (0.51)% (0.06)%(d)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate 37% 18% 57%
________________________________________________________________________________________________________
========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles, does not include contingent deferred sales charges and is
not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $25,225,493.
(d) Annualized.
FS-132
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-------------
JUNE 3, 2002
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2002
- ---------------------------------------------------------------------------
Net asset value, beginning of period $11.60
- ---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00(a)
- ---------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.40)
===========================================================================
Total from investment operations (2.40)
===========================================================================
Net asset value, end of period $ 9.20
___________________________________________________________________________
===========================================================================
Total return(b) (20.69)%
___________________________________________________________________________
===========================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 8
___________________________________________________________________________
===========================================================================
Ratio of expenses to average net assets:
With fee waivers 1.54%(c)
- ---------------------------------------------------------------------------
Without fee waivers 1.54%(c)
===========================================================================
Ratio of net investment income (loss) to average net assets (0.05)%(c)
___________________________________________________________________________
===========================================================================
Portfolio turnover rate 37%
___________________________________________________________________________
===========================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $8,438.
FS-133
Report of Independent Auditors
To the Shareholders of AIM Large Cap Core Equity Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Large Cap Core Equity Fund (a portfolio AIM Equity Funds), including the
schedule of investments, as of October 31, 2002, and the related statement of
operations, statement of changes in net assets, and financial highlights for the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Large Cap Core Equity Fund as of October 31, 2002, and the results of its
operations, changes in its net assets, and financial highlights for the period
then ended in conformity with accounting principles generally accepted in the
United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
December 10, 2002
FS-134
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-82.15%
Advertising-1.26%
Omnicom Group Inc. 3,500 $ 201,705
======================================================================
Aerospace & Defense-3.59%
Lockheed Martin Corp. 1,100 63,690
- ----------------------------------------------------------------------
Northrop Grumman Corp. 2,400 247,512
- ----------------------------------------------------------------------
Raytheon Co. 9,000 265,500
======================================================================
576,702
======================================================================
Apparel Retail-1.29%
Limited Brands 13,200 206,844
======================================================================
Banks-2.36%
Bank of America Corp. 2,300 160,540
- ----------------------------------------------------------------------
Washington Mutual, Inc. 6,100 218,136
======================================================================
378,676
======================================================================
Biotechnology-0.75%
Amgen Inc.(a) 2,600 121,056
======================================================================
Brewers-1.68%
Anheuser-Busch Cos., Inc. 5,100 269,076
======================================================================
Building Products-2.07%
American Standard Cos. Inc.(a) 2,600 173,420
- ----------------------------------------------------------------------
Masco Corp. 7,700 158,312
======================================================================
331,732
======================================================================
Computer & Electronics Retail-0.77%
Best Buy Co., Inc.(a) 6,000 123,660
======================================================================
Computer Hardware-1.92%
International Business Machines Corp. 3,900 307,866
======================================================================
Construction Materials-0.84%
Vulcan Materials Co. 4,000 134,240
======================================================================
Data Processing Services-2.47%
Automatic Data Processing, Inc. 5,700 242,421
- ----------------------------------------------------------------------
Convergys Corp.(a) 10,300 153,264
======================================================================
395,685
======================================================================
Diversified Financial Services-3.43%
Citigroup Inc. 6,000 221,700
- ----------------------------------------------------------------------
Morgan Stanley 3,200 124,544
- ----------------------------------------------------------------------
Principal Financial Group, Inc. (The) 7,300 204,765
======================================================================
551,009
======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
Electric Utilities-0.32%
TXU Corp. 3,600 $ 51,660
======================================================================
Electrical Components & Equipment-1.44%
Emerson Electric Co. 4,800 231,264
======================================================================
Environmental Services-1.18%
Waste Management, Inc. 8,200 188,764
======================================================================
Food Retail-2.08%
Kroger Co. (The)(a) 12,500 185,500
- ----------------------------------------------------------------------
Safeway Inc.(a) 6,400 147,840
======================================================================
333,340
======================================================================
Footwear-1.00%
NIKE, Inc.-Class B 3,400 160,446
======================================================================
General Merchandise Stores-2.61%
Target Corp. 6,800 204,816
- ----------------------------------------------------------------------
Wal-Mart Stores, Inc. 4,000 214,200
======================================================================
419,016
======================================================================
Health Care Distributors & Services-2.06%
IMS Health Inc. 12,600 189,504
- ----------------------------------------------------------------------
Quest Diagnostics Inc.(a) 2,200 140,426
======================================================================
329,930
======================================================================
Health Care Equipment-0.82%
St. Jude Medical, Inc.(a) 3,700 131,757
======================================================================
Health Care Supplies-1.74%
Alcon, Inc. (Switzerland)(a) 6,800 278,936
======================================================================
Hotels, Resorts & Cruise Lines-0.75%
Carnival Corp. 4,600 120,152
======================================================================
Household Products-1.43%
Procter & Gamble Co. (The) 2,600 229,970
======================================================================
Housewares & Specialties-0.52%
Newell Rubbermaid Inc. 2,600 84,292
======================================================================
Industrial Machinery-2.48%
Dover Corp. 7,800 195,624
- ----------------------------------------------------------------------
Illinois Tool Works Inc. 3,300 202,620
======================================================================
398,244
======================================================================
Integrated Oil & Gas-2.60%
ChevronTexaco Corp. 2,000 135,260
- ----------------------------------------------------------------------
Exxon Mobil Corp. 8,400 282,744
======================================================================
418,004
======================================================================
</Table>
FS-135
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
Leisure Products-0.67%
Mattel, Inc. 5,900 $ 108,324
======================================================================
Life & Health Insurance-1.25%
Prudential Financial, Inc.(a) 6,900 201,480
======================================================================
Oil & Gas Drilling-1.06%
GlobalSantaFe Corp. 7,100 169,690
======================================================================
Oil & Gas Equipment & Services-0.92%
Baker Hughes Inc. 5,100 148,155
======================================================================
Oil & Gas Refining, Marketing &
Transportation-0.86%
Valero Energy Corp. 3,900 137,319
======================================================================
Packaged Foods & Meats-8.69%
ConAgra Foods, Inc. 11,200 271,600
- ----------------------------------------------------------------------
General Mills, Inc. 8,200 338,824
- ----------------------------------------------------------------------
Kellogg Co. 7,700 245,322
- ----------------------------------------------------------------------
Kraft Foods, Inc.-Class A 6,200 244,900
- ----------------------------------------------------------------------
Sara Lee Corp. 12,900 294,507
======================================================================
1,395,153
======================================================================
Personal Products-3.15%
Avon Products, Inc. 5,800 281,242
- ----------------------------------------------------------------------
Gillette Co. (The) 7,500 224,100
======================================================================
505,342
======================================================================
Pharmaceuticals-5.76%
Abbott Laboratories 3,200 133,984
- ----------------------------------------------------------------------
Johnson & Johnson 3,500 205,625
- ----------------------------------------------------------------------
Pfizer Inc. 7,100 225,567
- ----------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 2,600 201,318
- ----------------------------------------------------------------------
Wyeth 4,700 157,450
======================================================================
923,944
======================================================================
Property & Casualty Insurance-2.07%
MGIC Investment Corp. 2,800 117,488
- ----------------------------------------------------------------------
Travelers Property Casualty Corp.-Class A(a) 3,664 48,622
- ----------------------------------------------------------------------
Travelers Property Casualty Corp.-Class B(a) 4,437 59,988
- ----------------------------------------------------------------------
XL Capital Ltd.-Class A (Cayman Islands) 1,400 106,610
======================================================================
332,708
======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
Publishing-0.96%
New York Times Co. (The)-Class A 3,200 $ 154,912
======================================================================
Railroads-1.57%
Norfolk Southern Corp. 6,300 127,260
- ----------------------------------------------------------------------
Union Pacific Corp. 2,100 124,005
======================================================================
251,265
======================================================================
Semiconductor Equipment-0.91%
KLA-Tencor Corp.(a) 4,100 146,083
======================================================================
Semiconductors-3.24%
Intel Corp. 12,800 221,440
- ----------------------------------------------------------------------
STMicroelectronics N.V.-New York Shares
(Netherlands) 1,200 23,604
- ----------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan)(a) 9,650 75,463
- ----------------------------------------------------------------------
Texas Instruments Inc. 4,900 77,714
- ----------------------------------------------------------------------
Xilinx, Inc.(a) 6,400 121,536
======================================================================
519,757
======================================================================
Soft Drinks-1.39%
Coca-Cola Co. (The) 4,800 223,104
======================================================================
Specialty Chemicals-0.93%
Rohm & Haas Co. 4,500 149,714
======================================================================
Systems Software-5.26%
Computer Associates International, Inc. 22,800 338,808
- ----------------------------------------------------------------------
Microsoft Corp.(a) 7,000 374,290
- ----------------------------------------------------------------------
Oracle Corp.(a) 12,800 130,432
======================================================================
843,530
======================================================================
Total Common Stocks & Other Equity
Interests (Cost $14,405,398) 13,184,506
======================================================================
MONEY MARKET FUNDS-15.47%
STIC Liquid Assets Portfolio(b) 1,241,371 1,241,371
- ----------------------------------------------------------------------
STIC Prime Portfolio(b) 1,241,371 1,241,371
======================================================================
Total Money Market Funds (Cost
$2,482,742) 2,482,742
======================================================================
TOTAL INVESTMENTS-97.62% (Cost $16,888,140) 15,667,248
======================================================================
OTHER ASSETS LESS LIABILITIES-2.38% 382,106
======================================================================
NET ASSETS-100.00% $16,049,354
______________________________________________________________________
======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-136
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost $16,888,140) $15,667,248
- ------------------------------------------------------------
Receivables for:
Investments sold 243,697
- ------------------------------------------------------------
Fund shares sold 211,253
- ------------------------------------------------------------
Dividends 16,765
- ------------------------------------------------------------
Amount due from advisor 3,772
- ------------------------------------------------------------
Investment for deferred compensation plan 1,522
- ------------------------------------------------------------
Other assets 31,494
============================================================
Total assets 16,175,751
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 88,420
- ------------------------------------------------------------
Deferred compensation plan 1,522
- ------------------------------------------------------------
Accrued distribution fees 11,190
- ------------------------------------------------------------
Accrued trustees' fees 858
- ------------------------------------------------------------
Accrued transfer agent fees 4,683
- ------------------------------------------------------------
Accrued operating expenses 19,724
============================================================
Total liabilities 126,397
============================================================
Net assets applicable to shares outstanding $16,049,354
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 7,833,646
____________________________________________________________
============================================================
Class B $ 7,100,180
____________________________________________________________
============================================================
Class C $ 1,115,528
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 900,607
____________________________________________________________
============================================================
Class B 820,620
____________________________________________________________
============================================================
Class C 128,990
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 8.70
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $8.70 divided by
94.50%) $ 9.21
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 8.65
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 8.65
____________________________________________________________
============================================================
</Table>
Statement of Operations
For the period December 31, 2001 (date operations commenced) through October 31,
2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$174) $ 66,651
- -------------------------------------------------------------
Dividends from affiliated money market funds 9,850
- -------------------------------------------------------------
Interest 6,602
=============================================================
Total investment income 83,103
=============================================================
EXPENSES:
Advisory fees 44,236
- -------------------------------------------------------------
Administrative services fees 41,781
- -------------------------------------------------------------
Custodian fees 16,668
- -------------------------------------------------------------
Distribution fees -- Class A 9,410
- -------------------------------------------------------------
Distribution fees -- Class B 25,823
- -------------------------------------------------------------
Distribution fees -- Class C 6,272
- -------------------------------------------------------------
Transfer agent fees 22,089
- -------------------------------------------------------------
Trustees' fees 7,431
- -------------------------------------------------------------
Registration and filing fees 52,111
- -------------------------------------------------------------
Printing 13,841
- -------------------------------------------------------------
Professional fees 28,288
- -------------------------------------------------------------
Other 4,389
=============================================================
Total expenses 272,339
=============================================================
Less: Fees waived and expenses reimbursed (148,155)
- -------------------------------------------------------------
Expenses paid indirectly (106)
=============================================================
Net expenses 124,078
=============================================================
Net investment income (loss) (40,975)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (206,181)
- -------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (1,220,892)
=============================================================
Net gain (loss) from investment securities (1,427,073)
=============================================================
Net increase (decrease) in net assets resulting
from operations $(1,468,048)
_____________________________________________________________
=============================================================
</Table>
See Notes to Financial Statements.
FS-137
Statement of Changes in Net Assets
For the period December 31, 2001 (date operations commenced) through October 31,
2002
<Table>
<Caption>
OCTOBER 31,
2002
- -------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (40,975)
- -------------------------------------------------------------------------
Net realized gain (loss) from investment securities (206,181)
- -------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (1,220,892)
=========================================================================
Net increase (decrease) in net assets resulting from
operations (1,468,048)
=========================================================================
Share transactions-net:
Class A 8,520,795
- -------------------------------------------------------------------------
Class B 7,728,359
- -------------------------------------------------------------------------
Class C 1,268,248
=========================================================================
Net increase in net assets 16,049,354
=========================================================================
NET ASSETS:
Beginning of period --
=========================================================================
End of period $16,049,354
_________________________________________________________________________
=========================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $17,478,476
- -------------------------------------------------------------------------
Undistributed net investment income (loss) (2,049)
- -------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (206,181)
- -------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (1,220,892)
=========================================================================
$16,049,354
_________________________________________________________________________
=========================================================================
</Table>
See Notes to Financial Statements.
FS-138
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Large Cap Core Equity Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers three different classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to provide long-term growth of capital. The
Fund commenced operations on December 31, 2001.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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. Premiums and
discounts are amortized and/or accreted for financial reporting purposes.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
FS-139
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $1
billion of the Fund's average daily net assets, plus 0.70% of the Fund's next $1
billion of average daily net assets, plus 0.625% of the Fund's average daily
nest assets in excess of $2 billion. AIM has voluntarily agreed to waive fees
and/or reimburse expenses (excluding interest, taxes, dividends on short sales,
extraordinary items and increases in expenses due to expense offset
arrangements, if any) for Class A, Class B and Class C shares to the extent
necessary to limit the total annual fund operating expenses of Class A to 1.75%
which may be terminated or modified at any time. 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 fund of which the Fund has invested.
For the period December 31, 2001 (date operations commenced) through October 31,
2002, AIM waived fees of $44,236 and reimbursed expenses of $103,919.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the period December 31, 2001 (date
operations commenced) through October 31, 2002, AIM was paid $41,781 for such
services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the period December 31, 2001 (date
operations commenced) through October 31, 2002, AFS retained $10,815 for such
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. NASD Rules
also impose a cap on the total amount of sales charges, including asset-based
sales charges that may be paid by any class of shares of the Fund. Pursuant to
the master distribution agreements, for the period December 31, 2001 (date
operations commenced) through October 31, 2002, the Class A, Class B and Class C
shares paid $9,410, $25,823 and $6,272, respectively.
AIM Distributors retained commissions of $11,277 from sales of the Class A
shares of the Fund during the period December 31, 2001 (date operations
commenced) through October 31, 2002. Such commissions are not an expense of the
Fund. They are deducted from, and are not included in, the proceeds from sales
of Class A shares. During the period December 31, 2001 (date operations
commenced) through October 31, 2002, AIM Distributors retained $0, $0 and $83 in
contingent deferred sales charges imposed on redemptions of Class A, Class B and
Class C shares, respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the period December 31, 2001 (date operations commenced) through
October 31, 2002, the Fund paid legal fees of $2,356 for services rendered by
Kramer, Levin, Naftalis & Frankel LLP as counsel to the Board of Trustees. A
member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the period December 31, 2001 (date operations commenced) through October 31,
2002, the Fund received reductions in transfer agency fees from AFS (an
affiliate of AIM) of $94 and reductions in custodian fees of $12 under expense
offset arrangements which resulted in a reduction of the Fund's total expenses
of $106.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the period December 31, 2001
(date operations commenced) through October 31, 2002, the Fund did not borrow
under the line of credit agreement. The funds which are party to the line of
credit are charged a commitment fee of 0.09% on the unused balance of the
committed line. The commitment fee is allocated among the funds based on their
respective average net assets for the period.
FS-140
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the period December 31, 2001 (date operations commenced) through October
31, 2002.
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation
(depreciation) -- investments $(1,272,241)
- ------------------------------------------------------------
Temporary book/tax differences (2,049)
- ------------------------------------------------------------
Capital loss carryforward (154,832)
- ------------------------------------------------------------
Shares of beneficial interest 17,478,476
============================================================
$16,049,354
____________________________________________________________
============================================================
</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) is attributable primarily to the tax deferral of
losses on wash sales.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the deferral of trustee compensation.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
October 31, 2010 $154,832
___________________________________________________________
===========================================================
</Table>
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period December 31, 2001 (date
operations commenced) through October 31, 2002 was $16,779,068 and $2,167,488,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of investment
securities $ 137,259
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,409,500)
=============================================================
Net unrealized appreciation (depreciation) of
investment securities $(1,272,241)
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $16,939,489.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of nondeductible stock issuance
costs, a net operating loss reclassification and other items, on October 31,
2002, undistributed net investment income (loss) was increased by $38,926 and
shares of beneficial interest was decreased by $38,926. This reclassification
had no effect on the net assets of the Fund.
NOTE 9--SHARE INFORMATION
Changes in shares outstanding during the period December 31, 2001 (date
operations commenced) through October 31, 2002 were as follows:
<Table>
<Caption>
OCTOBER 31,
2002
------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------------
Sold:
Class A 1,170,454* $10,859,545*
- --------------------------------------------------------------------------------------
Class B 976,016 9,080,411
- --------------------------------------------------------------------------------------
Class C 158,298 1,525,564
======================================================================================
Reacquired:
Class A (269,847) (2,338,750)
- --------------------------------------------------------------------------------------
Class B (155,396)* (1,352,052)*
- --------------------------------------------------------------------------------------
Class C (29,308) (257,316)
======================================================================================
1,850,217 $17,517,402
______________________________________________________________________________________
======================================================================================
</Table>
* Includes automatic conversion of 2,981 shares of Class B shares in the amount
of $25,596 to 2,855 shares of Class A shares in the amount of $25,596.
FS-141
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period indicated.
<Table>
<Caption>
CLASS A
-----------------
DECEMBER 31, 2001
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2002
- -------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a)
- -------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.27)
===============================================================================
Total from investment operations (1.30)
===============================================================================
Net asset value, end of period $ 8.70
_______________________________________________________________________________
===============================================================================
Total return(b) (13.00)%
_______________________________________________________________________________
===============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 7,834
_______________________________________________________________________________
===============================================================================
Ratio of expenses to average net assets:
With fee waivers 1.75%(c)
- -------------------------------------------------------------------------------
Without fee waivers 4.26%(c)
===============================================================================
Ratio of net investment income (loss) to average net assets (0.34)%(c)
_______________________________________________________________________________
===============================================================================
Portfolio turnover rate 42%
_______________________________________________________________________________
===============================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with general accepted accounting
principles, does not include sales charges and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$3,217,599.
<Table>
<Caption>
CLASS B
-----------------
DECEMBER 31, 2001
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2002
- -------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a)
- -------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.27)
===============================================================================
Total from investment operations (1.35)
===============================================================================
Net asset value, end of period $ 8.65
_______________________________________________________________________________
===============================================================================
Total return(b) (13.50)%
_______________________________________________________________________________
===============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 7,100
_______________________________________________________________________________
===============================================================================
Ratio of expenses to average net assets:
With fee waivers 2.40%(c)
- -------------------------------------------------------------------------------
Without fee waivers 4.91%(c)
===============================================================================
Ratio of net investment income (loss) to average net assets (0.99)%(c)
_______________________________________________________________________________
===============================================================================
Portfolio turnover rate 42%
_______________________________________________________________________________
===============================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with general accepted accounting
principles, does not include contingent deferred sales charges and is
not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$3,090,223.
FS-142
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------
DECEMBER 31, 2001
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2002
- -------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a)
- -------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.27)
===============================================================================
Total from investment operations (1.35)
===============================================================================
Net asset value, end of period $ 8.65
_______________________________________________________________________________
===============================================================================
Total return(b) (13.50)%
_______________________________________________________________________________
===============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 1,116
_______________________________________________________________________________
===============================================================================
Ratio of expenses to average net assets:
With fee waivers 2.40%(c)
- -------------------------------------------------------------------------------
Without fee waivers 4.91%(c)
===============================================================================
Ratio of net investment income (loss) to average net assets (0.99)%(c)
_______________________________________________________________________________
===============================================================================
Portfolio turnover rate 42%
_______________________________________________________________________________
===============================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with general accepted accounting
principles, does not include contingent deferred sales charges and is
not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $750,568.
FS-143
Report of Independent Auditors
To the Shareholders of AIM Large Cap Growth Fund
and Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Large Cap Growth Fund (a portfolio AIM Equity Funds), including the schedule of
investments, as of October 31, 2002, and the related statement of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for the periods presented from commencement of operations through
October 31, 2000 were audited by other auditors whose report dated December 6,
2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Large Cap Growth Fund as of October 31, 2002, 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.
/s/ ERNST & YOUNG LLP
Houston, Texas
December 10, 2002
FS-144
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.24%
Aerospace & Defense-1.50%
Lockheed Martin Corp. 34,000 $ 1,968,600
- -------------------------------------------------------------------------
United Technologies Corp. 28,000 1,726,760
=========================================================================
3,695,360
=========================================================================
Apparel Retail-1.23%
Limited Brands 84,000 1,316,280
- -------------------------------------------------------------------------
TJX Cos., Inc. (The) 83,000 1,703,160
=========================================================================
3,019,440
=========================================================================
Apparel, Accessories & Luxury Goods-0.72%
Jones Apparel Group, Inc.(a) 51,000 1,766,640
=========================================================================
Application Software-3.06%
Electronic Arts Inc.(a) 55,000 3,581,600
- -------------------------------------------------------------------------
Intuit Inc.(a) 76,000 3,945,920
=========================================================================
7,527,520
=========================================================================
Automobile Manufacturers-0.87%
Bayerische Motoren Werke A.G. (Germany) 60,000 2,140,938
=========================================================================
Banks-5.80%
Bank of America Corp. 31,000 2,163,800
- -------------------------------------------------------------------------
Charter One Financial, Inc. 81,850 2,478,418
- -------------------------------------------------------------------------
M & T Bank Corp. 18,000 1,474,560
- -------------------------------------------------------------------------
North Fork Bancorp., Inc. 53,000 2,038,380
- -------------------------------------------------------------------------
U.S. Bancorp 67,000 1,413,030
- -------------------------------------------------------------------------
Washington Mutual, Inc. 75,000 2,682,000
- -------------------------------------------------------------------------
Wells Fargo & Co. 40,000 2,018,800
=========================================================================
14,268,988
=========================================================================
Brewers-1.22%
Anheuser-Busch Cos., Inc. 57,000 3,007,320
=========================================================================
Building Products-0.53%
Masco Corp. 64,000 1,315,840
=========================================================================
Casinos & Gambling-0.85%
Harrah's Entertainment, Inc.(a) 50,000 2,100,000
=========================================================================
Computer Hardware-4.79%
Dell Computer Corp.(a) 315,000 9,012,150
- -------------------------------------------------------------------------
International Business Machines Corp. 35,000 2,762,900
=========================================================================
11,775,050
=========================================================================
Computer Storage & Peripherals-1.50%
Lexmark International, Inc.(a) 62,000 3,684,040
=========================================================================
Consumer Finance-0.88%
MBNA Corp. 107,000 2,173,170
=========================================================================
Data Processing Services-1.28%
First Data Corp. 90,000 3,144,600
=========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
Diversified Commercial Services-3.32%
Apollo Group, Inc.-Class A(a) 65,000 $ 2,697,500
- -------------------------------------------------------------------------
H&R Block, Inc. 60,000 2,662,800
- -------------------------------------------------------------------------
Weight Watchers International, Inc.(a) 59,000 2,793,650
=========================================================================
8,153,950
=========================================================================
Diversified Financial Services-6.40%
Fannie Mae 27,000 1,805,220
- -------------------------------------------------------------------------
Freddie Mac 113,000 6,958,540
- -------------------------------------------------------------------------
Moody's Corp. 50,000 2,355,000
- -------------------------------------------------------------------------
SLM Corp. 45,000 4,623,300
=========================================================================
15,742,060
=========================================================================
Electronic Equipment & Instruments-0.68%
Samsung Electronics Co., Ltd. (South Korea) 5,900 1,662,990
=========================================================================
General Merchandise Stores-0.78%
Wal-Mart Stores, Inc. 36,000 1,927,800
=========================================================================
Health Care Equipment-5.35%
Becton, Dickinson & Co. 83,000 2,449,330
- -------------------------------------------------------------------------
Boston Scientific Corp.(a) 98,000 3,687,740
- -------------------------------------------------------------------------
Medtronic, Inc. 35,000 1,568,000
- -------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 50,000 1,780,500
- -------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 89,000 3,668,580
=========================================================================
13,154,150
=========================================================================
Health Care Facilities-1.84%
Tenet Healthcare Corp.(a) 157,500 4,528,125
=========================================================================
Health Care Supplies-1.25%
Alcon, Inc. (Switzerland)(a) 75,000 3,076,500
=========================================================================
Home Improvement Retail-2.19%
Home Depot, Inc. (The) 87,000 2,512,560
- -------------------------------------------------------------------------
Lowe's Cos., Inc. 69,000 2,879,370
=========================================================================
5,391,930
=========================================================================
Household Products-4.14%
Clorox Co. 60,000 2,695,800
- -------------------------------------------------------------------------
Procter & Gamble Co. (The) 56,000 4,953,200
- -------------------------------------------------------------------------
Reckitt Benckiser PLC (United Kingdom) 140,000 2,541,722
=========================================================================
10,190,722
=========================================================================
Housewares & Specialties-2.36%
Fortune Brands, Inc. 51,000 2,553,060
- -------------------------------------------------------------------------
Newell Rubbermaid Inc. 100,000 3,242,000
=========================================================================
5,795,060
=========================================================================
Industrial Conglomerates-2.22%
3M Co. 24,000 3,046,560
- -------------------------------------------------------------------------
General Electric Co. 96,000 2,424,000
=========================================================================
5,470,560
=========================================================================
</Table>
FS-145
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
Industrial Machinery-0.82%
ITT Industries, Inc. 31,000 $ 2,014,380
=========================================================================
Internet Retail-0.85%
eBay Inc.(a) 32,900 2,081,254
=========================================================================
Leisure Products-0.81%
Mattel, Inc. 108,000 1,982,880
=========================================================================
Life & Health Insurance-1.03%
AFLAC Inc. 83,600 2,544,784
=========================================================================
Managed Health Care-4.03%
Anthem, Inc.(a) 70,600 4,447,800
- -------------------------------------------------------------------------
UnitedHealth Group Inc. 60,000 5,457,000
=========================================================================
9,904,800
=========================================================================
Motorcycle Manufacturers-1.38%
Harley-Davidson, Inc. 65,000 3,399,500
=========================================================================
Networking Equipment-1.93%
Cisco Systems, Inc.(a) 424,000 4,740,320
=========================================================================
Office Services & Supplies-0.66%
Avery Dennison Corp. 26,000 1,618,240
=========================================================================
Personal Products-1.69%
Avon Products, Inc. 53,000 2,569,970
- -------------------------------------------------------------------------
Gillette Co. (The) 53,000 1,583,640
=========================================================================
4,153,610
=========================================================================
Pharmaceuticals-11.28%
Allergan, Inc. 33,000 1,796,850
- -------------------------------------------------------------------------
Johnson & Johnson 153,000 8,988,750
- -------------------------------------------------------------------------
Novartis A.G. (Switzerland) 38,000 1,448,379
- -------------------------------------------------------------------------
Pfizer Inc. 342,000 10,865,340
- -------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 60,000 4,645,800
=========================================================================
27,745,119
=========================================================================
Property & Casualty Insurance-1.79%
Ambac Financial Group, Inc. 31,000 1,915,800
- -------------------------------------------------------------------------
Progressive Corp. 45,000 2,475,000
=========================================================================
4,390,800
=========================================================================
Publishing-0.80%
Gannett Co., Inc. 26,000 1,974,180
=========================================================================
Restaurants-0.89%
Yum! Brands, Inc.(a) 97,000 2,185,410
=========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
Semiconductor Equipment-0.58%
Applied Materials, Inc.(a) 95,000 $ 1,427,850
=========================================================================
Semiconductors-1.64%
Analog Devices, Inc.(a) 56,000 1,500,800
- -------------------------------------------------------------------------
Microchip Technology Inc. 71,000 1,732,400
- -------------------------------------------------------------------------
Texas Instruments Inc. 51,000 808,860
=========================================================================
4,042,060
=========================================================================
Soft Drinks-2.02%
Coca-Cola Enterprises, Inc. 107,000 2,550,880
- -------------------------------------------------------------------------
PepsiCo, Inc. 55,000 2,425,500
=========================================================================
4,976,380
=========================================================================
Specialty Stores-3.94%
AutoZone, Inc.(a) 37,000 3,173,490
- -------------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 58,000 2,056,680
- -------------------------------------------------------------------------
Blockbuster Inc.-Class A 68,000 1,629,960
- -------------------------------------------------------------------------
Staples, Inc.(a) 182,000 2,821,000
=========================================================================
9,681,130
=========================================================================
Systems Software-6.34%
Microsoft Corp.(a) 215,000 11,496,050
- -------------------------------------------------------------------------
Oracle Corp.(a) 209,000 2,129,710
- -------------------------------------------------------------------------
Symantec Corp.(a) 49,000 1,960,000
=========================================================================
15,585,760
=========================================================================
Total Common Stocks & Other Equity
Interests (Cost $242,606,462) 239,161,210
=========================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY SECURITIES-0.81%
U.S. Treasury Bills-0.81%
1.63%, 12/19/02 (Cost $1,995,640)(b) $2,000,000 1,995,640
=========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-1.94%
STIC Liquid Assets Portfolio(c) 2,384,197 2,384,197
- -------------------------------------------------------------------------
STIC Prime Portfolio(c) 2,384,197 2,384,197
=========================================================================
Total Money Market Funds (Cost
$4,768,394) 4,768,394
=========================================================================
TOTAL INVESTMENTS-99.99% (Cost $249,370,496) 245,925,244
=========================================================================
OTHER ASSETS LESS LIABILITIES-0.01% 19,112
=========================================================================
NET ASSETS-100.00% $245,944,356
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-146
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$249,370,496)* $245,925,244
- -------------------------------------------------------------
Receivables for:
Investments sold 4,827,370
- -------------------------------------------------------------
Fund shares sold 696,907
- -------------------------------------------------------------
Dividends 121,841
- -------------------------------------------------------------
Investment for deferred compensation plan 17,077
- -------------------------------------------------------------
Collateral for securities loaned 2,126,650
- -------------------------------------------------------------
Other assets 25,972
=============================================================
Total assets 253,741,061
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 4,435,649
- -------------------------------------------------------------
Fund shares reacquired 876,851
- -------------------------------------------------------------
Deferred compensation plan 17,077
- -------------------------------------------------------------
Collateral upon return of securities loaned 2,126,650
- -------------------------------------------------------------
Accrued distribution fees 213,061
- -------------------------------------------------------------
Accrued trustees' fees 779
- -------------------------------------------------------------
Accrued transfer agent fees 80,523
- -------------------------------------------------------------
Accrued operating expenses 46,115
=============================================================
Total liabilities 7,796,705
=============================================================
Net assets applicable to shares outstanding $245,944,356
_____________________________________________________________
=============================================================
NET ASSETS:
Class A $105,320,114
_____________________________________________________________
=============================================================
Class B $104,039,933
_____________________________________________________________
=============================================================
Class C $ 36,575,031
_____________________________________________________________
=============================================================
Class R $ 9,278
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 14,281,935
_____________________________________________________________
=============================================================
Class B 14,448,671
_____________________________________________________________
=============================================================
Class C 5,076,179
_____________________________________________________________
=============================================================
Class R 1,259
_____________________________________________________________
=============================================================
Class A:
Net asset value per share $ 7.37
- -------------------------------------------------------------
Offering price per share:
(Net asset value of $7.37 divided by
94.50%) $ 7.80
_____________________________________________________________
=============================================================
Class B:
Net asset value and offering price per share $ 7.20
_____________________________________________________________
=============================================================
Class C:
Net asset value and offering price per share $ 7.21
_____________________________________________________________
=============================================================
Class R:
Net asset value and offering price per share $ 7.37
_____________________________________________________________
=============================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $2,108,802
were on loan to brokers.
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$21,274) $ 1,825,498
- -------------------------------------------------------------
Dividends from affiliated money market funds 298,261
- -------------------------------------------------------------
Interest 22,601
- -------------------------------------------------------------
Security lending income 19,706
=============================================================
Total investment income 2,166,066
=============================================================
EXPENSES:
Advisory fees 2,371,037
- -------------------------------------------------------------
Administrative services fees 87,337
- -------------------------------------------------------------
Custodian fees 56,234
- -------------------------------------------------------------
Distribution fees -- Class A 466,743
- -------------------------------------------------------------
Distribution fees -- Class B 1,320,106
- -------------------------------------------------------------
Distribution fees -- Class C 507,688
- -------------------------------------------------------------
Distribution fees -- Class R 18
- -------------------------------------------------------------
Transfer agent fees 1,497,914
- -------------------------------------------------------------
Trustees' fees 10,132
- -------------------------------------------------------------
Other 232,830
=============================================================
Total expenses 6,550,039
=============================================================
Less: Fees waived (3,052)
- -------------------------------------------------------------
Expenses paid indirectly (5,183)
=============================================================
Net expenses 6,541,804
=============================================================
Net investment income (loss) (4,375,738)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES CONTRACTS AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (85,726,890)
- -------------------------------------------------------------
Foreign currencies (84,924)
- -------------------------------------------------------------
Futures contracts (1,875,220)
- -------------------------------------------------------------
Option contracts written 34,439
=============================================================
(87,652,595)
=============================================================
Change in net unrealized appreciation of:
Investment securities 38,162,533
- -------------------------------------------------------------
Foreign currencies 148
=============================================================
38,162,681
=============================================================
Net gain (loss) from investment securities,
foreign currencies, futures contracts and
option contracts (49,489,914)
=============================================================
Net increase (decrease) in net assets resulting
from operations $(53,865,652)
_____________________________________________________________
=============================================================
</Table>
See Notes to Financial Statements.
FS-147
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (4,375,738) $ (5,009,257)
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts (87,652,595) (271,898,189)
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and futures
contracts 38,162,681 (66,317,198)
============================================================================================
Net increase (decrease) in net assets resulting from
operations (53,865,652) (343,224,644)
============================================================================================
Share transactions-net:
Class A (10,042,539) 55,385,107
- --------------------------------------------------------------------------------------------
Class B (18,237,379) 79,498,885
- --------------------------------------------------------------------------------------------
Class C (12,801,049) 34,349,074
- --------------------------------------------------------------------------------------------
Class R 10,502 --
============================================================================================
Net increase (decrease) in net assets (94,936,117) (173,991,578)
============================================================================================
NET ASSETS:
Beginning of year 340,880,473 514,872,051
============================================================================================
End of year $ 245,944,356 $ 340,880,473
____________________________________________________________________________________________
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 640,049,335 $ 685,573,543
- --------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (25,407) (18,489)
- --------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies, futures contracts and
option contracts (390,634,468) (303,066,796)
- --------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and futures contracts (3,445,104) (41,607,785)
============================================================================================
$ 245,944,356 $ 340,880,473
____________________________________________________________________________________________
============================================================================================
</Table>
See Notes to Financial Statements.
FS-148
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Large Cap Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers four different classes of shares: Class A shares, Class B
shares, Class C shares and Class R shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Class R shares are sold at net asset value.
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 preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security.
FS-149
When the Fund writes a covered call option, an amount equal to the premium
received by the Fund is recorded as an asset and an equivalent liability.
The amount of the liability is subsequently "marked-to-market" to reflect
the current market value of the option written. The current market value of
a written option is the mean between the last bid and asked prices on that
day. If a written call option expires on the stipulated expiration date, or
if the Fund enters into a closing purchase transaction, the Fund realizes a
gain (or a loss if the closing purchase transaction exceeds the premium
received when the option was written) without regard to any unrealized gain
or loss on the underlying security, and the liability related to such
option is extinguished. If a written option is exercised, the Fund realizes
a gain or a loss from the sale of the underlying security and the proceeds
of the sale are increased by the premium originally received.
G. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and that a change in value of the
contracts may not correlate with changes in the value of the securities
being hedged.
H. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $1 billion of the Fund's average daily net assets, plus 0.70% over $1
billion to and including $2 billion of the Fund's average daily net assets and
0.625% of the Fund's average daily net assets over $2 billion. AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market fund of which the
Fund has invested. For the year ended October 31, 2002, AIM waived fees of
$3,052.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2002, AIM was
paid $87,337 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended October 31, 2002, AFS
retained $907,446 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C and Class R 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 shares, Class B shares, Class C shares and Class R shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.35% of the Fund's average daily net assets of Class A
shares, 1.00% of the average daily net assets of Class B and Class C shares and
0.50% of the average daily net assets of Class R shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B, Class C or Class R shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the master distribution agreements, for the year
ended October 31, 2002, the Class A, Class B, Class C and Class R shares paid
$466,743, $1,320,106, $507,688 and $18, respectively.
AIM Distributors retained commissions of $89,304 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 2002,
AIM Distributors retained $4,846, $17, $15,054 and $0 in contingent deferred
sales charges imposed on redemptions of Class A, Class B, Class C and Class R
shares, respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $5,602 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the year ended October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $5,176 and reductions in custodian
fees of $7 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $5,183.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for
FS-150
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the year
ended October 31, 2002, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At October 31, 2002, securities with an aggregate value of $2,108,802 were on
loan to brokers. The loans were secured by cash collateral of $2,126,650
received by the Fund and invested in STIC Liquid Assets Portfolio, an affiliated
money market fund. For the year ended October 31, 2002, the Fund received fees
of $19,706 for securities lending.
NOTE 7--CALL OPTION CONTRACTS
Transactions in call options written during the year ended October 31, 2002 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ----------------------------------------------------------
Beginning of year -- $ --
- ----------------------------------------------------------
Written 120 34,439
- ----------------------------------------------------------
Expired (120) (34,439)
==========================================================
End of year -- $ --
__________________________________________________________
==========================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2002 and 2001.
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation
(depreciation) -- investments $ (5,076,412)
- -------------------------------------------------------------
Temporary book/tax differences (25,407)
- -------------------------------------------------------------
Capital loss carryforward (389,003,160)
- -------------------------------------------------------------
Shares of beneficial interest 640,049,335
=============================================================
$ 245,944,356
_____________________________________________________________
=============================================================
</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) is attributable to the tax deferral of losses on
wash sales. Amount includes appreciation on foreign currencies of $148. 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 deferral of trustee compensation and
retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
October 31, 2007 $ 380,100
- -----------------------------------------------------------
October 31, 2008 27,182,658
- -----------------------------------------------------------
October 31, 2009 267,323,492
- -----------------------------------------------------------
October 31, 2010 94,116,910
===========================================================
$389,003,160
___________________________________________________________
===========================================================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 2002 was
$302,851,012 and $337,372,834, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of investment
securities $ 16,023,101
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (21,099,661)
=============================================================
Net unrealized appreciation (depreciation) of
investment securities $ (5,076,560)
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $251,001,804.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions and
a net operating loss reclassification, on October 31, 2002, undistributed net
investment income (loss) was increased by $4,368,820, undistributed net realized
gain (loss) increased by $84,923 and shares of beneficial interest decreased by
$4,453,743. This reclassification had no effect on the net assets of the Fund.
FS-151
NOTE 11--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 5,296,167* $46,126,883* 12,973,656 $ 170,871,961
- -----------------------------------------------------------------------------------------------------------------------
Class B 3,444,001 28,987,280 10,999,634 148,982,917
- -----------------------------------------------------------------------------------------------------------------------
Class C 1,465,202 12,332,848 4,827,150 63,219,920
- -----------------------------------------------------------------------------------------------------------------------
Class R** 1,259 10,502 -- --
=======================================================================================================================
Reacquired:
Class A (6,691,678) (56,169,422) (9,996,104) (115,486,854)
- -----------------------------------------------------------------------------------------------------------------------
Class B (5,692,652)* (47,224,659)* (6,284,953) (69,484,032)
- -----------------------------------------------------------------------------------------------------------------------
Class C (3,059,594) (25,133,897) (2,680,111) (28,870,846)
=======================================================================================================================
(5,237,295) $(41,070,465) 9,839,272 $ 169,233,066
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
* Includes automatic conversion of 139,167 shares of Class B shares in the
amount of $1,177,906 to 136,498 shares of Class A shares in the amount of
$1,177,906.
** Class R shares commenced sales on June 3, 2002.
FS-152
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------------------------------
MARCH 1, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
---------------------------------------------- OCTOBER 31,
2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.82 $ 17.74 $ 11.29 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.08)(a) (0.15)(a) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.36) (8.84) 6.60 1.33
=================================================================================================================================
Total from investment operations (1.45) (8.92) 6.45 1.29
=================================================================================================================================
Net asset value, end of period $ 7.37 $ 8.82 $ 17.74 $11.29
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (16.44)% (50.28)% 57.13% 13.70%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $105,320 $138,269 $225,255 $7,785
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.70%(c) 1.57% 1.58% 1.53%(d)(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.01)%(c) (0.72)% (0.82)% (0.59)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 111% 124% 113% 21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with general accepted accounting
principles, does not include sales charges and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $133,355,229.
(d) Annualized.
(e) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 3.63%.
FS-153
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------------------------------
APRIL 5, 1999
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------------------- OCTOBER 31,
2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.67 $ 17.54 $ 11.25 $11.02
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.16)(a) (0.27)(a) (0.08)(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.33) (8.71) 6.56 0.31
================================================================================================================================
Total from investment operations (1.47) (8.87) 6.29 0.23
================================================================================================================================
Net asset value, end of period $ 7.20 $ 8.67 $ 17.54 $11.25
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) (16.96)% (50.57)% 55.91% 2.09%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $104,040 $144,747 $210,224 $5,183
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets 2.35%(c) 2.23% 2.24% 2.23%(d)(e)
================================================================================================================================
Ratio of net investment income (loss) to average net assets (1.66)%(c) (1.39)% (1.48)% (1.29)%(d)
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 111% 124% 113% 21%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with general accepted accounting
principles, does not include contingent deferred sales charges and is
not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $132,010,588.
(d) Annualized.
(e) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 4.33%.
FS-154
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------------------
APRIL 5, 1999
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------------- OCTOBER 31,
2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.67 $ 17.55 $ 11.25 $11.02
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.16)(a) (0.27)(a) (0.08)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.32) (8.72) 6.57 0.31
=============================================================================================================================
Total from investment operations (1.46) (8.88) 6.30 0.23
=============================================================================================================================
Net asset value, end of period $ 7.21 $ 8.67 $ 17.55 $11.25
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) (16.84)% (50.60)% 56.00% 2.09%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $36,575 $57,865 $79,392 $ 901
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets 2.35%(c) 2.23% 2.24% 2.23%(d)(e)
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.66)%(c) (1.39)% (1.48)% (1.29)%(d)
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 111% 124% 113% 21%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with general accepted accounting
principles, does not include contingent deferred sales charges and is
not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $50,768,768.
(d) Annualized.
(e) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 4.33%.
FS-155
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-------------
JUNE 3, 2002
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2002
- ---------------------------------------------------------------------------
Net asset value, beginning of period $ 8.40
- ---------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a)
- ---------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.99)
===========================================================================
Total from investment operations (1.03)
===========================================================================
Net asset value, end of period $ 7.37
___________________________________________________________________________
===========================================================================
Total return(b) (12.26)%
___________________________________________________________________________
===========================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 9
___________________________________________________________________________
===========================================================================
Ratio of expenses to average net assets 1.85%(c)
===========================================================================
Ratio of net investment income (loss) to average net assets (1.16)%(c)
___________________________________________________________________________
===========================================================================
Portfolio turnover rate 111%
___________________________________________________________________________
===========================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with general accepted accounting
principles and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $8,971.
FS-156
Report of Independent Auditors
To the Shareholders of AIM Mid Cap Growth Fund
and Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM Mid
Cap Growth Fund (a portfolio AIM Equity Funds), including the schedule of
investments, as of October 31, 2002, and the related statement of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the periods presented from commencement of operations
through October 31, 2000 were audited by other auditors whose report dated
December 6, 2000, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Mid Cap Growth Fund as of October 31, 2002, and 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.
/s/ ERNST & YOUNG LLP
Houston, Texas
December 10, 2002
FS-157
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-90.05%
Advertising-3.29%
Lamar Advertising Co.(a) 75,000 $ 2,545,500
- -------------------------------------------------------------------------
Omnicom Group Inc. 35,000 2,017,050
=========================================================================
4,562,550
=========================================================================
Aerospace & Defense-1.25%
Alliant Techsystems Inc.(a) 25,000 1,503,750
- -------------------------------------------------------------------------
L-3 Communications Holdings, Inc.(a) 4,900 230,300
=========================================================================
1,734,050
=========================================================================
Air Freight & Logistics-1.25%
Expeditors International of Washington, Inc. 55,000 1,733,050
=========================================================================
Airlines-0.63%
Southwest Airlines Co. 60,000 876,000
=========================================================================
Apparel Retail-3.83%
Abercrombie & Fitch Co.-Class A(a) 100,000 1,782,000
- -------------------------------------------------------------------------
Gap, Inc. (The) 170,000 2,000,900
- -------------------------------------------------------------------------
Talbots, Inc. (The) 18,000 498,960
- -------------------------------------------------------------------------
TJX Cos., Inc. (The) 50,000 1,026,000
=========================================================================
5,307,860
=========================================================================
Application Software-2.76%
Activision, Inc.(a) 55,000 1,127,500
- -------------------------------------------------------------------------
Mercury Interactive Corp.(a) 25,000 659,250
- -------------------------------------------------------------------------
PeopleSoft, Inc.(a) 75,000 1,357,500
- -------------------------------------------------------------------------
Siebel Systems, Inc.(a) 90,000 676,800
=========================================================================
3,821,050
=========================================================================
Auto Parts & Equipment-0.75%
Gentex Corp.(a) 35,000 1,031,800
=========================================================================
Banks-0.47%
Comerica Inc. 15,000 654,900
=========================================================================
Biotechnology-0.74%
MedImmune, Inc.(a) 40,000 1,022,000
=========================================================================
Broadcasting & Cable TV-2.89%
Cox Radio, Inc.-Class A(a) 30,000 712,200
- -------------------------------------------------------------------------
Hispanic Broadcasting Corp.(a) 75,000 1,612,500
- -------------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 65,000 1,684,150
=========================================================================
4,008,850
=========================================================================
Building Products-0.52%
Masco Corp. 35,000 719,600
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
Computer & Electronics Retail-1.54%
Best Buy Co., Inc.(a) 60,000 $ 1,236,600
- -------------------------------------------------------------------------
CDW Computer Centers, Inc.(a) 17,000 901,340
=========================================================================
2,137,940
=========================================================================
Construction & Engineering-1.64%
Jacobs Engineering Group Inc.(a) 75,000 2,271,750
=========================================================================
Consumer Finance-0.66%
Capital One Financial Corp. 30,000 914,100
=========================================================================
Data Processing Services-6.42%
BISYS Group, Inc. (The)(a) 110,000 1,969,000
- -------------------------------------------------------------------------
Certegy Inc.(a) 35,000 735,000
- -------------------------------------------------------------------------
DST Systems, Inc.(a) 55,000 1,691,250
- -------------------------------------------------------------------------
First Data Corp. 25,000 873,500
- -------------------------------------------------------------------------
Fiserv, Inc.(a) 25,000 781,000
- -------------------------------------------------------------------------
Iron Mountain Inc.(a) 60,000 1,692,600
- -------------------------------------------------------------------------
Paychex, Inc. 20,000 576,400
- -------------------------------------------------------------------------
Sabre Holdings Corp. 30,000 575,400
=========================================================================
8,894,150
=========================================================================
Drug Retail-1.00%
CVS Corp. 50,000 1,386,500
=========================================================================
Electronic Equipment & Instruments-2.52%
Celestica Inc. (Canada)(a) 75,000 1,035,000
- -------------------------------------------------------------------------
Molex Inc.-Class A 19,200 446,016
- -------------------------------------------------------------------------
Vishay Intertechnology, Inc.(a) 60,000 618,000
- -------------------------------------------------------------------------
Waters Corp.(a) 55,000 1,384,900
=========================================================================
3,483,916
=========================================================================
Employment Services-2.12%
Manpower Inc. 25,000 852,500
- -------------------------------------------------------------------------
Robert Half International Inc.(a) 125,000 2,087,500
=========================================================================
2,940,000
=========================================================================
General Merchandise Stores-1.33%
Dollar Tree Stores, Inc.(a) 70,000 1,840,300
=========================================================================
Health Care Distributors & Services-5.48%
AdvancePCS(a) 90,000 2,259,000
- -------------------------------------------------------------------------
AMN Healthcare Services, Inc.(a) 75,000 1,084,500
- -------------------------------------------------------------------------
Express Scripts, Inc.(a) 10,000 541,800
- -------------------------------------------------------------------------
Laboratory Corp. of America Holdings(a) 25,000 602,500
- -------------------------------------------------------------------------
Lincare Holdings Inc.(a) 30,000 1,022,100
- -------------------------------------------------------------------------
</Table>
FS-158
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
Health Care Distributors & Services-(Continued)
McKesson Corp. 70,000 $ 2,086,700
=========================================================================
7,596,600
=========================================================================
Health Care Equipment-1.20%
Apogent Technologies Inc.(a) 60,000 1,090,800
- -------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 20,000 572,000
=========================================================================
1,662,800
=========================================================================
Health Care Facilities-2.02%
Community Health Systems Inc.(a) 60,000 1,410,000
- -------------------------------------------------------------------------
Tenet Healthcare Corp.(a) 16,500 474,375
- -------------------------------------------------------------------------
Triad Hospitals, Inc.(a) 25,000 912,500
=========================================================================
2,796,875
=========================================================================
Health Care Supplies-0.59%
Alcon, Inc. (Switzerland)(a) 20,000 820,400
=========================================================================
Homebuilding-0.41%
Centex Corp. 12,500 568,500
=========================================================================
Hotels, Resorts & Cruise Lines-0.84%
Starwood Hotels & Resorts Worldwide, Inc. 50,000 1,165,000
=========================================================================
Industrial Machinery-1.08%
Danaher Corp. 15,000 867,750
- -------------------------------------------------------------------------
SPX Corp.(a) 15,000 630,150
=========================================================================
1,497,900
=========================================================================
Insurance Brokers-1.33%
Willis Group Holdings Ltd. (Bermuda)(a) 60,000 1,836,000
=========================================================================
IT Consulting & Services-1.84%
SunGard Data Systems Inc.(a) 115,000 2,549,550
=========================================================================
Managed Health Care-3.21%
Anthem, Inc.(a) 35,000 2,205,000
- -------------------------------------------------------------------------
Caremark Rx, Inc.(a) 90,000 1,593,000
- -------------------------------------------------------------------------
First Health Group Corp.(a) 25,000 649,500
=========================================================================
4,447,500
=========================================================================
Multi-Line Insurance-0.44%
HCC Insurance Holdings, Inc. 25,000 613,250
=========================================================================
Multi-Utilities & Unregulated Power-0.81%
El Paso Corp. 75,000 581,250
- -------------------------------------------------------------------------
Mirant Corp.(a) 250,000 535,000
=========================================================================
1,116,250
=========================================================================
Networking Equipment-0.44%
Brocade Communications Systems, Inc.(a) 87,500 601,125
=========================================================================
Oil & Gas Drilling-6.69%
ENSCO International Inc. 100,000 2,704,000
- -------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
Oil & Gas Drilling-(Continued)
Nabors Industries, Ltd. (Bermuda)(a) 65,000 $ 2,273,050
- -------------------------------------------------------------------------
National-Oilwell, Inc.(a) 75,000 1,563,750
- -------------------------------------------------------------------------
Patterson-UTI Energy, Inc.(a) 45,000 1,301,400
- -------------------------------------------------------------------------
Rowan Cos., Inc.(a) 70,000 1,427,300
=========================================================================
9,269,500
=========================================================================
Oil & Gas Equipment & Services-2.81%
Smith International, Inc.(a) 82,000 2,563,320
- -------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 33,000 1,321,320
=========================================================================
3,884,640
=========================================================================
Personal Products-1.05%
Estee Lauder Cos. Inc. (The)-Class A 50,000 1,456,000
=========================================================================
Pharmaceuticals-2.21%
King Pharmaceuticals, Inc.(a) 50,000 767,500
- -------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(a) 50,000 2,295,000
=========================================================================
3,062,500
=========================================================================
Property & Casualty Insurance-2.37%
ACE Ltd. (Cayman Islands) 55,000 1,691,250
- -------------------------------------------------------------------------
Radian Group Inc. 45,000 1,587,150
=========================================================================
3,278,400
=========================================================================
Publishing-0.77%
Scholastic Corp.(a) 24,000 1,059,600
=========================================================================
Restaurants-2.78%
Darden Restaurants, Inc. 50,000 949,000
- -------------------------------------------------------------------------
Jack in the Box Inc.(a) 30,000 650,700
- -------------------------------------------------------------------------
Outback Steakhouse, Inc. 43,000 1,464,150
- -------------------------------------------------------------------------
Wendy's International, Inc. 25,000 792,000
=========================================================================
3,855,850
=========================================================================
Semiconductor Equipment-2.29%
Cabot Microelectronics Corp.(a) 35,000 1,588,650
- -------------------------------------------------------------------------
Novellus Systems, Inc.(a) 50,000 1,580,000
=========================================================================
3,168,650
=========================================================================
Semiconductors-3.93%
Altera Corp.(a) 70,000 820,400
- -------------------------------------------------------------------------
Broadcom Corp.-Class A(a) 85,000 1,018,300
- -------------------------------------------------------------------------
Linear Technology Corp. 25,000 691,000
- -------------------------------------------------------------------------
Microchip Technology Inc. 25,000 610,000
- -------------------------------------------------------------------------
Micron Technology, Inc.(a) 100,000 1,600,000
- -------------------------------------------------------------------------
Semtech Corp.(a) 50,000 706,500
=========================================================================
5,446,200
=========================================================================
Soft Drinks-0.49%
Pepsi Bottling Group, Inc. (The) 25,000 673,750
=========================================================================
</Table>
FS-159
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
Specialty Stores-4.87%
Barnes & Noble, Inc.(a) 50,000 $ 1,055,000
- -------------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 20,000 709,200
- -------------------------------------------------------------------------
Foot Locker, Inc.(a) 105,000 1,029,000
- -------------------------------------------------------------------------
Rent-A-Center, Inc.(a) 20,000 887,000
- -------------------------------------------------------------------------
Tiffany & Co. 40,000 1,047,200
- -------------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 85,000 2,023,000
=========================================================================
6,750,400
=========================================================================
Systems Software-1.41%
Computer Associates International, Inc. 65,000 965,900
- -------------------------------------------------------------------------
VERITAS Software Corp.(a) 65,000 991,250
=========================================================================
1,957,150
=========================================================================
Telecommunications Equipment-2.59%
UTStarcom, Inc.(a) 210,000 3,586,800
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
Trading Companies & Distributors-0.49%
Fastenal Co. 20,000 $ 679,000
=========================================================================
Total Common Stocks (Cost $138,011,245) 124,740,556
=========================================================================
MONEY MARKET FUNDS-9.41%
STIC Liquid Assets Portfolio(b) 6,518,756 6,518,756
- -------------------------------------------------------------------------
STIC Prime Portfolio(b) 6,518,756 6,518,756
=========================================================================
Total Money Market Funds (Cost
$13,037,512) 13,037,512
=========================================================================
TOTAL INVESTMENTS-99.46% (Cost $151,048,757) 137,778,068
=========================================================================
OTHER ASSETS LESS LIABILITIES-0.54% 750,876
=========================================================================
NET ASSETS-100.00% $138,528,944
_________________________________________________________________________
=========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-160
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$151,048,757)* $137,778,068
- ----------------------------------------------------------------
Receivables for:
Investments sold 4,417,647
- ----------------------------------------------------------------
Fund shares sold 316,945
- ----------------------------------------------------------------
Dividends 27,298
- ----------------------------------------------------------------
Investment for deferred compensation plan 12,690
- ----------------------------------------------------------------
Collateral for securities loaned 3,308,750
- ----------------------------------------------------------------
Other assets 31,711
================================================================
Total assets 145,893,109
________________________________________________________________
================================================================
LIABILITIES:
Payables for:
Investments purchased 3,387,662
- ----------------------------------------------------------------
Fund shares reacquired 402,094
- ----------------------------------------------------------------
Deferred compensation plan 12,690
- ----------------------------------------------------------------
Collateral upon return of securities loaned 3,308,750
- ----------------------------------------------------------------
Accrued distribution fees 118,083
- ----------------------------------------------------------------
Accrued trustees' fees 800
- ----------------------------------------------------------------
Accrued transfer agent fees 89,941
- ----------------------------------------------------------------
Accrued operating expenses 44,145
================================================================
Total liabilities 7,364,165
================================================================
Net assets applicable to shares outstanding $138,528,944
________________________________________________________________
================================================================
NET ASSETS:
Class A $ 63,463,318
________________________________________________________________
================================================================
Class B $ 58,654,251
________________________________________________________________
================================================================
Class C $ 16,403,883
________________________________________________________________
================================================================
Class R $ 7,492
________________________________________________________________
================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 9,700,683
________________________________________________________________
================================================================
Class B 9,163,679
________________________________________________________________
================================================================
Class C 2,562,001
________________________________________________________________
================================================================
Class R 1,146
________________________________________________________________
================================================================
Class A:
Net asset value per share $ 6.54
- ----------------------------------------------------------------
Offering price per share:
(Net asset value of $6.54 divided by 94.50%) $ 6.92
________________________________________________________________
================================================================
Class B:
Net asset value and offering price per share $ 6.40
________________________________________________________________
================================================================
Class C:
Net asset value and offering price per share $ 6.40
________________________________________________________________
================================================================
Class R:
Net asset value and offering price per share $ 6.54
________________________________________________________________
================================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $3,629,239
were on loan to brokers.
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$1,469) $ 393,962
- ----------------------------------------------------------------
Dividends from affiliated money market funds 262,194
- ----------------------------------------------------------------
Interest 76
- ----------------------------------------------------------------
Security lending income 25,416
================================================================
Total investment income 681,648
================================================================
EXPENSES:
Advisory fees 1,620,211
- ----------------------------------------------------------------
Administrative services fees 50,000
- ----------------------------------------------------------------
Custodian fees 49,246
- ----------------------------------------------------------------
Distribution fees -- Class A 337,632
- ----------------------------------------------------------------
Distribution fees -- Class B 822,210
- ----------------------------------------------------------------
Distribution fees -- Class C 238,357
- ----------------------------------------------------------------
Distribution fees -- Class R 17
- ----------------------------------------------------------------
Transfer agent fees 1,053,288
- ----------------------------------------------------------------
Trustees' fees 9,394
- ----------------------------------------------------------------
Other 217,745
================================================================
Total expenses 4,398,100
================================================================
Less: Fees waived (2,679)
- ----------------------------------------------------------------
Expenses paid indirectly (3,916)
================================================================
Net expenses 4,391,505
================================================================
Net investment income (loss) (3,709,857)
================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (51,459,202)
- ----------------------------------------------------------------
Change in net unrealized appreciation of
investment securities 6,176,897
================================================================
Net gain (loss) from investment securities (45,282,305)
================================================================
Net increase (decrease) in net assets resulting
from operations $(48,992,162)
________________________________________________________________
================================================================
</Table>
See Notes to Financial Statements.
FS-161
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (3,709,857) $ (3,321,394)
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (51,459,202) (85,651,301)
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 6,176,897 (34,496,810)
============================================================================================
Net increase (decrease) in net assets resulting from
operations (48,992,162) (123,469,505)
============================================================================================
Share transactions-net:
Class A (8,529,105) 35,302,179
- --------------------------------------------------------------------------------------------
Class B (2,639,544) 30,599,965
- --------------------------------------------------------------------------------------------
Class C (1,653,044) 9,125,015
- --------------------------------------------------------------------------------------------
Class R 10,003 --
============================================================================================
Net increase (decrease) in net assets (61,803,852) (48,442,346)
============================================================================================
NET ASSETS:
Beginning of year 200,332,796 248,775,142
============================================================================================
End of year $ 138,528,944 $ 200,332,796
____________________________________________________________________________________________
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 314,422,132 $ 330,937,475
- --------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (18,569) (12,365)
- --------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (162,603,930) (111,144,728)
- --------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (13,270,689) (19,447,586)
============================================================================================
$ 138,528,944 $ 200,332,796
____________________________________________________________________________________________
============================================================================================
</Table>
See Notes to Financial Statements.
FS-162
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Mid Cap Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers four different classes of shares: Class A shares, Class B
shares, Class C shares and Class R shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Class R shares are sold at net asset value.
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 preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
FS-163
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.80% of
the first $1 billion of the Fund's average daily net assets plus 0.75% of the
Fund's average daily net assets over $1 billion. AIM has voluntarily agreed to
waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market fund of which the Fund has invested.
For the year ended October 31, 2002, AIM waived fees of $2,679.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2002, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended October 31, 2002, AFS
retained $610,985 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C and Class R 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 shares, Class B shares, Class C shares and Class R shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.35% of the Fund's average daily net assets of Class A
shares, 1.00% of the average daily net assets of Class B and Class C shares and
0.50% of the average daily net assets of Class R shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B, Class C or Class R shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the master distribution agreements, for the year
ended October 31, 2002, the Class A, Class B, Class C and Class R shares paid
$337,632, $822,210, $238,357 and $17, respectively.
AIM Distributors retained commissions of $70,433 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 2002,
AIM Distributors retained $1,045, $601, $14,782, and $0 in contingent deferred
sales charges imposed on redemptions of Class A, Class B, Class C, and Class R
shares, respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $4,888 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the year ended October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $3,368 and reductions in custodian
fees of $548 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $3,916.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended October 31,
2002, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At October 31, 2002, securities with an aggregate value of $3,629,239 were on
loan to brokers. The loans were secured by cash collateral of $3,308,750
received by the Fund and subsequently invested in STIC Liquid Assets Portfolio,
an affiliated money market fund. For the year ended October 31, 2002, the Fund
received fees of $25,416 for securities lending.
FS-164
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2002 and 2001.
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation
(depreciation) -- investments $ (14,719,044)
- ----------------------------------------------------------
Temporary book/tax differences (18,569)
- ----------------------------------------------------------
Capital loss carryforward (161,155,575)
- ----------------------------------------------------------
Shares of beneficial interest 314,422,132
==========================================================
$ 138,528,944
__________________________________________________________
==========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the tax
deferral of losses on wash sales.
The temporary book/tax differences are the 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 deferral of trustee compensation and
retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ---------------------------------------------------------
October 31, 2008 $ 23,619,065
- ---------------------------------------------------------
October 31, 2009 86,724,292
- ---------------------------------------------------------
October 31, 2010 50,812,218
=========================================================
$161,155,575
_________________________________________________________
=========================================================
</Table>
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 2002 was
$342,738,409 and $356,538,958, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 11,035,029
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (25,754,073)
=============================================================
Net unrealized appreciation (depreciation) of
investment securities $(14,719,044)
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $152,497,112.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of a net operating loss
reclassification on October 31, 2002, undistributed net investment income (loss)
was increased by $3,703,653 and shares of beneficial interest decreased by
$3,703,653. This reclassification had no effect on net assets of the Fund.
NOTE 10--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 8,138,787* $ 73,354,688* 7,467,674 $ 81,492,237
- ----------------------------------------------------------------------------------------------------------------------
Class B 3,669,099 31,692,709 5,024,132 57,335,690
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,168,577 10,169,033 1,707,494 19,292,222
- ----------------------------------------------------------------------------------------------------------------------
Class R** 1,146 10,003 -- --
======================================================================================================================
Reacquired:
Class A (9,446,798) (81,883,793) (4,452,029) (46,190,058)
- ----------------------------------------------------------------------------------------------------------------------
Class B (4,198,791)* (34,332,253)* (2,619,664) (26,735,725)
- ----------------------------------------------------------------------------------------------------------------------
Class C (1,442,681) (11,822,077) (973,019) (10,167,207)
======================================================================================================================
(2,110,661) $(12,811,690) 6,154,588 $ 75,027,159
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Includes automatic conversion of 76,507 shares of Class B shares in the
amount of $635,418 to 74,934 shares of Class A shares in the amount of
$635,418.
** Class R shares commenced sales on June 3, 2002.
FS-165
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------
NOVEMBER 1, 1999
YEAR ENDED (DATE OPERATIONS
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.58 $ 14.38 $ 10.00
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13)(a) (0.11)(a) (0.12)(a)
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.91) (5.69) 4.50
============================================================================================================
Total from investment operations (2.04) (5.80) 4.38
============================================================================================================
Net asset value, end of period $ 6.54 $ 8.58 $ 14.38
____________________________________________________________________________________________________________
============================================================================================================
Total return(b) (23.78)% (40.33)% 43.80%
____________________________________________________________________________________________________________
============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $63,463 $94,457 $114,913
____________________________________________________________________________________________________________
============================================================================================================
Ratio of expenses to average net assets 1.83%(c) 1.65% 1.63%(d)
============================================================================================================
Ratio of net investment income (loss) to average net assets (1.49)%(c) (1.06)% (0.76)%(d)
____________________________________________________________________________________________________________
============================================================================================================
Portfolio turnover rate 185% 173% 183%
____________________________________________________________________________________________________________
============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles, does not include sales charges and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $96,466,301.
(d) Annualized.
FS-166
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------
NOVEMBER 1, 1999
YEAR ENDED (DATE OPERATIONS
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.45 $ 14.25 $ 10.00
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.18)(a) (0.22)(a)
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.87) (5.62) 4.47
============================================================================================================
Total from investment operations (2.05) (5.80) 4.25
============================================================================================================
Net asset value, end of period $ 6.40 $ 8.45 $ 14.25
____________________________________________________________________________________________________________
============================================================================================================
Total return(b) (24.26)% (40.70)% 42.50%
____________________________________________________________________________________________________________
============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $58,654 $81,905 $103,893
____________________________________________________________________________________________________________
============================================================================================================
Ratio of expenses to average net assets 2.48%(c) 2.32% 2.32%(d)
============================================================================================================
Ratio of net investment income (loss) to average net assets (2.14)%(c) (1.73)% (1.45)%(d)
____________________________________________________________________________________________________________
============================================================================================================
Portfolio turnover rate 185% 173% 183%
____________________________________________________________________________________________________________
============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles, does not include contingent deferred sales charges and is
not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $82,221,008.
(d) Annualized.
FS-167
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------
NOVEMBER 1, 1999
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
------------------------- OCTOBER 31,
2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.45 $ 14.26 $ 10.00
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.18)(a) (0.22)(a)
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.87) (5.63) 4.48
================================================================================================================
Total from investment operations (2.05) (5.81) 4.26
================================================================================================================
Net asset value, end of period $ 6.40 $ 8.45 $ 14.26
________________________________________________________________________________________________________________
================================================================================================================
Total return(b) (24.26)% (40.74)% 42.60%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $16,404 $23,971 $29,969
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net assets 2.48%(c) 2.32% 2.32%(d)
================================================================================================================
Ratio of net investment income (loss) to average net assets (2.14)%(c) (1.73)% (1.45)%(d)
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate 185% 173% 183%
________________________________________________________________________________________________________________
================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles, does not include contingent deferred sales charges and is
not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $23,835,757.
(d) Annualized.
FS-168
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-------------
JUNE 3, 2002
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2002
- -----------------------------------------------------------------------------
Net asset value, beginning of period $ 8.73
- -----------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a)
- -----------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.14)
=============================================================================
Total from investment operations (2.19)
=============================================================================
Net asset value, end of period $ 6.54
_____________________________________________________________________________
=============================================================================
Total return(b) (25.09)%
_____________________________________________________________________________
=============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 7
_____________________________________________________________________________
=============================================================================
Ratio of expenses to average net assets 1.98%(c)
=============================================================================
Ratio of net investment income (loss) to average net assets (1.64)%(c)
_____________________________________________________________________________
=============================================================================
Portfolio turnover rate 185%
_____________________________________________________________________________
=============================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $8,077.
FS-169
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM U.S. Growth Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM U.S.
Growth Fund (a portfolio AIM Equity Funds), including the schedule of
investments, as of October 31, 2002, and the related statement of operations,
the statement of changes in net assets and the financial highlights for the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
U.S. Growth Fund as of October 31, 2002, the results of its operations, the
changes in its net assets and the financial highlights for the period then ended
in conformity with accounting principles generally accepted in the United
States.
Houston, Texas /s/ ERNST & YOUNG LLP
December 10, 2002
FS-170
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------
COMMON STOCKS-98.24%
Aerospace & Defense-2.69%
Lockheed Martin Corp. 240 $ 13,896
- ----------------------------------------------------------------
Northrop Grumman Corp. 120 12,376
================================================================
26,272
================================================================
Air Freight & Logistics-0.87%
FedEx Corp. 160 8,510
================================================================
Airlines-1.03%
Southwest Airlines Co. 690 10,074
================================================================
Apparel Retail-0.53%
TJX Cos., Inc. (The) 250 5,130
================================================================
Application Software-0.53%
Electronic Arts Inc.(a) 80 5,210
================================================================
Banks-6.90%
Bank of America Corp. 210 14,658
- ----------------------------------------------------------------
Fifth Third Bancorp 300 19,050
- ----------------------------------------------------------------
Synovus Financial Corp. 930 19,056
- ----------------------------------------------------------------
Wells Fargo & Co. 290 14,636
================================================================
67,400
================================================================
Biotechnology-1.05%
Amgen Inc.(a) 220 10,243
================================================================
Brewers-0.54%
Anheuser-Busch Cos., Inc. 100 5,276
================================================================
Broadcasting & Cable TV-0.57%
Clear Channel Communications, Inc.(a) 150 5,557
================================================================
Casinos & Gambling-0.47%
Harrah's Entertainment, Inc.(a) 110 4,620
================================================================
Computer & Electronics Retail-0.65%
CDW Computer Centers, Inc.(a) 120 6,362
================================================================
Computer Hardware-2.20%
Dell Computer Corp.(a) 750 21,457
================================================================
Consumer Finance-1.54%
MBNA Corp. 740 15,029
================================================================
Data Processing Services-2.19%
Concord EFS, Inc.(a) 480 6,854
- ----------------------------------------------------------------
Fiserv, Inc.(a) 270 8,435
- ----------------------------------------------------------------
Paychex, Inc. 210 6,052
================================================================
21,341
================================================================
Department Stores-0.90%
Kohl's Corp.(a) 150 8,767
================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------
Diversified Financial Services-5.70%
Citigroup Inc. 910 $ 33,625
- ----------------------------------------------------------------
Fannie Mae 330 22,064
================================================================
55,689
================================================================
Drug Retail-1.24%
Walgreen Co. 360 12,150
================================================================
Electric Utilities-1.09%
FPL Group, Inc. 180 10,616
================================================================
Food Distributors-1.17%
Sysco Corp. 360 11,405
================================================================
General Merchandise Stores-3.61%
Family Dollar Stores, Inc. 180 5,542
- ----------------------------------------------------------------
Target Corp. 150 4,518
- ----------------------------------------------------------------
Wal-Mart Stores, Inc. 470 25,169
================================================================
35,229
================================================================
Health Care Distributors & Services-0.57%
Cardinal Health, Inc. 80 5,537
================================================================
Health Care Equipment-1.99%
Biomet, Inc. 280 8,249
- ----------------------------------------------------------------
Medtronic, Inc. 250 11,200
================================================================
19,449
================================================================
Health Care Facilities-0.71%
HCA Inc. 160 6,958
================================================================
Home Improvement Retail-1.21%
Home Depot, Inc. (The) 150 4,332
- ----------------------------------------------------------------
Lowe's Cos., Inc. 180 7,511
================================================================
11,843
================================================================
Household Products-1.54%
Procter & Gamble Co. (The) 170 15,037
================================================================
Housewares & Specialties-0.73%
Newell Rubbermaid Inc. 220 7,132
================================================================
Industrial Conglomerates-3.99%
3M Co. 60 7,616
- ----------------------------------------------------------------
General Electric Co. 1,240 31,310
================================================================
38,926
================================================================
INDUSTRIAL MACHINERY-0.47%
Danaher Corp. 80 4,628
================================================================
INSURANCE BROKERS-1.01%
Marsh & McLennan Cos., Inc. 210 9,809
================================================================
</Table>
FS-171
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------
Integrated Oil & Gas-3.83%
ChevronTexaco Corp. 130 $ 8,792
- ----------------------------------------------------------------
Exxon Mobil Corp. 850 28,611
================================================================
37,403
================================================================
Integrated Telecommunication Services-3.84%
AT&T Corp. 810 10,562
- ----------------------------------------------------------------
SBC Communications Inc. 580 14,883
- ----------------------------------------------------------------
Verizon Communications Inc. 320 12,083
================================================================
37,528
================================================================
Managed Health Care-0.84%
UnitedHealth Group Inc. 90 8,186
================================================================
Metal & Glass Containers-0.79%
Ball Corp. 160 7,749
================================================================
Motorcycle Manufacturers-1.07%
Harley-Davidson, Inc. 200 10,460
================================================================
Movies & Entertainment-1.95%
Viacom Inc.-Class B(a) 190 8,476
- ----------------------------------------------------------------
Walt Disney Co. (The) 630 10,521
================================================================
18,997
================================================================
Multi-Line Insurance-3.08%
American International Group, Inc. 480 30,024
================================================================
Multi-Utilities & Unregulated Power-1.15%
Duke Energy Corp. 550 11,270
================================================================
Networking Equipment-1.21%
Cisco Systems, Inc.(a) 1,060 11,851
================================================================
Oil & Gas Drilling-0.54%
Nabors Industries, Ltd. (Bermuda)(a) 150 5,246
================================================================
Oil & Gas Equipment & Services-1.02%
BJ Services Co.(a) 170 5,156
- ----------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 120 4,805
================================================================
9,961
================================================================
Oil & Gas Exploration & Production-0.50%
Apache Corp. 90 4,865
================================================================
Personal Products-0.98%
Gillette Co. (The) 320 9,562
================================================================
Pharmaceuticals-10.45%
Bristol-Myers Squibb Co. 620 15,258
- ----------------------------------------------------------------
Forest Laboratories, Inc.(a) 100 9,799
- ----------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------
Pharmaceuticals-(Continued)
Johnson & Johnson 460 $ 27,025
- ----------------------------------------------------------------
Lilly (Eli) & Co. 130 7,215
- ----------------------------------------------------------------
Merck & Co. Inc. 150 8,136
- ----------------------------------------------------------------
Pfizer Inc. 910 28,911
- ----------------------------------------------------------------
Wyeth 170 5,695
================================================================
102,039
================================================================
Property & Casualty Insurance-2.22%
Ambac Financial Group, Inc. 350 21,630
================================================================
Restaurants-1.56%
Brinker International, Inc.(a) 180 5,110
- ----------------------------------------------------------------
Starbucks Corp.(a) 240 5,700
- ----------------------------------------------------------------
Wendy's International, Inc. 140 4,435
================================================================
15,245
================================================================
Semiconductor Equipment-1.12%
Applied Materials, Inc.(a) 370 5,561
- ----------------------------------------------------------------
KLA-Tencor Corp.(a) 150 5,345
================================================================
10,906
================================================================
Semiconductors-4.21%
Intel Corp. 730 12,629
- ----------------------------------------------------------------
Linear Technology Corp. 190 5,252
- ----------------------------------------------------------------
Microchip Technology Inc. 950 23,180
================================================================
41,061
================================================================
Soft Drinks-1.90%
Coca-Cola Co. (The) 400 18,592
================================================================
Specialty Chemicals-0.54%
Ecolab Inc. 110 5,308
================================================================
Specialty Stores-0.80%
Bed Bath & Beyond Inc.(a) 220 7,801
================================================================
Systems Software-4.33%
Microsoft Corp.(a) 790 42,241
================================================================
Tobacco-2.13%
Philip Morris Cos. Inc. 510 20,783
================================================================
Trading Companies & Distributors-0.49%
Fastenal Co. 140 4,753
================================================================
Total Common Stocks (Cost $971,141) 959,117
================================================================
TOTAL INVESTMENTS-98.24% (Cost $971,141) 959,117
================================================================
OTHER ASSETS LESS LIABILITIES-1.76% 17,218
================================================================
NET ASSETS-100.00% $976,335
________________________________________________________________
================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
See Notes to Financial Statements.
FS-172
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
OCTOBER 31, 2002
<Table>
ASSETS:
Investments, at market value (cost $971,141) $ 959,117
- ---------------------------------------------------------------------------------------------
Cash 17,253
- ---------------------------------------------------------------------------------------------
Receivables for:
Amount due from advisor 13,538
- ---------------------------------------------------------------------------------------------
Investments sold 1,859
- ---------------------------------------------------------------------------------------------
Dividends 994
=============================================================================================
Total assets 992,761
_____________________________________________________________________________________________
=============================================================================================
LIABILITIES:
Payables for:
Accrued trustees' fees 663
- ---------------------------------------------------------------------------------------------
Accrued transfer agent fees 5
- ---------------------------------------------------------------------------------------------
Accrued operating expenses 15,758
=============================================================================================
Total liabilities 16,426
=============================================================================================
Net assets applicable to shares outstanding $ 976,335
_____________________________________________________________________________________________
=============================================================================================
NET ASSETS:
Class A $ 390,533
_____________________________________________________________________________________________
=============================================================================================
Class B $ 292,901
_____________________________________________________________________________________________
=============================================================================================
Class C $ 292,901
_____________________________________________________________________________________________
=============================================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 40,001
_____________________________________________________________________________________________
=============================================================================================
Class B 30,001
_____________________________________________________________________________________________
=============================================================================================
Class C 30,001
_____________________________________________________________________________________________
=============================================================================================
Class A :
Net asset value per share $ 9.76
- ---------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $9.76 / 94.50%) $ 10.33
_____________________________________________________________________________________________
=============================================================================================
Class B :
Net asset value and offering price per share $ 9.76
_____________________________________________________________________________________________
=============================================================================================
Class C :
Net asset value and offering price per share $ 9.76
_____________________________________________________________________________________________
=============================================================================================
</Table>
See Notes to Financial Statements.
FS-173
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 30, 2002 (DATE OPERATIONS COMMENCED)
THROUGH OCTOBER 31, 2002
<Table>
INVESTMENT INCOME:
Dividends $ 2,229
- ---------------------------------------------------------------------------------------------
Interest 295
=============================================================================================
Total investment income 2,524
=============================================================================================
EXPENSES:
Advisory fees 1,237
- ---------------------------------------------------------------------------------------------
Administrative services fees 8,493
- ---------------------------------------------------------------------------------------------
Custodian fees 2,442
- ---------------------------------------------------------------------------------------------
Distribution fees--Class A 231
- ---------------------------------------------------------------------------------------------
Distribution fees--Class B 495
- ---------------------------------------------------------------------------------------------
Distribution fees--Class C 495
- ---------------------------------------------------------------------------------------------
Printing 9,280
- ---------------------------------------------------------------------------------------------
Professional fees 11,588
- ---------------------------------------------------------------------------------------------
Transfer agent fees 14
- ---------------------------------------------------------------------------------------------
Trustees' fees 2,652
- ---------------------------------------------------------------------------------------------
Other 752
=============================================================================================
Total expenses 37,679
=============================================================================================
Less: Fees waived and expenses reimbursed (34,778)
- ----------------------------------------------------------------------------------------------
Expenses paid indirectly (13)
=============================================================================================
Net expenses 2,888
=============================================================================================
Net investment income (loss) (364)
=============================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES:
Net realized gain (loss) from investment securities (11,307)
- ---------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities (12,024)
=============================================================================================
Net gain (loss) from investment securities (23,331)
=============================================================================================
Net increase (decrease) in net assets resulting from operations $ (23,695)
_____________________________________________________________________________________________
=============================================================================================
</Table>
See Notes to Financial Statements.
FS-174
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 30, 2002 (DATE OPERATIONS COMMENCED)
THROUGH OCTOBER 31, 2002
<Table>
<Caption>
OCTOBER 31,
2002
-----------
OPERATIONS:
Net investment income (loss) $ (364)
- ---------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (11,307)
- ---------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities (12,024)
=============================================================================================
Net increase (decrease) in net assets resulting from operations (23,695)
=============================================================================================
Share transactions-net:
Class A 400,010
- ---------------------------------------------------------------------------------------------
Class B 300,010
- ---------------------------------------------------------------------------------------------
Class C 300,010
=============================================================================================
Net increase in net assets 976,335
=============================================================================================
NET ASSETS:
Beginning of period --
=============================================================================================
End of period $ 976,335
_____________________________________________________________________________________________
=============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 993,105
- ---------------------------------------------------------------------------------------------
Undistributed net investment income 6,561
- ---------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities (11,307)
- ---------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment securities (12,024)
=============================================================================================
$ 976,335
_____________________________________________________________________________________________
=============================================================================================
</Table>
See Notes to Financial Statements.
FS-175
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
October 31, 2002
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM U.S. Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds (the
"Trust"). The Trust is a Delaware business trust registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company consisting of fifteen separate portfolios, each
having an unlimited number of shares of beneficial interest. The Fund commenced
operations August 30, 2002 and consists of three different classes of shares
that are not currently available for sale: Class A shares, Class B shares and
Class C 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 to provide
long-term growth of capital.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS - Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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
FS-176
is recorded on the ex-dividend date. Premiums and discounts are amortized
and/or accreted for financial reporting purposes.
C. DISTRIBUTIONS - Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. EXPENSES - Distribution expenses directly attributable to a class of shares
are charged to the respective classes' operations. Transfer agency fees and
expenses and other shareholder recordkeeping fees and expenses are charged
to each class pursuant to a transfer agency and service agreement adopted
by the Fund with respect to such class. All other expenses are allocated
among the classes based on relative net assets.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $1
billion of the Fund's average daily net assets, plus 0.70% of the Fund's next $1
billion of average daily net assets, plus 0.65% of the Fund's average daily nest
assets in excess of $2 billion. AIM has voluntarily agreed to waive fees and/or
reimburse expenses (excluding interest, taxes, dividends on short sales,
extraordinary items and increases in expenses due to expense offset
arrangements, if any) for Class A, Class B and Class C shares to the extent
necessary to limit the total annual fund operating expenses of Class A to 1.75%
which may be terminated or modified at any time. 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 fund of which the Fund has invested.
For the period August 30, 2002 (date operations commenced) through October 31,
2002, AIM waived fees of $1,237 and reimbursed expenses of $32,320.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the period August 30, 2002 (date operations
commenced) through October 31, 2002, AIM was paid $8,493 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the period August 30, 2002 (date
operations commenced) through October 31, 2002, AFS retained $6 for such
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. NASD Rules
also impose a cap on the total amount of sales charges, including asset-based
sales charges that may be paid by any class of shares of the Fund. AIM
Distributors has voluntarily agreed to waive all fees during the time the shares
are not available for sale. This waiver may be terminated or modified at any
time. Pursuant to the master distribution agreements, for the period August 30,
2002 (date operations commenced) through October 31, 2002, AIM Distributors
waived fees of $231, $495 and $495 for Class A, Class B and Class C shares,
respectively.
AIM Distributors retained commissions of $0 from sales of the Class A shares
of the Fund during the period August 30, 2002 (date operations commenced)
through October 31, 2002. Such commissions are not an expense of the Fund. They
are deducted from, and are not included in, the proceeds from sales of Class A
shares. During the period August 30, 2002 (date operations commenced) through
October 31,
FS-177
2002, AIM Distributors retained $0, $0 and $0 in contingent deferred sales
charges imposed on redemptions of Class A, Class B and Class C shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the period August 30, 2002 (date operations commenced) through October
31, 2002, the Fund paid legal fees of $0 for services rendered by Kramer, Levin,
Naftalis & Frankel LLP as counsel to the Board of Trustees. A member of that
firm is a trustee of the Trust.
NOTE 3 - INDIRECT EXPENSES
For the period August 30, 2002 (date operations commenced) through October 31,
2002, the Fund received reductions in transfer agency fees from AFS (an
affiliate of AIM) of $2 and reductions in custodian fees of $11 under expense
offset arrangements which resulted in a reduction of the Fund's total expenses
of $13.
NOTE 4 - TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5 - DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
There were no ordinary income or long-term capital distributions paid during the
period August 30, 2002 (date operations commenced) through October 31, 2002.
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Undistributed ordinary income $ 6,561
Unrealized appreciation (depreciation) - investments (12,024)
Capital loss carryforward (11,307)
Shares of beneficial interest 993,105
---------------
$ 976,335
===============
</Table>
Unrealized appreciation (depreciation) is the same for tax and financial
statement purposes.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL
EXPIRATION LOSS CARRYFORWARD
---------------- -----------------
October 31, 2010 $11,307
</Table>
NOTE 6 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period August 30, 2002 (date
operations commenced) through October 31, 2002 was $992,044 and $9,596,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of investment securities $ 36,742
- ------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (48,766)
==========================================================================================
Net unrealized appreciation (depreciation) of investment securities $ (12,024)
__________________________________________________________________________________________
==========================================================================================
</Table>
Investments have the same costs for tax and financial statement purposes.
FS-178
NOTE 7 - RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of stock issuance costs, and other
items, on October 31, 2002, undistributed net investment income was increased by
$6,925 and shares of beneficial interest decreased by $6,925. This
reclassification had no effect on the net assets of the Fund.
NOTE 8 - SHARE INFORMATION
Changes in shares outstanding during the period August 30, 2002 (date operations
commenced) through October 31, 2002 were as follows:
<Table>
<Caption>
2002
--------------------------------
SHARES AMOUNT
------------ ---------------
Sold:
Class A * 40,001 $ 400,010
- --------------------------------------------------------------------
Class B * 30,001 300,010
- --------------------------------------------------------------------
Class C * 30,001 300,010
====================================================================
100,003 $ 1,000,030
____________________________________________________________________
====================================================================
</Table>
* Currently all shares are owned by AIM.
FS-179
NOTE 9 - FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of
the Fund outstanding during the period August 30, 2002 (date
operations commenced) through October 31, 2002.
<Table>
<Caption>
CLASS A
---------------------------
AUGUST 30, 2002
(DATE OPERATIONS COMMENCED)
TO OCTOBER 31,
2002
---------------------------
Net asset value, beginning of period $ 10.00
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00
- --------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.24)
______________________________________________________________________________________
======================================================================================
Total from investment operations (0.24)
______________________________________________________________________________________
======================================================================================
Net asset value, end of period $ 9.76
______________________________________________________________________________________
======================================================================================
Total return (a) (2.40)%
______________________________________________________________________________________
======================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 391
______________________________________________________________________________________
======================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursement 1.76%(b)
- --------------------------------------------------------------------------------------
Without fee waivers and expense reimbursement 22.45%(b)
______________________________________________________________________________________
======================================================================================
Ratio of net investment income (loss) to average net assets (0.22)%(b)
______________________________________________________________________________________
======================================================================================
Portfolio turnover rate 1%
______________________________________________________________________________________
======================================================================================
</Table>
(a) Includes adjustments in accordance with generally accepted accounting
principles, does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $382,290.
FS-180
NOTE 9 - FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------
AUGUST 30, 2002
(DATE OPERATIONS COMMENCED)
TO OCTOBER 31,
2002
---------------------------
Net asset value, beginning of period $ 10.00
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00
- --------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.24)
______________________________________________________________________________________
======================================================================================
Total from investment operations (0.24)
______________________________________________________________________________________
======================================================================================
Net asset value, end of period $ 9.76
______________________________________________________________________________________
======================================================================================
Total return (a) (2.40)%
______________________________________________________________________________________
======================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 293
______________________________________________________________________________________
======================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursement 1.76%(b)
- --------------------------------------------------------------------------------------
Without fee waivers and expense reimbursement 23.10%(b)
______________________________________________________________________________________
======================================================================================
Ratio of net investment income (loss) to average net assets (0.22)%(b)
______________________________________________________________________________________
======================================================================================
Portfolio turnover rate 1%
______________________________________________________________________________________
======================================================================================
</Table>
(a) Includes adjustments in accordance with generally accepted accounting
principles, does not include contingent deferred sales charges and is not
annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $286,720.
FS-181
NOTE 9 - FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------
AUGUST 30, 2002
(DATE OPERATIONS COMMENCED)
TO OCTOBER 31,
2002
---------------------------
Net asset value, beginning of period $ 10.00
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00
- --------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.24)
______________________________________________________________________________________
======================================================================================
Total from investment operations (0.24)
______________________________________________________________________________________
======================================================================================
Net asset value, end of period $ 9.76
______________________________________________________________________________________
======================================================================================
Total return (a) (2.40)%
______________________________________________________________________________________
======================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 293
______________________________________________________________________________________
======================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursement 1.76%(b)
- --------------------------------------------------------------------------------------
Without fee waivers and expense reimbursement 23.10%(b)
______________________________________________________________________________________
======================================================================================
Ratio of net investment income (loss) to average net assets (0.22)%(b)
______________________________________________________________________________________
======================================================================================
Portfolio turnover rate 1%
______________________________________________________________________________________
======================================================================================
</Table>
(a) Includes adjustments in accordance with generally accepted accounting
principles, does not include contingent deferred sales charges and is not
annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $286,720.
FS-182
Report of Independent Auditors
To the Shareholders of AIM Weingarten Fund
and Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Weingarten Fund (a portfolio AIM Equity Funds), including the schedule of
investments, as of October 31, 2002, and the related statement of operations for
the year then ended, and the statements of changes in net assets and financial
highlights for each of the two years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for each of the periods presented through October 31, 2000 were
audited by other auditors whose report dated December 6, 2000, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2002, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Weingarten Fund as of October 31, 2002, the results of its operations for the
year then ended, and the changes in its net assets and financial highlights for
each of the two years in the period then ended in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
December 10, 2002
FS-183
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.40%
Advertising-0.74%
Omnicom Group Inc. 350,000 $ 20,170,500
===========================================================================
Aerospace & Defense-1.44%
L-3 Communications Holdings, Inc.(a) 200,000 9,400,000
- ---------------------------------------------------------------------------
Lockheed Martin Corp. 250,000 14,475,000
- ---------------------------------------------------------------------------
United Technologies Corp. 250,000 15,417,500
===========================================================================
39,292,500
===========================================================================
Airlines-0.32%
Southwest Airlines Co. 600,000 8,760,000
===========================================================================
Apparel Retail-2.15%
Gap, Inc. (The) 2,065,900 24,315,643
- ---------------------------------------------------------------------------
Limited Brands 600,000 9,402,000
- ---------------------------------------------------------------------------
Ross Stores, Inc. 250,000 10,462,500
- ---------------------------------------------------------------------------
TJX Cos., Inc. (The) 700,000 14,364,000
===========================================================================
58,544,143
===========================================================================
Application Software-0.76%
Electronic Arts Inc.(a)(b) 150,000 9,768,000
- ---------------------------------------------------------------------------
PeopleSoft, Inc.(a) 600,000 10,860,000
===========================================================================
20,628,000
===========================================================================
Automobile Manufacturers-0.52%
Bayerische Motoren Werke A.G. (Germany) 400,000 14,272,916
===========================================================================
Banks-2.91%
Bank of America Corp. 600,000 41,880,000
- ---------------------------------------------------------------------------
Bank of New York Co., Inc. (The) 350,000 9,100,000
- ---------------------------------------------------------------------------
Kookmin Bank-ADR (South Korea) 400,000 12,940,000
- ---------------------------------------------------------------------------
Synovus Financial Corp. 750,000 15,367,500
===========================================================================
79,287,500
===========================================================================
Biotechnology-0.93%
Gilead Sciences, Inc.(a) 400,000 13,896,000
- ---------------------------------------------------------------------------
IDEC Pharmaceuticals Corp.(a) 250,000 11,505,000
===========================================================================
25,401,000
===========================================================================
Brewers-0.68%
Anheuser-Busch Cos., Inc. 350,000 18,466,000
===========================================================================
Broadcasting & Cable TV-1.28%
Clear Channel Communications, Inc.(a) 700,000 25,935,000
- ---------------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 350,000 9,068,500
===========================================================================
35,003,500
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
Building Products-1.00%
American Standard Cos. Inc.(a) 100,000 $ 6,670,000
- ---------------------------------------------------------------------------
Masco Corp. 1,000,000 20,560,000
===========================================================================
27,230,000
===========================================================================
Computer Hardware-3.49%
Dell Computer Corp.(a) 2,000,000 57,220,000
- ---------------------------------------------------------------------------
Hewlett-Packard Co. 900,000 14,220,000
- ---------------------------------------------------------------------------
International Business Machines Corp. 300,000 23,682,000
===========================================================================
95,122,000
===========================================================================
Construction Materials-0.31%
Vulcan Materials Co. 250,000 8,390,000
===========================================================================
Consumer Finance-1.30%
Household International, Inc. 300,000 7,128,000
- ---------------------------------------------------------------------------
MBNA Corp. 1,400,000 28,434,000
===========================================================================
35,562,000
===========================================================================
Data Processing Services-1.78%
First Data Corp. 400,000 13,976,000
- ---------------------------------------------------------------------------
Fiserv, Inc.(a) 600,000 18,744,000
- ---------------------------------------------------------------------------
Paychex, Inc. 550,000 15,851,000
===========================================================================
48,571,000
===========================================================================
Department Stores-2.00%
Federated Department Stores, Inc.(a) 400,000 12,280,000
- ---------------------------------------------------------------------------
Kohl's Corp.(a) 500,000 29,225,000
- ---------------------------------------------------------------------------
Nordstrom, Inc. 650,000 12,948,000
===========================================================================
54,453,000
===========================================================================
Diversified Commercial Services-1.87%
Apollo Group, Inc.-Class A(a) 350,000 14,525,000
- ---------------------------------------------------------------------------
Cendant Corp.(a) 800,000 9,200,000
- ---------------------------------------------------------------------------
H&R Block, Inc. 400,000 17,752,000
- ---------------------------------------------------------------------------
Weight Watchers International, Inc.(a) 200,000 9,470,000
===========================================================================
50,947,000
===========================================================================
Diversified Financial Services-7.03%
American Express Co. 450,000 16,366,500
- ---------------------------------------------------------------------------
Charles Schwab Corp. (The) 1,500,000 13,770,000
- ---------------------------------------------------------------------------
Citigroup Inc. 750,000 27,712,500
- ---------------------------------------------------------------------------
Fannie Mae 300,000 20,058,000
- ---------------------------------------------------------------------------
Freddie Mac 450,000 27,711,000
- ---------------------------------------------------------------------------
</Table>
FS-184
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
Diversified Financial Services-(Continued)
Goldman Sachs Group, Inc. (The) 400,000 $ 28,640,000
- ---------------------------------------------------------------------------
J.P. Morgan Chase & Co. 1,000,000 20,750,000
- ---------------------------------------------------------------------------
Moody's Corp. 200,000 9,420,000
- ---------------------------------------------------------------------------
SLM Corp. 150,000 15,411,000
- ---------------------------------------------------------------------------
Stilwell Financial, Inc. 1,000,000 11,710,000
===========================================================================
191,549,000
===========================================================================
Drug Retail-1.09%
CVS Corp. 400,000 11,092,000
- ---------------------------------------------------------------------------
Walgreen Co. 550,000 18,562,500
===========================================================================
29,654,500
===========================================================================
Employment Services-0.40%
Robert Half International Inc.(a) 650,000 10,855,000
===========================================================================
Food Distributors-0.41%
Sysco Corp. 350,000 11,088,000
===========================================================================
Food Retail-0.78%
Kroger Co. (The)(a) 650,000 9,646,000
- ---------------------------------------------------------------------------
Whole Foods Market, Inc.(a) 250,000 11,663,500
===========================================================================
21,309,500
===========================================================================
Footwear-0.52%
NIKE, Inc.-Class B 300,000 14,157,000
===========================================================================
General Merchandise Stores-1.39%
Family Dollar Stores, Inc. 350,000 10,776,500
- ---------------------------------------------------------------------------
Target Corp. 900,000 27,108,000
===========================================================================
37,884,500
===========================================================================
Health Care Distributors & Services-2.30%
AdvancePCS(a) 400,000 10,040,000
- ---------------------------------------------------------------------------
AmerisourceBergen Corp. 200,000 14,230,000
- ---------------------------------------------------------------------------
Cardinal Health, Inc. 400,000 27,684,000
- ---------------------------------------------------------------------------
Express Scripts, Inc.(a) 200,000 10,836,000
===========================================================================
62,790,000
===========================================================================
Health Care Equipment-2.71%
Becton, Dickinson & Co. 400,000 11,804,000
- ---------------------------------------------------------------------------
Boston Scientific Corp.(a) 450,000 16,933,500
- ---------------------------------------------------------------------------
Medtronic, Inc. 450,000 20,160,000
- ---------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 300,000 10,683,000
- ---------------------------------------------------------------------------
Zimmer Holdings, Inc.(a)(b) 350,000 14,427,000
===========================================================================
74,007,500
===========================================================================
Health Care Facilities-1.85%
HCA Inc. 500,000 21,745,000
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
Health Care Facilities-(Continued)
Tenet Healthcare Corp.(a) 1,000,000 $ 28,750,000
===========================================================================
50,495,000
===========================================================================
Health Care Supplies-0.90%
Alcon, Inc. (Switzerland)(a) 600,000 24,612,000
===========================================================================
Home Improvement Retail-2.35%
Home Depot, Inc. (The) 1,350,000 38,988,000
- ---------------------------------------------------------------------------
Lowe's Cos., Inc. 600,000 25,038,000
===========================================================================
64,026,000
===========================================================================
Hotels, Resorts & Cruise Lines-0.54%
Royal Caribbean Cruises Ltd. 800,000 14,688,000
===========================================================================
Household Appliances-0.34%
Black & Decker Corp. (The) 200,000 9,352,000
===========================================================================
Household Products-2.13%
Colgate-Palmolive Co. 250,000 13,745,000
- ---------------------------------------------------------------------------
Procter & Gamble Co. (The) 500,000 44,225,000
===========================================================================
57,970,000
===========================================================================
Housewares & Specialties-0.77%
Newell Rubbermaid Inc. 650,000 21,073,000
===========================================================================
Industrial Conglomerates-1.59%
Tyco International Ltd. (Bermuda) 3,000,000 43,380,000
===========================================================================
Industrial Gases-0.72%
Air Products & Chemicals, Inc. 200,000 8,840,000
- ---------------------------------------------------------------------------
Praxair, Inc. 200,000 10,900,000
===========================================================================
19,740,000
===========================================================================
Industrial Machinery-0.53%
Danaher Corp. 250,000 14,462,500
===========================================================================
Integrated Telecommunication Services-1.07%
AT&T Corp. 1,550,000 20,212,000
- ---------------------------------------------------------------------------
SBC Communications Inc. 350,000 8,981,000
===========================================================================
29,193,000
===========================================================================
Internet Retail-1.01%
Amazon.com, Inc.(a) 600,000 11,616,000
- ---------------------------------------------------------------------------
eBay Inc.(a) 250,000 15,815,000
===========================================================================
27,431,000
===========================================================================
Internet Software & Services-0.49%
Yahoo! Inc.(a) 900,000 13,428,000
===========================================================================
IT Consulting & Services-0.76%
Affiliated Computer Services, Inc.-Class A(a) 450,000 20,722,500
===========================================================================
</Table>
FS-185
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
Managed Health Care-2.94%
Aetna Inc. 350,000 $ 14,105,000
- ---------------------------------------------------------------------------
Anthem, Inc.(a) 250,000 15,750,000
- ---------------------------------------------------------------------------
Caremark Rx, Inc.(a) 550,000 9,735,000
- ---------------------------------------------------------------------------
UnitedHealth Group Inc. 300,000 27,285,000
- ---------------------------------------------------------------------------
WellPoint Health Networks Inc.(a) 175,000 13,161,750
===========================================================================
80,036,750
===========================================================================
Motorcycle Manufacturers-0.67%
Harley-Davidson, Inc. 350,000 18,305,000
===========================================================================
Multi-Line Insurance-1.85%
American International Group, Inc. 650,000 40,657,500
- ---------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 250,000 9,875,000
===========================================================================
50,532,500
===========================================================================
Networking Equipment-1.64%
Cisco Systems, Inc.(a) 4,000,000 44,720,000
===========================================================================
Office Services & Supplies-0.34%
Avery Dennison Corp. 150,000 9,336,000
===========================================================================
Oil & Gas Drilling-1.25%
ENSCO International Inc. 250,000 6,760,000
- ---------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 500,000 17,485,000
- ---------------------------------------------------------------------------
Transocean Inc. 450,000 9,891,000
===========================================================================
34,136,000
===========================================================================
Oil & Gas Equipment & Services-0.37%
Schlumberger Ltd. (Netherlands) 250,000 10,027,500
===========================================================================
Oil & Gas Exploration & Production-0.37%
Devon Energy Corp. 200,000 10,100,000
===========================================================================
Packaged Foods & Meats-0.34%
Sara Lee Corp. 400,000 9,132,000
===========================================================================
Personal Products-0.38%
Gillette Co. (The) 350,000 10,458,000
===========================================================================
Pharmaceuticals-9.78%
Forest Laboratories, Inc.(a) 100,000 9,799,000
- ---------------------------------------------------------------------------
Johnson & Johnson 950,000 55,812,500
- ---------------------------------------------------------------------------
Lilly (Eli) & Co. 400,000 22,200,000
- ---------------------------------------------------------------------------
Pfizer Inc. 1,000,000 31,770,000
- ---------------------------------------------------------------------------
Pharmacia Corp. 2,250,000 96,750,000
- ---------------------------------------------------------------------------
Wyeth 1,500,000 50,250,000
===========================================================================
266,581,500
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
Property & Casualty Insurance-0.42%
XL Capital Ltd.-Class A (Bermuda) 150,000 $ 11,422,500
===========================================================================
Restaurants-0.74%
Starbucks Corp.(a) 450,000 10,687,500
- ---------------------------------------------------------------------------
Wendy's International, Inc. 300,000 9,504,000
===========================================================================
20,191,500
===========================================================================
Semiconductor Equipment-6.45%
Applied Materials, Inc.(a) 6,500,000 97,695,000
- ---------------------------------------------------------------------------
KLA-Tencor Corp.(a) 400,000 14,252,000
- ---------------------------------------------------------------------------
Lam Research Corp.(a) 1,300,000 16,367,000
- ---------------------------------------------------------------------------
Novellus Systems, Inc.(a) 1,500,000 47,400,000
===========================================================================
175,714,000
===========================================================================
Semiconductors-6.95%
Analog Devices, Inc.(a) 1,250,000 33,500,000
- ---------------------------------------------------------------------------
Intel Corp. 1,700,000 29,410,000
- ---------------------------------------------------------------------------
Linear Technology Corp. 1,000,000 27,640,000
- ---------------------------------------------------------------------------
Maxim Integrated Products, Inc. 350,000 11,144,000
- ---------------------------------------------------------------------------
Microchip Technology Inc. 1,250,000 30,500,000
- ---------------------------------------------------------------------------
Micron Technology, Inc.(a) 1,600,000 25,600,000
- ---------------------------------------------------------------------------
STMicroelectronics N.V.-New York Shares
(Netherlands) 800,000 15,736,000
- ---------------------------------------------------------------------------
Texas Instruments Inc. 1,000,000 15,860,000
===========================================================================
189,390,000
===========================================================================
Soft Drinks-0.51%
Coca-Cola Co. (The) 300,000 13,944,000
===========================================================================
Specialty Chemicals-0.35%
Ecolab Inc. 200,000 9,650,000
===========================================================================
Specialty Stores-0.98%
Bed Bath & Beyond Inc.(a) 750,000 26,595,000
===========================================================================
Systems Software-5.22%
Computer Associates International, Inc. 1,000,000 14,860,000
- ---------------------------------------------------------------------------
Microsoft Corp.(a) 2,000,000 106,940,000
- ---------------------------------------------------------------------------
Oracle Corp.(a) 2,000,000 20,380,000
===========================================================================
142,180,000
===========================================================================
Telecommunications Equipment-0.38%
QUALCOMM Inc.(a) 300,000 10,356,000
===========================================================================
Tobacco-0.52%
Philip Morris Cos. Inc. 350,000 14,262,500
===========================================================================
</Table>
FS-186
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
Wireless Telecommunication Services-0.79%
AT&T Wireless Services Inc.(a) 1,500,000 $ 10,305,000
- ---------------------------------------------------------------------------
Nextel Communications, Inc.-Class A(a) 1,000,000 11,280,000
===========================================================================
21,585,000
===========================================================================
Total Common Stocks & Other Equity
Interests (Cost $2,799,876,312) 2,682,624,809
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
Money Market Funds-2.68%
STIC Liquid Assets Portfolio(c) 36,578,212 $ 36,578,212
- ---------------------------------------------------------------------------
STIC Prime Portfolio(c) 36,578,212 36,578,212
===========================================================================
Total Money Market Funds (Cost
$73,156,424) 73,156,424
===========================================================================
TOTAL INVESTMENTS-101.08% (Cost
$2,873,032,736)(d) 2,755,781,233
===========================================================================
OTHER ASSETS LESS LIABILITIES-(1.08%) (29,484,351)
===========================================================================
NET ASSETS-100.00% $2,726,296,882
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 7.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor.
(d) The Investment Company Act of 1940 defines affiliates as those companies in
which a fund holds 5% or more of the outstanding voting securities. The Fund
has not owned enough of the outstanding voting securities of the issuer to
have control (as defined in the Investment Company Act of 1940) of that
issuer. The following is a summary of the transactions with affiliates for
the year ended October 31, 2002.
<Table>
<Caption>
CHANGE IN
MARKET VALUE PURCHASE SALES UNREALIZED MARKET VALUE DIVIDEND REALIZED
10/31/2001 AT COST AT COST APPR./(DEPR.) 10/31/2002 INCOME GAIN/(LOSS)
======================================================================================================
Blockbuster Inc.-Class
A $14,471,160 $66,246,373 $(78,186,855) $(2,530,678) $ - $35,090 $(11,465,501)
</Table>
See Notes to Financial Statements.
FS-187
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost $2,873,032,736)* $2,755,781,233
- ---------------------------------------------------------------------
Foreign currencies, at value (cost $127) 128
- ---------------------------------------------------------------------
Receivables for:
Investments sold 86,174,507
- ---------------------------------------------------------------------
Fund shares sold 748,513
- ---------------------------------------------------------------------
Dividends 1,728,725
- ---------------------------------------------------------------------
Investment for deferred compensation plan 159,752
- ---------------------------------------------------------------------
Collateral for securities loaned 48,365,000
- ---------------------------------------------------------------------
Other assets 498,784
=====================================================================
Total assets 2,893,456,642
_____________________________________________________________________
=====================================================================
LIABILITIES:
Payables for:
Investments purchased 105,798,488
- ---------------------------------------------------------------------
Fund shares reacquired 8,813,795
- ---------------------------------------------------------------------
Options written (premiums received $585,867) 541,250
- ---------------------------------------------------------------------
Deferred compensation plan 159,752
- ---------------------------------------------------------------------
Collateral upon return of securities loaned 48,365,000
- ---------------------------------------------------------------------
Accrued distribution fees 1,661,024
- ---------------------------------------------------------------------
Accrued trustees' fees 2,610
- ---------------------------------------------------------------------
Accrued transfer agent fees 1,341,608
- ---------------------------------------------------------------------
Accrued operating expenses 476,233
=====================================================================
Total liabilities 167,159,760
=====================================================================
Net assets applicable to shares outstanding $2,726,296,882
_____________________________________________________________________
=====================================================================
NET ASSETS:
Class A $2,104,660,220
_____________________________________________________________________
=====================================================================
Class B $ 533,223,559
_____________________________________________________________________
=====================================================================
Class C $ 86,454,751
_____________________________________________________________________
=====================================================================
Class R $ 75,548
_____________________________________________________________________
=====================================================================
Institutional Class $ 1,882,804
_____________________________________________________________________
=====================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 222,166,712
_____________________________________________________________________
=====================================================================
Class B 60,468,715
_____________________________________________________________________
=====================================================================
Class C 9,794,273
_____________________________________________________________________
=====================================================================
Class R 7,975
_____________________________________________________________________
=====================================================================
Institutional Class 190,038
_____________________________________________________________________
=====================================================================
Class A:
Net asset value per share $ 9.47
- ---------------------------------------------------------------------
Offering price per share:
(Net asset value of $9.47 divided by 94.50%) $ 10.02
_____________________________________________________________________
=====================================================================
Class B:
Net asset value and offering price per share $ 8.82
_____________________________________________________________________
=====================================================================
Class C:
Net asset value and offering price per share $ 8.83
_____________________________________________________________________
=====================================================================
Class R:
Net asset value and offering price per share $ 9.47
_____________________________________________________________________
=====================================================================
Institutional Class:
Net asset value and offering price per share $ 9.91
_____________________________________________________________________
=====================================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $47,963,220
were on loan to brokers.
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$167,474) $ 25,641,915
- ---------------------------------------------------------------------
Dividends from affiliated money market funds 2,003,666
- ---------------------------------------------------------------------
Interest 79,513
- ---------------------------------------------------------------------
Security lending income 568,605
=====================================================================
Total investment income 28,293,699
=====================================================================
EXPENSES:
Advisory fees 26,086,537
- ---------------------------------------------------------------------
Administrative services fees 450,564
- ---------------------------------------------------------------------
Custodian fees 267,075
- ---------------------------------------------------------------------
Distribution fees -- Class A 9,600,534
- ---------------------------------------------------------------------
Distribution fees -- Class B 7,658,196
- ---------------------------------------------------------------------
Distribution fees -- Class C 1,234,983
- ---------------------------------------------------------------------
Distribution fees -- Class R 43
- ---------------------------------------------------------------------
Transfer agent fees 14,162,876
- ---------------------------------------------------------------------
Transfer agent fees -- Institutional Class 2,990
- ---------------------------------------------------------------------
Trustees' fees 22,833
- ---------------------------------------------------------------------
Other 1,291,447
=====================================================================
Total expenses 60,778,078
=====================================================================
Less: Fees waived (28,985)
- ---------------------------------------------------------------------
Expenses paid indirectly (62,973)
=====================================================================
Net expenses 60,686,120
=====================================================================
Net investment income (loss) (32,392,421)
=====================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FUTURES CONTRACTS
AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (810,794,403)
- ---------------------------------------------------------------------
Foreign currencies (315,885)
- ---------------------------------------------------------------------
Futures contracts 10,637,350
- ---------------------------------------------------------------------
Option contracts written 3,889,123
=====================================================================
(796,583,815)
=====================================================================
Change in net unrealized appreciation (depreciation)
of:
Investment securities (252,798,311)
- ---------------------------------------------------------------------
Foreign currencies 413,050
- ---------------------------------------------------------------------
Futures contracts 6,153,088
- ---------------------------------------------------------------------
Option contracts written 44,617
=====================================================================
(246,187,556)
=====================================================================
Net gain (loss) from investment securities, foreign
currencies, futures contracts and option contracts (1,042,771,371)
=====================================================================
Net increase (decrease) in net assets resulting from
operations $(1,075,163,792)
_____________________________________________________________________
=====================================================================
</Table>
See Notes to Financial Statements.
FS-188
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (32,392,421) $ (51,530,302)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts (796,583,815) (2,619,839,284)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, futures
contracts and option contracts (246,187,556) (2,503,372,023)
================================================================================================
Net increase (decrease) in net assets resulting from
operations (1,075,163,792) (5,174,741,609)
================================================================================================
Distributions to shareholders from net realized gains:
Class A -- (1,121,031,643)
- ------------------------------------------------------------------------------------------------
Class B -- (257,775,222)
- ------------------------------------------------------------------------------------------------
Class C -- (40,618,148)
- ------------------------------------------------------------------------------------------------
Institutional Class -- (2,238,331)
- ------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (1,064,806,254) 270,194,498
- ------------------------------------------------------------------------------------------------
Class B (180,109,268) 174,387,701
- ------------------------------------------------------------------------------------------------
Class C (30,575,415) 38,305,460
- ------------------------------------------------------------------------------------------------
Class R 72,385 --
- ------------------------------------------------------------------------------------------------
Institutional Class (5,419,461) (703,710)
================================================================================================
Net increase (decrease) in net assets (2,356,001,805) (6,114,221,004)
================================================================================================
NET ASSETS:
Beginning of year 5,082,298,687 11,196,519,691
================================================================================================
End of year $ 2,726,296,882 $ 5,082,298,687
________________________________________________________________________________________________
================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 6,266,669,716 $ 7,580,212,372
- ------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (437,153) (433,499)
- ------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies, futures contracts and
option contracts (3,422,728,820) (2,626,460,881)
- ------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies, futures contracts and
option contracts (117,206,861) 128,980,695
================================================================================================
$ 2,726,296,882 $ 5,082,298,687
________________________________________________________________________________________________
================================================================================================
</Table>
See Notes to Financial Statements.
FS-189
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Weingarten Fund (the "Fund") is a series portfolio of AIM Equity Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers five different classes of shares: Class A shares, Class B
shares, Class C shares, Class R shares and the Institutional Class. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge. Class R shares and
Institutional Class shares are sold at net asset value. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The Fund's investment objective is to provide growth
of capital.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
FS-190
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and that a change in value of the
contracts may not correlate with changes in the value of the securities
being hedged.
I. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 1.00% of
the first $30 million of the Fund's average daily net assets, plus 0.75% of the
Fund's average daily net assets in excess of $30 million to and including $350
million, plus 0.625% of the Fund's average daily net assets in excess of $350
million. AIM has agreed to waive advisory fees payable by the Fund to AIM at the
annual rate of 0.025% for each $5 billion increment in net assets over $5
billion, up to a maximum waiver of 0.175% on net assets in excess of $35
billion. 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
fund of which the Fund has invested. For the year ended October 31, 2002, AIM
waived fees of $28,985. Under the terms of a master sub-advisory agreement
between AIM and A I M Capital Management, Inc. ("AIM Capital"), AIM pays AIM
Capital 50% of the amount paid by the Fund to AIM.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2002, AIM was
paid $450,564 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended October 31, 2002, AFS
retained $7,929,845 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and the 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 shares, Class B shares, Class C shares and Class R
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.30% of the Fund's average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B and C shares and 0.50% of the average daily net assets of Class R
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own the appropriate class of shares
of the Fund. Any amounts not paid as a service fee under the Plans would
constitute an asset-based sales charge. NASD Rules also impose a cap on the
total sales charges, including asset-based sales charges that may be paid by any
class of shares of the Fund. Pursuant to the master distribution agreements, for
the year ended October 31, 2002, the Class A, Class B, Class C and Class R
shares paid $9,600,534, $7,658,196, $1,234,983 and $43, respectively.
AIM Distributors retained commissions of $482,681 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 2002,
AIM Distributors retained $39,755, $181, $21,916 and $0 in contingent deferred
sales charges imposed on redemptions of Class A, Class B, Class C and Class R
shares, respectively.
FS-191
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $16,256
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the year ended October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $62,514 and reductions in
custodian fees of $459 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $62,973.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended October 31,
2002, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At October 31, 2002, securities with an aggregate value of $47,963,220 were on
loan to brokers. The loans were secured by cash collateral of $48,365,000
received by the Fund and subsequently invested in STIC Liquid Assets Portfolio,
an affiliated money market fund. For the year ended October 31, 2002, the Fund
received fees of $568,605 for securities lending.
NOTE 7--CALL OPTION CONTRACTS
Transactions in call options written during the year ended October 31, 2002 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------
Beginning of year -- $ --
- -------------------------------------------------------------
Written 45,149 8,998,111
- -------------------------------------------------------------
Closed (40,828) (7,924,598)
- -------------------------------------------------------------
Exercised (1,821) (487,646)
=============================================================
End of year 2,500 $ 585,867
_____________________________________________________________
=============================================================
</Table>
Open call option contracts written at October 31, 2002 were as follows:
<Table>
<Caption>
OCTOBER 31,
2002 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- -----------------------------------------------------------------------------------
Electronic
Arts
Inc. Dec-02 $70 1,500 $378,873 $333,750 $45,123
- -----------------------------------------------------------------------------------
Zimmer
Holdings,
Inc. Nov-02 40 1,000 206,994 207,500 (506)
===================================================================================
2,500 $585,867 $541,250 $44,617
___________________________________________________________________________________
===================================================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
The tax character of distributions paid during the years ended October 31, 2002
and 2001 were as follows:
<Table>
<Caption>
2002 2001
- --------------------------------------------------------------
Distributions paid from long-term
capital gain $ -- $1,421,300,129
______________________________________________________________
==============================================================
</Table>
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation
(depreciation) -- investments $ (217,806,596)
- --------------------------------------------------------------
Temporary book/tax differences (437,153)
- --------------------------------------------------------------
Capital loss carryforward (3,322,129,085)
- --------------------------------------------------------------
Shares of beneficial interest 6,266,669,716
==============================================================
$ 2,726,296,882
______________________________________________________________
==============================================================
</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 the tax
deferral of losses on wash sales. Amount includes appreciation on foreign
currencies and options contracts written of $44,643.
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 deferral of trustee compensation and
retirement plan expenses.
FS-192
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -------------------------------------------------------------
October 31, 2009 $2,559,101,338
- -------------------------------------------------------------
October 31, 2010 763,027,747
=============================================================
$3,322,129,085
_____________________________________________________________
=============================================================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 2002 was
$8,582,126,797 and $9,241,130,432, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 167,346,747
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (385,197,986)
=============================================================
Net unrealized appreciation (depreciation) of
investment securities $(217,851,239)
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $2,973,632,472.
</Table>
NOTE 10--RECLASSIFICATIONS OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions, a
net operating loss reclassification, and other items, on October 31, 2002,
undistributed net investment income increased by $32,388,767, undistributed net
realized gains increased by $315,876 and shares of beneficial interest decreased
by $32,704,643. This reclassification had no effect on the net assets of the
Fund.
NOTE 11--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 16,965,953* $ 203,558,830* 30,268,361 $ 534,842,502
- -------------------------------------------------------------------------------------------------------------------------------
Class B 5,995,984 66,787,479 13,914,532 238,827,916
- -------------------------------------------------------------------------------------------------------------------------------
Class C 1,919,777 21,362,371 4,329,075 74,411,514
- -------------------------------------------------------------------------------------------------------------------------------
Class R** 7,975 72,385 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class 45,598 504,589 96,341 1,778,918
===============================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 50,737,569 1,049,729,056
- -------------------------------------------------------------------------------------------------------------------------------
Class B -- -- 12,575,383 245,330,006
- -------------------------------------------------------------------------------------------------------------------------------
Class C -- -- 2,001,892 39,096,945
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- 98,123 2,101,806
===============================================================================================================================
Reacquired:
Class A (111,225,206) (1,268,365,084) (82,325,956) (1,314,377,060)
- -------------------------------------------------------------------------------------------------------------------------------
Class B (23,336,616)* (246,896,747)* (20,537,177) (309,770,221)
- -------------------------------------------------------------------------------------------------------------------------------
Class C (4,815,984) (51,937,786) (4,874,492) (75,202,999)
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class (438,298) (5,924,050) (254,314) (4,584,434)
===============================================================================================================================
(114,880,817) $(1,280,838,013) 6,029,337 $ 482,183,949
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
* Includes automatic conversion of 393,806 shares of Class B shares in the
amount of $4,307,233 to 368,013 shares of Class A shares in the amount of
$4,307,233.
** Class R shares commenced sales on June 3, 2002.
FS-193
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.65 $ 28.16 $ 28.31 $ 21.72 $ 22.72
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.10) (0.14)(a) (0.10) 0.02
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (3.11) (11.87) 3.18 8.16 2.38
=================================================================================================================================
Total from investment operations (3.18) (11.97) 3.04 8.06 2.40
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.01) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (3.54) (3.19) (1.46) (3.40)
=================================================================================================================================
Total distributions -- (3.54) (3.19) (1.47) (3.40)
=================================================================================================================================
Net asset value, end of period $ 9.47 $ 12.65 $ 28.16 $ 28.31 $ 21.72
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (25.14)% (47.38)% 10.61% 38.62% 12.34%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,104,660 $4,001,552 $8,948,781 $8,089,739 $6,094,178
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.33%(c) 1.21% 1.03% 1.03% 1.04%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.33%(c) 1.22% 1.07% 1.08% 1.09%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.64)%(c) (0.56)% (0.45)% (0.38)% 0.07%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 217% 240% 145% 124% 125%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and does not include sales charges.
(c) Ratios are based on average daily net assets of $3,200,178,207.
FS-194
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.86 $ 26.82 $ 27.29 $ 21.12 $ 22.34
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.21) (0.36)(a) (0.30)(a) (0.15)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (2.89) (11.21) 3.08 7.93 2.33
=========================================================================================================================
Total from investment operations (3.04) (11.42) 2.72 7.63 2.18
=========================================================================================================================
Less distributions from net realized gains -- (3.54) (3.19) (1.46) (3.40)
=========================================================================================================================
Net asset value, end of period $ 8.82 $ 11.86 $ 26.82 $ 27.29 $ 21.12
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) (25.63)% (47.75)% 9.76% 37.59% 11.45%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $533,224 $922,476 $1,927,514 $1,291,456 $705,750
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.04%(c) 1.92% 1.78% 1.82% 1.83%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.04%(c) 1.93% 1.82% 1.87% 1.87%
=========================================================================================================================
Ratio of net investment income (loss) to average
net assets (1.34)%(c) (1.27)% (1.20)% (1.17)% (0.72)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 217% 240% 145% 124% 125%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and does not include contingent deferred sales.
(c) Ratios are based on average daily net assets of $765,819,603.
FS-195
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.87 $ 26.85 $ 27.30 $ 21.14 $ 22.34
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.21) (0.36)(a) (0.30)(a) (0.15)(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.89) (11.23) 3.10 7.92 2.35
==============================================================================================================================
Total from investment operations (3.04) (11.44) 2.74 7.62 2.20
==============================================================================================================================
Less distributions from net realized gains -- (3.54) (3.19) (1.46) (3.40)
==============================================================================================================================
Net asset value, end of period $ 8.83 $ 11.87 $ 26.85 $ 27.30 $ 21.14
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) (25.61)% (47.77)% 9.83% 37.50% 11.54%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $86,455 $150,604 $301,590 $105,420 $23,107
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.04%(c) 1.92% 1.78% 1.82% 1.83%
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.04%(c) 1.93% 1.82% 1.87% 1.87%
==============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.34)%(c) (1.27)% (1.20)% (1.17)% (0.72)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 217% 240% 145% 124% 125%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and does not include contingent deferred sales charges.
(c) Ratios are based on average daily net assets of $123,498,266.
FS-196
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-------------
JUNE 3, 2002
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2002
- ---------------------------------------------------------------------------
Net asset value, beginning of period $ 11.36
- ---------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a)
- ---------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.86)
===========================================================================
Total from investment operations (1.89)
===========================================================================
Net asset value, end of period $ 9.47
___________________________________________________________________________
===========================================================================
Total return(b) (16.64)%
___________________________________________________________________________
===========================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 76
___________________________________________________________________________
===========================================================================
Ratio of expenses to average net assets:
With fee waivers 1.53%(c)
- ---------------------------------------------------------------------------
Without fee waivers 1.53%(c)
===========================================================================
Ratio of net investment income (loss) to average net assets (0.84)%(c)
___________________________________________________________________________
===========================================================================
Portfolio turnover rate 217%
___________________________________________________________________________
===========================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $20,882.
FS-197
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.16 $ 29.00 $ 28.96 $ 22.18 $ 23.05
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.01) (0.06)(a) 0.02 0.10
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (3.24) (12.29) 3.29 8.32 2.43
========================================================================================================================
Total from investment operations (3.25) (12.30) 3.23 8.34 2.53
========================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.10) --
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (3.54) (3.19) (1.46) (3.40)
========================================================================================================================
Total distributions -- (3.54) (3.19) (1.56) (3.40)
========================================================================================================================
Net asset value, end of period $ 9.91 $ 13.16 $ 29.00 $ 28.96 $ 22.18
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) (24.70)% (47.11)% 11.07% 39.20% 12.79%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 1,883 $ 7,667 $18,634 $114,076 $72,884
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 0.82%(c) 0.69% 0.64% 0.63% 0.62%
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers 0.82%(c) 0.70% 0.68% 0.68% 0.67%
========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.12)%(c) (0.04)% (0.04)% 0.02% 0.49%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate 217% 240% 145% 124% 125%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles.
(c) Ratios are based on average daily net assets of $2,341,287.
FS-198
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------
COMMON STOCKS-95.61%
AEROSPACE & DEFENSE-2.40%
Alliant Techsystems Inc.(a) 500,000 $ 26,860,000
- ----------------------------------------------------------------------------
L-3 Communications Holdings, Inc.(a) 500,000 22,200,000
============================================================================
49,060,000
============================================================================
AIR FREIGHT & LOGISTICS-1.26%
C.H. Robinson Worldwide, Inc. 400,000 14,716,000
- ----------------------------------------------------------------------------
Expeditors International of Washington, Inc. 300,000 10,907,700
============================================================================
25,623,700
============================================================================
APPAREL RETAIL-3.87%
Abercrombie & Fitch Co.-Class A(a) 525,000 17,262,000
- ----------------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 1,650,000 37,669,500
- ----------------------------------------------------------------------------
TJX Cos., Inc. (The) 1,250,000 24,062,500
============================================================================
78,994,000
============================================================================
APPLICATION SOFTWARE-1.10%
Intuit Inc.(a) 300,000 11,634,000
- ----------------------------------------------------------------------------
Reynolds & Reynolds Co. (The)-Class A 375,000 10,803,750
============================================================================
22,437,750
============================================================================
AUTO PARTS & EQUIPMENT-2.79%
Gentex Corp.(a) 1,000,000 30,200,000
- ----------------------------------------------------------------------------
Lear Corp.(a) 275,000 10,928,500
- ----------------------------------------------------------------------------
Superior Industries International, Inc. 400,000 15,824,000
============================================================================
56,952,500
============================================================================
BANKS-1.18%
Southwest Bancorp. of Texas, Inc.(a) 300,000 10,194,000
- ----------------------------------------------------------------------------
TCF Financial Corp. 350,000 13,860,000
============================================================================
24,054,000
============================================================================
BROADCASTING & CABLE TV-1.10%
Hispanic Broadcasting Corp.(a) 500,000 12,825,000
- ----------------------------------------------------------------------------
Westwood One, Inc.(a) 275,000 9,597,500
============================================================================
22,422,500
============================================================================
COMPUTER & ELECTRONICS RETAIL-3.20%
Best Buy Co., Inc.(a) 350,000 12,103,000
- ----------------------------------------------------------------------------
CDW Computer Centers, Inc.(a) 1,250,000 53,300,000
============================================================================
65,403,000
============================================================================
CONSTRUCTION & ENGINEERING-2.32%
Jacobs Engineering Group Inc.(a) 1,150,000 47,322,500
============================================================================
CONSUMER FINANCE-0.69%
Doral Financial Corp. (Puerto Rico) 350,000 14,003,500
============================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------
DATA PROCESSING SERVICES-6.07%
CheckFree Corp.(a) 500,000 $ 13,785,000
- ----------------------------------------------------------------------------
DST Systems, Inc.(a) 775,000 23,792,500
- ----------------------------------------------------------------------------
Fiserv, Inc.(a) 1,315,000 38,713,600
- ----------------------------------------------------------------------------
Iron Mountain Inc.(a) 300,000 11,955,000
- ----------------------------------------------------------------------------
Paychex, Inc. 1,150,000 35,811,000
============================================================================
124,057,100
============================================================================
DEPARTMENT STORES-0.84%
Kohl's Corp.(a) 300,000 17,040,000
============================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.09%
Apollo Group, Inc.-Class A(a) 250,000 13,549,750
- ----------------------------------------------------------------------------
Cintas Corp. 500,000 17,950,000
- ----------------------------------------------------------------------------
Corporate Executive Board Co. (The)(a) 275,000 11,272,250
============================================================================
42,772,000
============================================================================
DIVERSIFIED FINANCIAL SERVICES-4.89%
Investors Financial Services Corp. 1,750,000 38,167,500
- ----------------------------------------------------------------------------
Legg Mason, Inc. 500,000 27,150,000
- ----------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 550,000 34,633,500
============================================================================
99,951,000
============================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-0.96%
Molex Inc.-Class A 250,000 5,075,000
- ----------------------------------------------------------------------------
National Instruments Corp.(a) 450,000 14,436,000
============================================================================
19,511,000
============================================================================
EMPLOYMENT SERVICES-2.15%
Robert Half International Inc.(a) 2,700,000 43,956,000
============================================================================
GENERAL MERCHANDISE STORES-0.62%
Dollar Tree Stores, Inc.(a) 500,000 12,725,000
============================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-10.59%
AmerisourceBergen Corp. 800,000 46,280,000
- ----------------------------------------------------------------------------
Caremark Rx, Inc.(a) 2,600,000 51,766,000
- ----------------------------------------------------------------------------
Express Scripts, Inc.(a) 1,000,000 58,960,000
- ----------------------------------------------------------------------------
Lincare Holdings Inc.(a) 750,000 22,777,500
- ----------------------------------------------------------------------------
Omnicare, Inc. 1,000,000 26,520,000
- ----------------------------------------------------------------------------
Patterson Dental Co.(a) 250,000 10,042,500
============================================================================
216,346,000
============================================================================
</Table>
FS-199
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-3.70%
Biomet, Inc. 400,000 $ 12,184,000
- ----------------------------------------------------------------------------
Cytyc Corp.(a) 1,000,000 13,200,000
- ----------------------------------------------------------------------------
ResMed Inc. 1,000,000 36,680,000
- ----------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 250,000 13,465,000
============================================================================
75,529,000
============================================================================
HEALTH CARE FACILITIES-3.66%
Community Health Systems Inc.(a) 1,679,000 31,901,000
- ----------------------------------------------------------------------------
Health Management Associates, Inc.-Class A 2,508,300 42,791,598
============================================================================
74,692,598
============================================================================
HEALTH CARE SUPPLIES-2.03%
Coopers Cos., Inc. (The) 197,500 5,510,250
- ----------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 1,250,000 36,012,500
============================================================================
41,522,750
============================================================================
INDUSTRIAL MACHINERY-2.53%
Danaher Corp. 750,000 51,735,000
============================================================================
INSURANCE BROKERS-1.31%
Brown & Brown, Inc. 750,000 26,827,500
============================================================================
INTERNET RETAIL-0.45%
eBay Inc.(a) 100,000 9,277,000
============================================================================
IT CONSULTING & SERVICES-5.58%
Affiliated Computer Services, Inc.-Class A(a) 1,250,000 59,625,000
- ----------------------------------------------------------------------------
CACI International Inc.-Class A(a) 325,000 11,352,250
- ----------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 2,000,000 43,000,000
============================================================================
113,977,250
============================================================================
MANAGED HEALTH CARE-1.53%
First Health Group Corp.(a) 1,250,000 31,312,500
============================================================================
MULTI-LINE INSURANCE-1.01%
HCC Insurance Holdings, Inc. 750,000 20,625,000
============================================================================
OIL & GAS DRILLING-5.16%
ENSCO International Inc. 1,250,000 31,750,000
- ----------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 500,000 19,600,000
- ----------------------------------------------------------------------------
Patterson-UTI Energy, Inc.(a) 1,163,200 38,490,288
- ----------------------------------------------------------------------------
Pride International, Inc.(a) 1,000,000 15,520,000
============================================================================
105,360,288
============================================================================
OIL & GAS EQUIPMENT & SERVICES-2.76%
National-Oilwell, Inc.(a) 1,000,000 20,990,000
- ----------------------------------------------------------------------------
Smith International, Inc.(a) 500,000 17,780,000
- ----------------------------------------------------------------------------
Varco International, Inc.(a) 1,000,000 17,590,000
============================================================================
56,360,000
============================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-0.84%
Newfield Exploration Co.(a) 500,000 $ 17,195,000
============================================================================
PHARMACEUTICALS-2.82%
Medicis Pharmaceutical Corp.-Class A(a) 1,000,000 57,640,000
============================================================================
RESTAURANTS-3.02%
Brinker International, Inc.(a) 350,000 11,112,500
- ----------------------------------------------------------------------------
CBRL Group, Inc. 500,000 15,940,000
- ----------------------------------------------------------------------------
Cheesecake Factory Inc. (The)(a) 300,000 9,477,000
- ----------------------------------------------------------------------------
Sonic Corp.(a) 624,950 16,879,900
- ----------------------------------------------------------------------------
Starbucks Corp.(a) 350,000 8,221,500
============================================================================
61,630,900
============================================================================
SEMICONDUCTORS-1.48%
Linear Technology Corp. 425,000 14,649,750
- ----------------------------------------------------------------------------
Microchip Technology Inc. 750,000 15,592,500
============================================================================
30,242,250
============================================================================
SPECIALTY CHEMICALS-0.74%
Valspar Corp. (The) 350,000 15,116,500
============================================================================
SPECIALTY STORES-4.24%
Bed Bath & Beyond Inc.(a) 1,000,000 39,510,000
- ----------------------------------------------------------------------------
Regis Corp. 750,000 21,247,500
- ----------------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 1,000,000 25,880,000
============================================================================
86,637,500
============================================================================
SYSTEMS SOFTWARE-0.54%
Symantec Corp.(a) 250,000 10,987,500
============================================================================
TELECOMMUNICATIONS EQUIPMENT-2.11%
Avocent Corp.(a) 350,000 10,367,000
- ----------------------------------------------------------------------------
UTStarcom, Inc.(a) 1,500,000 32,656,500
============================================================================
43,023,500
============================================================================
TRADING COMPANIES & DISTRIBUTORS-1.98%
Fastenal Co. 1,170,000 40,470,300
============================================================================
Total Common Stocks (Cost $1,729,109,929) 1,952,793,886
============================================================================
<Caption>
PRINCIPAL
AMOUNT
CONVERTIBLE NOTES-0.00%
AIRPORT SERVICES--0.00%
TIMCO Aviation Services, Inc., Jr. Unsec.
Sub. PIK Notes, 8.00%, 01/02/07 (Cost $217) $ 2,174 12
============================================================================
</Table>
FS-200
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------------
MONEY MARKET FUNDS-4.83%
STIC Liquid Assets Portfolio(b) 49,284,758 $ 49,284,758
- ----------------------------------------------------------------------------
STIC Prime Portfolio(b) 49,284,758 49,284,758
============================================================================
Total Money Market Funds (Cost
$98,569,516) 98,569,516
============================================================================
TOTAL INVESTMENTS-100.44% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,827,679,662) 2,051,363,414
============================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-26.57%
STIC Liquid Assets Portfolio(b)(c) 271,325,582 271,325,582
- ----------------------------------------------------------------------------
STIC Prime Portfolio(b)(c) 271,325,582 271,325,582
============================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $542,651,164) 542,651,164
============================================================================
TOTAL INVESTMENTS--127.01% (Cost
$2,370,330,826) 2,594,014,578
============================================================================
OTHER ASSETS LESS LIABILITIES-(27.01%) (551,626,407)
============================================================================
NET ASSETS-100.00% $2,042,388,171
____________________________________________________________________________
============================================================================
</Table>
Investment Abbreviations:
<Table>
Jr. - Junior
PIK - Payment in Kind
Sub. - Subordinated
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
(c) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned.
See Notes to Financial Statements.
FS-201
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$2,370,330,826)* $ 2,594,014,578
- ------------------------------------------------------------
Receivables for:
Investments sold 9,715,228
- ------------------------------------------------------------
Fund shares sold 1,197,168
- ------------------------------------------------------------
Dividends and interest 384,222
- ------------------------------------------------------------
Investment for deferred compensation plan 85,644
- ------------------------------------------------------------
Other assets 53,478
============================================================
Total assets 2,605,450,318
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 13,187,286
- ------------------------------------------------------------
Fund shares reacquired 3,738,267
- ------------------------------------------------------------
Deferred compensation plan 85,644
- ------------------------------------------------------------
Collateral upon return of securities
loaned 542,651,164
- ------------------------------------------------------------
Accrued distribution fees 777,052
- ------------------------------------------------------------
Accrued trustees' fees 2,141
- ------------------------------------------------------------
Accrued transfer agent fees 2,027,684
- ------------------------------------------------------------
Accrued operating expenses 592,909
============================================================
Total liabilities 563,062,147
============================================================
Net assets applicable to shares outstanding $ 2,042,388,171
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 2,973,901,265
- ------------------------------------------------------------
Undistributed net investment income (loss) (11,851,037)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (1,143,345,809)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 223,683,752
============================================================
$ 2,042,388,171
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 1,747,540,195
____________________________________________________________
============================================================
Class B $ 223,273,347
____________________________________________________________
============================================================
Class C $ 68,956,276
____________________________________________________________
============================================================
Class R $ 469,450
____________________________________________________________
============================================================
Institutional Class $ 2,148,903
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 235,244,607
____________________________________________________________
============================================================
Class B 31,245,609
____________________________________________________________
============================================================
Class C 9,651,675
____________________________________________________________
============================================================
Class R 63,330
____________________________________________________________
============================================================
Institutional Class 287,423
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 7.43
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $7.43 divided by
94.50%) $ 7.86
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 7.15
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 7.14
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 7.41
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 7.48
____________________________________________________________
============================================================
</Table>
* At April 30, 2003, securities with an aggregate market value of $532,957,007
were on loan to brokers.
See Notes to Financial Statements.
FS-202
STATEMENT OF OPERATIONS
For the six months ended April 30, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $13,150) $ 2,197,381
- --------------------------------------------------------------------------
Dividends from affiliated money market funds 465,253
- --------------------------------------------------------------------------
Interest 372
- --------------------------------------------------------------------------
Security lending income 508,911
==========================================================================
Total investment income 3,171,917
==========================================================================
EXPENSES:
Advisory fees 6,433,529
- --------------------------------------------------------------------------
Administrative services fees 214,677
- --------------------------------------------------------------------------
Custodian fees 80,400
- --------------------------------------------------------------------------
Distribution fees -- Class A 2,160,636
- --------------------------------------------------------------------------
Distribution fees -- Class B 1,094,998
- --------------------------------------------------------------------------
Distribution fees -- Class C 344,063
- --------------------------------------------------------------------------
Distribution fees -- Class R 822
- --------------------------------------------------------------------------
Transfer agent fees 4,069,223
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 212
- --------------------------------------------------------------------------
Trustees' fees 10,397
- --------------------------------------------------------------------------
Other 427,257
==========================================================================
Total expenses 14,836,214
==========================================================================
Less: Fees waived and expenses paid indirectly (22,138)
==========================================================================
Net expenses 14,814,076
==========================================================================
Net investment income (loss) (11,642,159)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain (loss) from investment securities (33,523,970)
- --------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 77,572,162
==========================================================================
Net gain from investment securities 44,048,192
==========================================================================
Net increase in net assets resulting from operations $ 32,406,033
__________________________________________________________________________
==========================================================================
</Table>
See Notes to Financial Statements.
FS-203
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2003 and the year ended October 31, 2002
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (11,642,159) $ (29,737,807)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (33,523,970) (454,400,428)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 77,572,162 70,396,760
================================================================================================
Net increase (decrease) in net assets resulting from
operations 32,406,033 (413,741,475)
================================================================================================
Share transactions-net:
Class A (79,429,052) (368,156,521)
- ------------------------------------------------------------------------------------------------
Class B (6,360,076) (19,209,543)
- ------------------------------------------------------------------------------------------------
Class C (4,567,151) (8,446,307)
- ------------------------------------------------------------------------------------------------
Class R 318,105 133,795
- ------------------------------------------------------------------------------------------------
Institutional Class 1,945,356 145,043
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (88,092,818) (395,533,533)
================================================================================================
Net increase (decrease) in net assets (55,686,785) (809,275,008)
================================================================================================
NET ASSETS:
Beginning of period 2,098,074,956 2,907,349,964
================================================================================================
End of period $ 2,042,388,171 $ 2,098,074,956
________________________________________________________________________________________________
================================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Aggressive Growth Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers multiple classes of shares. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
Each company listed in the Schedule of Investments is organized in the United
States unless otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued
FS-204
at fair value as determined in good faith by or under the supervision of
the Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. Transfer agency fees and expenses
and other shareholder recordkeeping fees and expenses are charged to each
class pursuant to a transfer agency and service agreement adopted by the
Fund with respect to such class. All other expenses are allocated among the
classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.80% of
the first $150 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $150 million. AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market funds in which
the Fund has invested (excluding investments made in affiliated money market
funds with cash collateral from securities loaned by the Fund). For the six
months ended April 30, 2003, AIM waived fees of $7,450.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2003, AIM
was paid $214,677 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 2003,
AFS retained $1,885,191 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and the 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 shares, Class B shares, Class C shares and Class R
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.25% of the Fund's average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B and Class C shares and 0.50% of the average daily net assets of Class R
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own the appropriate class of shares
of the Fund. Any amounts not paid as a service fee under the Plans would
constitute an asset-based sales charge. NASD Rules also impose a cap on the
total sales charges, including asset-based sales charges that may be paid by any
class of shares of the Fund. Pursuant to the Plans, for the six months ended
April 30, 2003, the Class A, Class B, Class C and Class R shares paid
$2,160,636, $1,094,998, $344,063, and $822, respectively.
Front-end sales commissions and contingent deferred sales charges
(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. Contingent deferred
sales charges ("CDSCs") are deducted from redemption proceeds prior to
remittance to the shareholder. During the six months ended April 30, 2003, AIM
Distributors retained $124,584 in front-end sales commissions from the sale of
Class A shares and $23,033, $0, $5,295 and $0 for Class A, Class B, Class C and
Class R shares, respectively, for CDSCs imposed upon redemptions by
shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended April 30, 2003, the Fund paid legal fees of
$3,158 for services rendered by Kramer, Levin, Naftalis & Frankel LLP
FS-205
as counsel to the Board of Trustees. A member of that firm is a trustee of the
Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $14,506 and reductions in
custodian fees of $182 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $14,688.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
AIM has established an interfund lending facility 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.
During the reporting period, the Fund was a participant in a committed line
of credit facility with a syndicate administered by Citibank, N.A. The Fund
could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the line of credit could borrow on a first come, first served basis.
The funds which were party to the line of credit were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed line of credit facility expired May 20, 2003.
During the six months ended April 30, 2003, the Fund did not borrow under
the interfund lending or the committed line of credit facility.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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
may be temporarily less than the value of the securities on loan.
At April 30, 2003, securities with an aggregate value of $532,957,007 were
on loan to brokers. The loans were secured by cash collateral of $542,651,164
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended April 30, 2003, the Fund received fees of $508,911 for
securities lending.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ------------------------------------------------------------
October 31, 2009 $ 636,872,876
- ------------------------------------------------------------
October 31, 2010 463,739,024
============================================================
Total capital loss carryforward $1,100,611,900
____________________________________________________________
============================================================
</Table>
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $506,959,627 and $559,739,460, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $299,470,416
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (83,323,499)
===========================================================
Net unrealized appreciation of investment
securities $216,146,917
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $2,377,867,661.
</Table>
FS-206
NOTE 9--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and the Institutional Class
shares. Class A shares are sold with a front-end sales charge. Class B shares
and Class C shares are sold with a CDSC. Class R shares and the Institutional
Class shares are sold at net asset value. Under some circumstances, Class A
shares and Class R shares are subject to CDSCs. Generally, Class B shares will
automatically convert to Class A shares eight years after the end of the
calendar month of purchase. Changes in shares outstanding during the six months
ended April 30, 2003 and the year ended October 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 18,207,485 $ 132,203,829 44,066,976 $ 384,377,775
- -----------------------------------------------------------------------------------------------------------------------
Class B 2,550,073 17,724,756 6,507,666 55,189,130
- -----------------------------------------------------------------------------------------------------------------------
Class C 1,011,760 7,032,708 2,934,855 24,752,456
- -----------------------------------------------------------------------------------------------------------------------
Class R* 56,210 404,505 18,814 133,820
- -----------------------------------------------------------------------------------------------------------------------
Institutional Class** 270,382 1,958,544 18,865 145,043
=======================================================================================================================
Conversion of Class B shares to Class A shares:
Class A 94,732 677,567 182,647 1,563,408
- -----------------------------------------------------------------------------------------------------------------------
Class B (98,332) (677,567) (188,487) (1,563,408)
=======================================================================================================================
Reacquired:
Class A (29,559,036) (212,310,448) (87,574,389) (754,097,704)
- -----------------------------------------------------------------------------------------------------------------------
Class B (3,405,205) (23,407,265) (8,963,129) (72,835,265)
- -----------------------------------------------------------------------------------------------------------------------
Class C (1,679,287) (11,599,859) (4,058,002) (33,198,763)
- -----------------------------------------------------------------------------------------------------------------------
Class R* (11,691) (86,400) (3) (25)
- -----------------------------------------------------------------------------------------------------------------------
Institutional Class** (1,824) (13,188) -- --
=======================================================================================================================
(12,564,733) $ (88,092,818) (47,054,187) $(395,533,533)
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
** Institutional Class shares commenced sales on March 15, 2002.
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A(a)
-----------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.30 $ 8.68 $ 18.41 $ 13.90 $ 10.04 $ 12.49
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(b) (0.09)(b) (0.09)(b) (0.13) (0.09) (0.08)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.17 (1.29) (6.34) 11.08 4.05 (1.93)
=================================================================================================================================
Total from investment operations 0.13 (1.38) (6.43) 10.95 3.96 (2.01)
=================================================================================================================================
Less distributions from net realized
gains -- -- (3.30) (6.44) (0.10) (0.44)
=================================================================================================================================
Net asset value, end of period $ 7.43 $ 7.30 $ 8.68 $ 18.41 $ 13.90 $ 10.04
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 1.78% (15.90)% (40.51)% 47.53% 39.73% (16.36)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,747,540 $1,798,318 $2,516,407 $4,444,515 $2,808,451 $2,638,038
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.36%(d) 1.32% 1.17% 1.04% 1.09% 1.06%
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (1.05)%(d) (1.00)% (0.79)% (0.77)% (0.69)% (0.64)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 26% 68% 89% 79% 75% 69%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information and distributions prior to October 31, 1999 have
been restated to reflect a 4 for 1 stock split, effected in the form of
a 300% stock dividend, on July 14, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$1,742,833,827.
(e) Not annualized for periods less than one year.
FS-207
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B(a)
---------------------------------------------------------------------------
MARCH 1, 1999
SIX MONTHS (DATE SALES
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, -------------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.04 $ 8.45 $ 18.12 $ 13.81 $ 10.85
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(b) (0.15)(b) (0.17)(b) (0.29) (0.07)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.17 (1.26) (6.20) 11.04 3.03
===================================================================================================================
Total from investment operations 0.11 (1.41) (6.37) 10.75 2.96
===================================================================================================================
Less distributions from net realized
gains -- -- (3.30) (6.44) --
===================================================================================================================
Net asset value, end of period $ 7.15 $ 7.04 $ 8.45 $ 18.12 $ 13.81
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(c) 1.56% (16.69)% (40.90)% 46.29% 27.27%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $223,273 $226,806 $294,303 $374,010 $24,914
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net
assets 2.11%(d) 2.07% 1.94% 1.86% 2.08%(e)
===================================================================================================================
Ratio of net investment income (loss)
to average net assets (1.80)%(d) (1.75)% (1.55)% (1.59)% (1.68)%(e)
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate(f) 26% 68% 89% 79% 75%
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) Per share information and distributions prior to October 31, 1999 have
been restated to reflect a 4 for 1 stock split, effected in the form of
a 300% stock dividend, on July 14, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$220,814,456.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C(a)
-------------------------------------------------------------------------
MARCH 1, 1999
SIX MONTHS (DATE SALES
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ------------------------------------ OCTOBER 31,
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.04 $ 8.45 $ 18.11 $ 13.81 $10.85
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(b) (0.15)(b) (0.17)(b) (0.29) (0.07)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.16 (1.26) (6.19) 11.03 3.03
=================================================================================================================================
Total from investment operations 0.10 (1.41) (6.36) 10.74 2.96
=================================================================================================================================
Less distributions from net realized gains -- -- (3.30) (6.44) --
=================================================================================================================================
Net asset value, end of period $ 7.14 $ 7.04 $ 8.45 $ 18.11 $13.81
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 1.42% (16.69)% (40.86)% 46.21% 27.27%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $68,956 $72,676 $96,640 $120,591 $6,807
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.11%(d) 2.07% 1.94% 1.86% 2.08%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.80)%(d) (1.75)% (1.55)% (1.59)% (1.68)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 26% 68% 89% 79% 75%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information and distributions prior to October 31, 1999 have
been restated to reflect a 4 for 1 stock split, effected in the form of
a 300% stock dividend, on July 14, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$69,382,913.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-208
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.29 $ 8.89
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.04)(a)
- --------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.17 (1.56)
============================================================================================
Total from investment operations 0.12 (1.60)
============================================================================================
Net asset value, end of period $ 7.41 $ 7.29
____________________________________________________________________________________________
============================================================================================
Total return(b) 1.65% (18.00)%
____________________________________________________________________________________________
============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 469 $ 137
____________________________________________________________________________________________
============================================================================================
Ratio of expenses to average net assets 1.61%(c) 1.62%(d)
============================================================================================
Ratio of net investment income (loss) to average net assets (1.30)%(c) (1.30)%(d)
____________________________________________________________________________________________
============================================================================================
Portfolio turnover rate(e) 26% 68%
____________________________________________________________________________________________
============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $331,382.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------------------
MARCH 15, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.32 $ 9.53
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.02)(a)
- ---------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.18 (2.19)
=============================================================================================
Total from investment operations 0.16 (2.21)
=============================================================================================
Net asset value, end of period $ 7.48 $ 7.32
_____________________________________________________________________________________________
=============================================================================================
Total return(b) 2.19% (23.19)%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,149 $ 138
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets 0.81%(c) 0.81%(d)
=============================================================================================
Ratio of net investment income (loss) to average net assets (0.50)%(c) (0.49)%(d)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(e) 26% 68%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $427,873.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-209
AIM BASIC VALUE II
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------------------
COMMON STOCK--98.05%
ADVERTISING--5.66%
Interpublic Group of Cos., Inc. (The)(a) 2,300 $ 26,220
- ---------------------------------------------------------------------------------------------
Omnicom Group Inc. 450 27,855
=============================================================================================
54,075
=============================================================================================
AEROSPACE & DEFENSE--1.73%
Honeywell International Inc. 700 16,520
=============================================================================================
APPAREL RETAIL--3.30%
Gap, Inc. (The) 1,900 31,597
=============================================================================================
BANKS--2.64%
Bank One Corp. 700 25,235
=============================================================================================
BUILDING PRODUCTS--2.61%
American Standard Cos. Inc.(a) 350 24,916
=============================================================================================
DATA PROCESSING SERVICES--4.91%
Ceridian Corp.(a) 1,400 19,530
- ---------------------------------------------------------------------------------------------
First Data Corp. 700 27,461
=============================================================================================
46,991
=============================================================================================
DIVERSIFIED COMMERCIAL SERVICES--4.40%
Cendant Corp.(a) 2,000 28,560
- ---------------------------------------------------------------------------------------------
H&R Block, Inc. 350 13,517
=============================================================================================
42,077
=============================================================================================
DIVERSIFIED FINANCIAL SERVICES--16.73%
Citigroup Inc. 1,100 43,175
- ---------------------------------------------------------------------------------------------
Freddie Mac 500 28,950
- ---------------------------------------------------------------------------------------------
J.P. Morgan Chase & Co. 1,000 29,350
- ---------------------------------------------------------------------------------------------
Janus Capital Group Inc. 1,250 17,375
- ---------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 1,000 41,050
=============================================================================================
159,900
=============================================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS--2.76%
Waters Corp.(a) 1,100 26,411
=============================================================================================
EMPLOYMENT SERVICES--1.87%
Robert Half International Inc.(a) 1,100 17,908
=============================================================================================
ENVIRONMENTAL SERVICES--3.18%
Waste Management, Inc. 1,400 30,408
=============================================================================================
</Table>
FS-210
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------------------
FOOD RETAIL--3.86%
Kroger Co. (The)(a) 1,650 23,595
- ---------------------------------------------------------------------------------------------
Safeway Inc.(a) 800 13,296
=============================================================================================
36,891
=============================================================================================
GENERAL MERCHANDISE STORES--2.10%
Target Corp. 600 20,064
=============================================================================================
HEALTH CARE DISTRIBUTORS & SERVICES--5.35%
IMS Health Inc. 1,700 26,180
- ---------------------------------------------------------------------------------------------
McKesson Corp. 900 24,966
=============================================================================================
51,146
=============================================================================================
HEALTH CARE FACILITIES--2.86%
Tenet Healthcare Corp.(a) 800 11,872
- ---------------------------------------------------------------------------------------------
Universal Health Services, Inc.-Class B(a) 400 15,468
=============================================================================================
27,340
=============================================================================================
HOTELS, RESORTS & CRUISE LINES--2.81%
Starwood Hotels & Resorts Worldwide, Inc. 1,000 26,840
=============================================================================================
INDUSTRIAL CONGLOMERATES--3.75%
Tyco International Ltd. (Bermuda) 2,300 35,880
=============================================================================================
LEISURE PRODUCTS--2.74%
Brunswick Corp. 1,200 26,196
=============================================================================================
MANAGED HEALTH CARE--3.39%
Aetna Inc. 650 32,370
=============================================================================================
OIL & GAS DRILLING--4.35%
Pride International, Inc.(a) 1,450 22,504
- ---------------------------------------------------------------------------------------------
Transocean Inc. (Cayman Island) 1,000 19,050
=============================================================================================
41,554
=============================================================================================
OIL & GAS EQUIPMENT & SERVICES--1.89%
Weatherford International Ltd. (Bermuda)(a) 450 18,104
=============================================================================================
PHARMACEUTICALS--2.73%
Wyeth 600 26,118
=============================================================================================
PROPERTY & CASUALTY INSURANCE--5.02%
ACE Ltd. (Cayman Island) 850 28,118
- ---------------------------------------------------------------------------------------------
Radian Group Inc. 500 19,850
=============================================================================================
47,968
=============================================================================================
SEMICONDUCTOR EQUIPMENT--3.67%
Novellus Systems, Inc.(a) 1,250 35,050
=============================================================================================
</Table>
FS-211
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------------------
SYSTEMS SOFTWARE--3.74%
Computer Associates International, Inc. 2,200 35,728
- ---------------------------------------------------------------------------------------------
Total Common Stocks (Cost $946,004) 937,287
- ---------------------------------------------------------------------------------------------
=============================================================================================
TOTAL INVESTMENTS--98.05% (Cost $946,004) 937,287
- ---------------------------------------------------------------------------------------------
=============================================================================================
OTHER ASSETS LESS LIABILITIES--1.95% 18,625
- ---------------------------------------------------------------------------------------------
=============================================================================================
NET ASSETS--100.00% $ 955,912
- ---------------------------------------------------------------------------------------------
=============================================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
See Notes to Financial Statements.
FS-212
AIM BASIC VALUE II
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2003
(UNAUDITED)
<Table>
ASSETS:
Investments, at market value (cost $946,004) $ 937,287
- --------------------------------------------------------------------------------------------------
Cash 19,871
- --------------------------------------------------------------------------------------------------
Receivables for:
Due from Advisor 7,987
- --------------------------------------------------------------------------------------------------
Dividends 63
- --------------------------------------------------------------------------------------------------
Investment for deferred compensation plan 1,802
==================================================================================================
Other assets 1,289
==================================================================================================
Total assets 968,299
- --------------------------------------------------------------------------------------------------
==================================================================================================
LIABILITIES:
Payable for deferred compensation plan 1,802
- --------------------------------------------------------------------------------------------------
Accrued trustees' fees 746
- --------------------------------------------------------------------------------------------------
Accrued transfer agent fees 374
- --------------------------------------------------------------------------------------------------
Accrued operating expenses 9,465
==================================================================================================
Total liabilities 12,387
==================================================================================================
Net assets applicable to shares outstanding $ 955,912
- --------------------------------------------------------------------------------------------------
==================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 1,004,034
- --------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (7,128)
- --------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities (32,277)
- --------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment securities (8,717)
==================================================================================================
$ 955,912
- --------------------------------------------------------------------------------------------------
==================================================================================================
NET ASSETS:
Class A $ 382,362
- --------------------------------------------------------------------------------------------------
==================================================================================================
Class B $ 286,775
- --------------------------------------------------------------------------------------------------
==================================================================================================
Class C $ 286,775
- --------------------------------------------------------------------------------------------------
==================================================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 40,476
- --------------------------------------------------------------------------------------------------
==================================================================================================
Class B 30,357
- --------------------------------------------------------------------------------------------------
==================================================================================================
Class C 30,357
- --------------------------------------------------------------------------------------------------
==================================================================================================
Class A :
Net asset value per share $ 9.45
- --------------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $9.45 / 94.50%) $ 10.00
- --------------------------------------------------------------------------------------------------
==================================================================================================
Class B :
Net asset value and offering price per share $ 9.45
- --------------------------------------------------------------------------------------------------
==================================================================================================
Class C :
Net asset value and offering price per share $ 9.45
- --------------------------------------------------------------------------------------------------
==================================================================================================
</Table>
See Notes to Financial Statements.
FS-213
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2003
(UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends $ 5,604
==================================================================================================
EXPENSES:
Advisory fees 3,414
- --------------------------------------------------------------------------------------------------
Administrative services fees 24,795
- --------------------------------------------------------------------------------------------------
Custodian fees 124
- --------------------------------------------------------------------------------------------------
Distribution fees--Class A 637
- --------------------------------------------------------------------------------------------------
Distribution fees--Class B 1,366
- --------------------------------------------------------------------------------------------------
Distribution fees--Class C 1,366
- --------------------------------------------------------------------------------------------------
Transfer agent fees 291
- --------------------------------------------------------------------------------------------------
Trustees' fees 4,291
- --------------------------------------------------------------------------------------------------
Printing 4,867
- --------------------------------------------------------------------------------------------------
Professional fees 10,284
- --------------------------------------------------------------------------------------------------
Other 557
==================================================================================================
Total expenses 51,992
==================================================================================================
Less: Fees waived, expenses reimbursed and expenses paid indirectly (44,029)
- --------------------------------------------------------------------------------------------------
Net expenses 7,963
==================================================================================================
Net investment income (loss) (2,359)
==================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES:
Net realized gain (loss) from investment securities (11,939)
- --------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities 57,087
==================================================================================================
Net gain from investment securities 45,148
==================================================================================================
Net increase in net assets resulting from operations $ 42,789
- --------------------------------------------------------------------------------------------------
==================================================================================================
</Table>
See Notes to Financial Statements.
FS-214
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 2003 AND THE PERIOD AUGUST 30,
2002 (DATE OPEATIONS COMMENCED) TO OCTOBER 31, 2002
(UNAUDITED)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
----------- ------------
OPERATIONS:
Net investment income (loss) $ (2,359) $ (765)
- -----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (11,939) (20,338)
- -----------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities 57,087 (65,804)
=======================================================================================================================
Net increase (decrease) in net assets resulting from operations 42,789 (86,907)
=======================================================================================================================
Distributions to shareholders from net investment income:
Class A (4,400) --
- -----------------------------------------------------------------------------------------------------------------------
Class B (3,300) --
- -----------------------------------------------------------------------------------------------------------------------
Class C (3,300) --
=======================================================================================================================
Total distributions from net investment income (11,000) --
=======================================================================================================================
Net increase (decrease) in net assets resulting from distributions (11,000) --
=======================================================================================================================
Share transactions-net:
Class A 4,400 400,010
- -----------------------------------------------------------------------------------------------------------------------
Class B 3,300 300,010
- -----------------------------------------------------------------------------------------------------------------------
Class C 3,300 300,010
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 11,000 1,000,030
=======================================================================================================================
Net increase in net assets 42,789 913,123
=======================================================================================================================
NET ASSETS:
Beginning of period 913,123 --
=======================================================================================================================
End of period $ 955,912 $ 913,123
- -----------------------------------------------------------------------------------------------------------------------
=======================================================================================================================
</Table>
See Notes to Financial Statements.
FS-215
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Basic Value II Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
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 to provide long-term growth of capital.
Each company listed in the Schedule of Investments is organized in the United
States unless otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations - Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the basis of prices furnished by
independent pricing services or market makers. Each security reported on the
NASDAQ National Market System is valued at the NASDAQ Official Closing Price
("NOCP") as of the close of the customary trading session on the valuation
date or absent a NOCP, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in the
case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the Trust's
officers in a manner specifically authorized by the Board of Trustees.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using
exchange rates as of the close of he NYSE. Generally, trading in foreign
securities is substantially completed each day at various times prior to the
close of the NYSE. The values of such securities used in computing the net
asset value of the Fund's shares are determined as of the close of the
respective markets. Events affecting the values of such foreign securities
may occur between the times at which the particular foreign market closes
and the close of the customary trading session of the NYSE which would not
be reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
FS-216
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. Premiums and discounts
are amortized and/or accreted for financial reporting purposes.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. Distributions - Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. Expenses - Fees provided for under the Rule 12b-1 plan of a particular class
of the Fund and which are directly attributable to that class are charged to
the operations of such class. Transfer agency fees and expenses and other
shareholder recordkeeping fees and expenses are charged to each class
pursuant to a transfer agency and service agreement adopted by the Fund with
respect to such class. All other expenses are allocated among the classes
based on relative net assets.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $1
billion of the Fund's average daily net assets, plus 0.70% of the Fund's next $1
billion of average daily net assets, plus 0.65% of the Fund's average daily nest
assets in excess of $2 billion. AIM has voluntarily agreed to waive fees and/or
reimburse expenses (excluding interest, taxes, dividends on short sales,
extraordinary items and increases in expenses due to expense offset
arrangements, if any) for Class A, Class B and Class C shares to the extent
necessary to limit the total annual fund operating expenses of Class A to 1.75%.
Voluntary fee waivers or reimbursements may be rescinded, terminated or modified
at any time without further notice to investors. During periods of voluntary
waivers or reimbursements to the extent the annualized expense ratio does not
exceed the voluntary limit for the period committed, AIM will retain its ability
to be reimbursed for such fee waivers or reimbursements prior to the end of each
fiscal year. Further, AIM has voluntarily agreed to waive advisory fees of the
Fund in the amount of 25% of the advisory fee AIM receives from the affiliated
money market funds in which the Fund has invested. For the six months ended
April 30, 2003, AIM waived fees of $3,414 and reimbursed expenses of $36,676.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2003, AIM
was paid $24,795 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 2003,
AFS retained $40 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and Class C shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B or Class C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. NASD
Rules also impose a cap on the total amount of sales charges, including
asset-based sales charges that may be paid by any class
FS-217
of shares of the Fund. AIM Distributors has voluntarily agreed to waive all fees
during the time the shares are not available for sale. This waiver may be
rescinded, terminated or modified at any time. For the six months ended April
30, 2003, the Class A, Class B and Class C shares paid $0, $0 and $0,
respectively, after AIM Distributors waived fees of $3,369.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors. During the six months ended April 30, 2003,
the Fund paid legal fees of $1,241 for services rendered by
Kramer, Levin, Naftalis & Frankel LLP as counsel to the Board of Trustees. A
member of that firm is a trustee of the Trust.
NOTE 3 - INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $6 and reductions in
custodian fees of $564 under expense offset arrangement which resulted in a
reduction of the Fund's total expenses of $570.
NOTE 4 - TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5 - BORROWINGS
AIM has established an interfund lending facility 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. The Fund did not borrow or lend under the
facility during the six months ended April 30, 2003.
NOTE 6 - TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of any
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------
October 31, 2010 $20,338
==============================================
</Table>
NOTE 7 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $99,609 and $101,739, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
<Caption>
Aggregate unrealized appreciation of investment securities $ 65,109
- --------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (73,826)
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment $ (8,717)
securities
================================================================================
Investments have the same cost for tax and financial statement purposes
</Table>
FS-218
NOTE 8 - SHARE INFORMATION
The Fund commenced operations August 30, 2002 and consists of three different
classes of shares that are not currently available for sale: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with a CDSC. Under some
circumstances, Class A shares are subject to CDSCs. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase. Changes in shares outstanding during the six months
ended April 30, 2003 and the period August 30, 2002 (date operations commenced)
through October 31, 2002 were as follows:
<Table>
<Caption>
AUGUST 30, 2002 (DATE
SIX MONTHS ENDED OPERATIONS COMMENCED) TO
APRIL 30, 2003 OCTOBER 31, 2002
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ---------- ---------- ----------
Sold:
Class A -- $ -- 40,001 $ 400,010
- -----------------------------------------------------------------------------------------------------------
Class B -- -- 30,001 300,010
- -----------------------------------------------------------------------------------------------------------
Class C -- -- 30,001 300,010
===========================================================================================================
Issued as reinvestment
of dividends:
Class A 475 4,400 -- --
- -----------------------------------------------------------------------------------------------------------
Class B 356 3,300 -- --
- -----------------------------------------------------------------------------------------------------------
Class C 356 3,300 -- --
===========================================================================================================
1,187 $ 11,000 100,003 $1,000,030
- -----------------------------------------------------------------------------------------------------------
===========================================================================================================
</Table>
*Currently all shares are owned by AIM
FS-219
NOTE 9 - FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding during the six months ended April 30, 2003 and the period August 30,
2002 (date operations commenced) through October 31, 2002.
<Table>
<Caption>
CLASS A
--------------------------------
AUGUST 30, 2002
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
---------- ----------------
Net asset value, beginning of period $ 9.13 $ 10.00
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.01)
- -------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.45 (0.86)
=============================================================================================================
Total from investment operations 0.43 (0.87)
=============================================================================================================
Less dividends from net investment income (0.11) --
=============================================================================================================
Net asset value, end of period $ 9.45 $ 9.13
- -------------------------------------------------------------------------------------------------------------
=============================================================================================================
Total return (a) 4.73% (8.70)%
- -------------------------------------------------------------------------------------------------------------
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 382 $ 365
- -------------------------------------------------------------------------------------------------------------
=============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.87%(b) 1.75%(c)
- -------------------------------------------------------------------------------------------------------------
Without fee waivers 11.03%(b) 23.74%(c)
=============================================================================================================
Ratio of net investment income (loss) to average net assets (0.52)(b) (0.49)(c)
- -------------------------------------------------------------------------------------------------------------
=============================================================================================================
Portfolio turnover rate (d) 11% 4%
- -------------------------------------------------------------------------------------------------------------
=============================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $367,155.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-220
NOTE 9 - FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------
AUGUST 30, 2002
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
---------- ----------------
Net asset value, beginning of period $ 9.13 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.01)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.45 (0.86)
==========================================================================================================================
Total from investment operations 0.43 (0.87)
==========================================================================================================================
Less dividends from net investment income (0.11) --
==========================================================================================================================
Net asset value, end of period $ 9.45 $ 9.13
- --------------------------------------------------------------------------------------------------------------------------
==========================================================================================================================
Total return(a) 4.73% (8.70)%
- --------------------------------------------------------------------------------------------------------------------------
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 287 $ 274
- --------------------------------------------------------------------------------------------------------------------------
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.87%(b) 1.75%(c)
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers 11.68%(b) 24.39%(c)
- --------------------------------------------------------------------------------------------------------------------------
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.52)(b) (0.49)(c)
- --------------------------------------------------------------------------------------------------------------------------
==========================================================================================================================
Portfolio turnover rate(d) 11% 4%
- --------------------------------------------------------------------------------------------------------------------------
==========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $275,370.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-221
NOTE 9 - FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------
AUGUST 30, 2002
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
---------- ----------------
Net asset value, beginning of period $ 9.13 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.45 (0.86)
===========================================================================================================================
Total from investment operations 0.43 (0.87)
===========================================================================================================================
Less dividends from net investment income (0.11) --
===========================================================================================================================
Net asset value, end of period $ 9.45 9.13
- ---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================
Total return (a) 4.73% (8.70)%
- ---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 287 274
- ---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.87%(b) 1.75%(c)
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers 11.68%(b) 24.39%(c)
- ---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.52)(b) (0.49)(c)
- ---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================
Portfolio turnover rate (d) 11% 4%
- ---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $275,370.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-222
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.43%
ADVERTISING-0.96%
Omnicom Group Inc. 425,000 $ 26,307,500
==========================================================================
AEROSPACE & DEFENSE-2.17%
Lockheed Martin Corp. 475,000 23,773,750
- --------------------------------------------------------------------------
United Technologies Corp. 575,000 35,540,750
==========================================================================
59,314,500
==========================================================================
ALUMINUM-0.50%
Alcoa Inc. 600,000 13,758,000
==========================================================================
APPAREL RETAIL-0.61%
Gap, Inc. (The) 1,000,000 16,630,000
==========================================================================
BANKS-4.85%
Bank of America Corp. 825,000 61,091,250
- --------------------------------------------------------------------------
Fifth Third Bancorp 550,000 27,109,500
- --------------------------------------------------------------------------
Wells Fargo & Co. 925,000 44,640,500
==========================================================================
132,841,250
==========================================================================
BIOTECHNOLOGY-1.96%
Amgen Inc.(a) 875,000 53,646,250
==========================================================================
BREWERS-0.82%
Anheuser-Busch Cos., Inc. 450,000 22,446,000
==========================================================================
BROADCASTING & CABLE TV-0.97%
Clear Channel Communications, Inc.(a) 675,000 26,399,250
==========================================================================
COMPUTER HARDWARE-3.52%
Dell Computer Corp.(a) 1,600,000 46,256,000
- --------------------------------------------------------------------------
Hewlett-Packard Co. 600,000 9,780,000
- --------------------------------------------------------------------------
International Business Machines Corp. 475,000 40,327,500
==========================================================================
96,363,500
==========================================================================
DATA PROCESSING SERVICES-2.03%
First Data Corp. 925,000 36,287,750
- --------------------------------------------------------------------------
Fiserv, Inc.(a) 650,000 19,136,000
==========================================================================
55,423,750
==========================================================================
DEPARTMENT STORES-0.93%
Kohl's Corp.(a) 450,000 25,560,000
==========================================================================
DIVERSIFIED CHEMICALS-0.31%
E. I. Du Pont de Nemours & Co. 200,000 8,506,000
==========================================================================
DIVERSIFIED FINANCIAL SERVICES-13.18%
American Express Co. 900,000 34,074,000
- --------------------------------------------------------------------------
Citigroup Inc. 2,400,000 94,200,000
- --------------------------------------------------------------------------
Fannie Mae 650,000 47,053,500
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Freddie Mac 475,000 $ 27,502,500
- --------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 450,000 34,155,000
- --------------------------------------------------------------------------
J.P. Morgan Chase & Co. 900,000 26,415,000
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 800,000 32,840,000
- --------------------------------------------------------------------------
Morgan Stanley 875,000 39,156,250
- --------------------------------------------------------------------------
SLM Corp. 225,000 25,200,000
==========================================================================
360,596,250
==========================================================================
ELECTRIC UTILITIES-1.53%
Dominion Resources, Inc. 152,000 8,995,360
- --------------------------------------------------------------------------
FPL Group, Inc. 275,000 16,739,250
- --------------------------------------------------------------------------
Southern Co. (The) 550,000 15,999,500
==========================================================================
41,734,110
==========================================================================
FOOD DISTRIBUTORS-1.26%
SYSCO Corp. 1,200,000 34,476,000
==========================================================================
GENERAL MERCHANDISE STORES-4.32%
Target Corp. 675,000 22,572,000
- --------------------------------------------------------------------------
Wal-Mart Stores, Inc. 1,700,000 95,744,000
==========================================================================
118,316,000
==========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-0.96%
Cardinal Health, Inc. 475,000 26,258,000
==========================================================================
HEALTH CARE EQUIPMENT-4.32%
Boston Scientific Corp.(a) 650,000 27,982,500
- --------------------------------------------------------------------------
Medtronic, Inc. 975,000 46,546,500
- --------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 320,000 16,787,200
- --------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 575,000 26,967,500
==========================================================================
118,283,700
==========================================================================
HEALTH CARE FACILITIES-0.67%
HCA Inc. 575,000 18,457,500
==========================================================================
HOME IMPROVEMENT RETAIL-1.54%
Home Depot, Inc. (The) 1,500,000 42,195,000
==========================================================================
HOTELS, RESORTS & CRUISE LINES-0.66%
Carnival Corp. (Panama) 650,000 17,933,500
==========================================================================
HOUSEHOLD PRODUCTS-3.49%
Colgate-Palmolive Co. 650,000 37,160,500
- --------------------------------------------------------------------------
Procter & Gamble Co. (The) 650,000 58,402,500
==========================================================================
95,563,000
==========================================================================
INDUSTRIAL CONGLOMERATES-3.47%
General Electric Co. 3,225,000 94,976,250
==========================================================================
</Table>
FS-223
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
INDUSTRIAL GASES-0.59%
Air Products & Chemicals, Inc. 375,000 $ 16,151,250
==========================================================================
INTEGRATED OIL & GAS-3.15%
Exxon Mobil Corp. 2,450,000 86,240,000
==========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.05%
BellSouth Corp. 350,000 8,921,500
- --------------------------------------------------------------------------
SBC Communications Inc. 850,000 19,856,000
==========================================================================
28,777,500
==========================================================================
INTERNET RETAIL-0.48%
eBay Inc.(a) 140,000 12,987,800
==========================================================================
LIFE & HEALTH INSURANCE-0.70%
Prudential Financial, Inc. 600,000 19,182,000
==========================================================================
MANAGED HEALTH CARE-1.31%
UnitedHealth Group Inc. 390,000 35,930,700
==========================================================================
MOTORCYCLE MANUFACTURERS-0.38%
Harley-Davidson, Inc. 235,000 10,443,400
==========================================================================
MOVIES & ENTERTAINMENT-1.79%
Viacom Inc.-Class B(a) 1,125,000 48,836,250
==========================================================================
MULTI-LINE INSURANCE-1.80%
American International Group, Inc. 850,000 49,257,500
==========================================================================
NETWORKING EQUIPMENT-2.14%
Cisco Systems, Inc.(a) 3,900,000 58,656,000
==========================================================================
OIL & GAS DRILLING-1.32%
ENSCO International Inc. 650,000 16,510,000
- --------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 500,000 19,600,000
==========================================================================
36,110,000
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.88%
Schlumberger Ltd. (Netherlands) 575,000 24,109,750
==========================================================================
PHARMACEUTICALS-9.34%
Allergan, Inc. 375,000 26,343,750
- --------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 525,000 27,153,000
- --------------------------------------------------------------------------
Johnson & Johnson 1,300,000 73,268,000
- --------------------------------------------------------------------------
Pfizer Inc. 3,125,000 96,093,750
- --------------------------------------------------------------------------
Wyeth 750,000 32,647,500
==========================================================================
255,506,000
==========================================================================
RAILROADS-0.71%
Canadian National Railway Co. (Canada) 400,000 19,452,000
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-2.27%
Applied Materials, Inc.(a) 2,250,000 $ 32,850,000
- --------------------------------------------------------------------------
KLA-Tencor Corp.(a) 375,000 15,375,000
- --------------------------------------------------------------------------
Novellus Systems, Inc.(a) 500,000 14,020,000
==========================================================================
62,245,000
==========================================================================
SEMICONDUCTORS-4.20%
Analog Devices, Inc.(a) 800,000 26,496,000
- --------------------------------------------------------------------------
Intel Corp. 1,500,000 27,600,000
- --------------------------------------------------------------------------
Linear Technology Corp. 450,000 15,511,500
- --------------------------------------------------------------------------
Maxim Integrated Products, Inc. 300,000 11,787,000
- --------------------------------------------------------------------------
Microchip Technology Inc. 675,000 14,033,250
- --------------------------------------------------------------------------
Xilinx, Inc.(a) 725,000 19,625,750
==========================================================================
115,053,500
==========================================================================
SOFT DRINKS-1.40%
Coca-Cola Co. (The) 600,000 24,240,000
- --------------------------------------------------------------------------
PepsiCo, Inc. 325,000 14,066,000
==========================================================================
38,306,000
==========================================================================
SPECIALTY STORES-1.41%
Bed Bath & Beyond Inc.(a) 725,000 28,644,750
- --------------------------------------------------------------------------
Staples, Inc.(a) 515,000 9,805,600
==========================================================================
38,450,350
==========================================================================
SYSTEMS SOFTWARE-5.40%
Microsoft Corp. 3,900,000 99,723,000
- --------------------------------------------------------------------------
Oracle Corp.(a) 2,700,000 32,076,000
- --------------------------------------------------------------------------
VERITAS Software Corp.(a) 725,000 15,957,250
==========================================================================
147,756,250
==========================================================================
TELECOMMUNICATIONS EQUIPMENT-0.39%
Nokia Oyj-ADR (Finland) 650,000 10,770,500
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.69%
Vodafone Group PLC-ADR (United Kingdom) 950,000 18,772,000
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $2,385,650,865) 2,638,979,060
==========================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY BILL-0.06%
1.13%, 06/19/03 (Cost $1,497,693)(b) $1,500,000(c) 1,497,693
==========================================================================
</Table>
FS-224
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
MONEY MARKET FUNDS-3.48%
STIC Liquid Assets Portfolio(d) 47,562,194 47,562,194
- --------------------------------------------------------------------------
STIC Prime Portfolio(d) 47,562,194 47,562,194
==========================================================================
Total Money Market Funds (Cost
$95,124,388) 95,124,388
==========================================================================
TOTAL INVESTMENTS-99.97% (Cost
$2,482,272,946) 2,735,601,141
==========================================================================
OTHER ASSETS LESS LIABILITIES-0.03% 945,913
==========================================================================
NET ASSETS-100.00% $2,736,547,054
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1 section H and Note 7.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-225
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$2,482,272,946) $ 2,735,601,141
- ------------------------------------------------------------
Receivables for:
Investments sold 6,265,328
- ------------------------------------------------------------
Fund shares sold 2,886,476
- ------------------------------------------------------------
Dividends and interest 1,558,883
- ------------------------------------------------------------
Investment for deferred compensation plan 70,234
- ------------------------------------------------------------
Other assets 65,350
============================================================
Total assets 2,746,447,412
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 5,185,846
- ------------------------------------------------------------
Deferred compensation plan 70,234
- ------------------------------------------------------------
Accrued distribution fees 2,178,934
- ------------------------------------------------------------
Accrued trustees' fees 2,408
- ------------------------------------------------------------
Accrued transfer agent fees 2,116,683
- ------------------------------------------------------------
Accrued operating expenses 346,253
============================================================
Total liabilities 9,900,358
============================================================
Net assets applicable to shares outstanding $ 2,736,547,054
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 4,313,792,048
- ------------------------------------------------------------
Undistributed net investment income (loss) (7,381,934)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (1,823,868,230)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and
futures contracts 254,005,170
============================================================
$ 2,736,547,054
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 1,328,347,894
____________________________________________________________
============================================================
Class B $ 1,131,716,568
____________________________________________________________
============================================================
Class C $ 275,789,970
____________________________________________________________
============================================================
Class R $ 559,026
____________________________________________________________
============================================================
Institutional Class $ 133,596
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 140,477,693
____________________________________________________________
============================================================
Class B 124,736,941
____________________________________________________________
============================================================
Class C 30,398,833
____________________________________________________________
============================================================
Class R 59,168
____________________________________________________________
============================================================
Institutional Class 14,020
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.46
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.46 divided by
94.50%) $ 10.01
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 9.07
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.07
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.45
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.53
____________________________________________________________
============================================================
</Table>
See Notes to Financial Statements.
FS-226
STATEMENT OF OPERATIONS
For the six months ended April 30, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $59,604) $ 16,865,155
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds 568,112
- ---------------------------------------------------------------------------
Interest 33,493
- ---------------------------------------------------------------------------
Security lending income 22,257
===========================================================================
Total investment income 17,489,017
===========================================================================
EXPENSES:
Advisory fees 8,637,245
- ---------------------------------------------------------------------------
Administrative services fees 254,987
- ---------------------------------------------------------------------------
Custodian fees 107,618
- ---------------------------------------------------------------------------
Distribution fees -- Class A 2,275,535
- ---------------------------------------------------------------------------
Distribution fees -- Class B 5,586,202
- ---------------------------------------------------------------------------
Distribution fees -- Class C 1,382,894
- ---------------------------------------------------------------------------
Distribution fees -- Class R 552
- ---------------------------------------------------------------------------
Transfer agent fees 5,928,780
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 58
- ---------------------------------------------------------------------------
Trustees' fees 12,361
- ---------------------------------------------------------------------------
Other 565,051
===========================================================================
Total expenses 24,751,283
===========================================================================
Less: Fees waived and expenses paid indirectly (34,701)
===========================================================================
Net expenses 24,716,582
===========================================================================
Net investment income (loss) (7,227,565)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (112,321,447)
- ---------------------------------------------------------------------------
Foreign currencies 1,362
- ---------------------------------------------------------------------------
Futures contracts 3,292,625
===========================================================================
(109,027,460)
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 172,447,494
- ---------------------------------------------------------------------------
Foreign currencies (538)
- ---------------------------------------------------------------------------
Futures contracts (487,416)
===========================================================================
171,959,540
===========================================================================
Net gain from investment securities, foreign currencies and
future contracts 62,932,080
===========================================================================
Net increase in net assets resulting from operations $ 55,704,515
___________________________________________________________________________
===========================================================================
</Table>
See Notes to Financial Statements.
FS-227
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2003 and the year ended October 31, 2002
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (7,227,565) $ (26,181,399)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and futures contracts (109,027,460) (605,224,882)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and futures
contracts 171,959,540 (87,627,440)
================================================================================================
Net increase (decrease) in net assets resulting from
operations 55,704,515 (719,033,721)
================================================================================================
Share transactions-net:
Class A (103,927,449) (325,975,435)
- ------------------------------------------------------------------------------------------------
Class B (87,813,988) (303,773,409)
- ------------------------------------------------------------------------------------------------
Class C (31,734,378) (109,471,968)
- ------------------------------------------------------------------------------------------------
Class R 493,479 36,356
- ------------------------------------------------------------------------------------------------
Institutional Class (29,178) 168,155
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (223,011,514) (739,016,301)
================================================================================================
Net increase (decrease) in net assets (167,306,999) (1,458,050,022)
================================================================================================
NET ASSETS:
Beginning of period 2,903,854,053 4,361,904,075
================================================================================================
End of period $ 2,736,547,054 $ 2,903,854,053
________________________________________________________________________________________________
================================================================================================
</Table>
See Notes to Financial Statements.
FS-228
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Blue Chip Fund (the "Fund") is a series portfolio of AIM Equity Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers multiple classes of shares. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund.
The Fund's primary investment objective is long-term growth of capital with
a secondary objective of current income. Each company listed in the Schedule of
Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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
FS-229
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 are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks also include to
varying degrees, the risk of loss in excess of the variation margin
disclosed in the Statement of Assets and Liabilities.
I. 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. Transfer agency fees and expenses
and other shareholder recordkeeping fees and expenses are charged to each
class pursuant to a transfer agency and service agreement adopted by the
Fund with respect to such class. All other expenses are allocated among the
classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million. AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market funds in which
the Fund has invested (excluding investments made in affiliated money market
funds with cash collateral from securities loaned by the Fund). For the six
months ended April 30, 2003, AIM waived fees of $12,869.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2003, AIM
was paid $254,987 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 2003,
AFS retained $3,096,900 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and the 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 shares, Class B shares, Class C shares and Class R
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.35% of the Fund's average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B and Class C shares and 0.50% of the average daily net assets of Class R
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own the appropriate class of shares
of the Fund. Any amounts not paid as a service fee under the Plans would
constitute an asset-based sales charge. NASD Rules also impose a cap on the
total sales charges, including asset-based sales charges that may be paid by any
class of shares of the Fund. Pursuant to the Plans, for the six months ended
April 30, 2003, the Class A, Class B, Class C and Class R shares paid
$2,275,535, $5,586,202, $1,382,894 and $552, respectively.
Front-end sales commissions and contingent deferred sales charges
(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. Contingent deferred
sales charges ("CDSCs") are deducted from redemption proceeds prior to
remittance to the shareholder. During the six months ended April 30, 2003, AIM
Distributors retained $172,222 in front-end sales commissions from the sale of
Class A shares and $25,033,
FS-230
$1,915, $11,236 and $0 for Class A, Class B, Class C and Class R shares,
respectively, for CDSCs imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended April 30, 2003, the Fund paid legal fees of
$3,837 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $19,754 and reductions in
custodian fees of $2,078 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $21,832.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
AIM has established an interfund lending facility 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.
During the reporting period, the Fund was a participant in a committed line
of credit facility with a syndicate administered by Citibank, N.A. The Fund
could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the line of credit could borrow on a first come, first served basis.
The funds which were party to the line of credit were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed line of credit facility expired May 20, 2003.
During the six months ended April 30, 2003, the Fund did not borrow under
the interfund lending or the committed line of credit facility.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At April 30, 2003, there were no securities on loan to brokers. For the six
months ended April 30, 2003, the Fund received fees of $22,257 for securities
lending.
NOTE 7--FUTURES CONTRACTS
On April 30, 2003, $1,193,000 principal amount of U.S. Treasury obligations were
pledged as collateral to cover margin requirements for open futures contracts.
Open futures contracts as of April 30, 2003 were as follows:
<Table>
<Caption>
NO. OF MONTH/ MARKET UNREALIZED
CONTRACT CONTRACTS COMMITMENT VALUE APPRECIATION
- -------------------------------------------------------------------------------
S&P 500 Index 75 Jun.-03/Long $17,176,875 $676,975
_______________________________________________________________________________
===============================================================================
</Table>
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- --------------------------------------------------------------------------------
October 31, 2007 $ 38,614,682
- --------------------------------------------------------------------------------
October 31, 2008 185,511,022
- --------------------------------------------------------------------------------
October 31, 2009 833,974,843
- --------------------------------------------------------------------------------
October 31, 2010 615,639,140
================================================================================
Total capital loss carryforward $1,673,739,687
________________________________________________________________________________
================================================================================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $282,271,398 and $471,826,336, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of investment securities $ 371,046,989
- --------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (155,726,850)
================================================================================
Net unrealized appreciation of investment securities $ 215,320,139
________________________________________________________________________________
================================================================================
Cost of investments for tax purposes is $2,520,281,002.
</Table>
FS-231
NOTE 10--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and the Institutional Class
shares. Class A shares are sold with a front-end sales charge. Class B shares
and Class C shares are sold with a CDSC. Class R shares and the Institutional
Class shares are sold at net asset value. Under some circumstances, Class A
shares and Class R shares are subject to CDSCs. Generally, Class B shares will
automatically convert to Class A shares eight years after the end of the
calendar month of purchase. Changes in shares outstanding during the six months
ended April 30, 2003 and the year ended October 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 14,292,548 $ 129,599,534 35,714,782 $ 388,117,102
- --------------------------------------------------------------------------------------------------------------------------
Class B 6,309,065 55,168,960 15,784,454 168,633,848
- --------------------------------------------------------------------------------------------------------------------------
Class C 2,273,452 19,862,931 5,922,957 63,436,977
- --------------------------------------------------------------------------------------------------------------------------
Class R* 63,321 568,214 3,975 36,381
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class** -- -- 19,795 192,879
==========================================================================================================================
Conversion of Class B shares to Class A shares:
Class A 500,369 4,532,678 1,132,609 12,298,772
- --------------------------------------------------------------------------------------------------------------------------
Class B (520,818) (4,532,678) (1,170,222) (12,298,772)
==========================================================================================================================
Reacquired:
Class A (26,402,701) (238,059,661) (68,970,741) (726,391,309)
- --------------------------------------------------------------------------------------------------------------------------
Class B (16,058,131) (138,450,270) (45,721,299) (460,108,485)
- --------------------------------------------------------------------------------------------------------------------------
Class C (5,957,868) (51,597,309) (16,701,794) (172,908,945)
- --------------------------------------------------------------------------------------------------------------------------
Class R* (8,125) (74,735) (3) (25)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class** (3,260) (29,178) (2,515) (24,724)
==========================================================================================================================
(25,512,148) $(223,011,514) (73,988,002) $(739,016,301)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Class R commenced sales as of June 3, 2002.
** Institutional Class commenced sales as of March 15, 2002.
FS-232
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A(a)
-------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.22 $ 11.22 $ 17.29 $ 15.49 $ 12.05 $ 10.32
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(b) (0.04)(b) (0.04) (0.05)(b) 0.01 0.04(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.25 (1.96) (6.03) 1.85 3.47 1.92
=================================================================================================================================
Total from investment operations 0.24 (2.00) (6.07) 1.80 3.48 1.96
=================================================================================================================================
Less distributions:
Dividends from net investment
income -- -- -- -- (0.01) (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gains -- -- -- -- (0.03) (0.21)
=================================================================================================================================
Total distributions -- -- -- -- (0.04) (0.23)
=================================================================================================================================
Net asset value, end of period $ 9.46 $ 9.22 $ 11.22 $ 17.29 $ 15.49 $ 12.05
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 2.60% (17.82)% (35.11)% 11.60% 29.01% 19.36%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,328,348 $1,402,589 $2,067,602 $3,163,453 $2,299,551 $1,085,648
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.50%(d) 1.40% 1.28% 1.19% 1.19% 1.22%
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.20)%(d) (0.33)% (0.29)% (0.31)% 0.03% 0.33%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 11% 28% 31% 22% 22% 27%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information for all periods prior to October 31, 2000 have
been restated to reflect a 3 for 1 stock split, effected in the form of
a 200% stock dividend, on September 8, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$1,311,081,521.
(e) Not annualized for periods less than one year.
FS-233
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B(a)
-------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.88 $ 10.87 $ 16.87 $ 15.22 $ 11.91 $ 10.25
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(b) (0.10)(b) (0.13) (0.17)(b) (0.10)(b) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.23 (1.89) (5.87) 1.82 3.44 1.91
=================================================================================================================================
Total from investment operations 0.19 (1.99) (6.00) 1.65 3.34 1.87
=================================================================================================================================
Less distributions from net realized
gains -- -- -- -- (0.03) (0.21)
=================================================================================================================================
Net asset value, end of period $ 9.07 $ 8.88 $ 10.87 $ 16.87 $ 15.22 $ 11.91
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return (c) 2.14% (18.31)% (35.57)% 10.87% 28.08% 18.52%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,131,717 $1,198,513 $1,806,464 $2,746,149 $1,891,171 $745,862
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 2.15%(d) 2.05% 1.94% 1.88% 1.91% 1.94%
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.85)%(d) (0.98)% (0.94)% (1.00)% (0.68)% (0.38)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate (e) 11% 28% 31% 22% 22% 27%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information for all periods prior to October 31, 2000 have
been restated to reflect a 3 for 1 stock split, effected in the form of
a 200% stock dividend, on September 8, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$1,126,499,315.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C(a)
---------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ----------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.88 $ 10.87 $ 16.86 $ 15.21 $ 11.91 $ 10.25
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(b) (0.10)(b) (0.13) (0.17)(b) (0.10)(b) (0.04)(b)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.23 (1.89) (5.86) 1.82 3.43 1.91
===========================================================================================================================
Total from investment operations 0.19 (1.99) (5.99) 1.65 3.33 1.87
===========================================================================================================================
Less distributions from net realized
gains -- -- -- -- (0.03) (0.21)
===========================================================================================================================
Net asset value, end of period $ 9.07 $ 8.88 $ 10.87 $ 16.86 $ 15.21 $ 11.91
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(c) 2.14% (18.31)% (35.53)% 10.82% 28.09% 18.52%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $275,790 $302,555 $487,838 $720,186 $349,951 $87,554
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 2.15%(d) 2.05% 1.94% 1.88% 1.90% 1.94%
===========================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.85)%(d) (0.98)% (0.94)% (1.00)% (0.68)% (0.38)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(e) 11% 28% 31% 22% 22% 27%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Per share information for all periods prior to October 31, 2000 have
been restated to reflect a 3 for 1 stock split, effected in the form of
a 200% stock dividend, on September 8, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$278,870,886.
(e) Not annualized for periods less than one year.
FS-234
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.22 $ 10.53
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.02)(a)
- ---------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.25 (1.29)
=============================================================================================
Total from investment operations 0.23 (1.31)
=============================================================================================
Net asset value, end of period $ 9.45 $ 9.22
_____________________________________________________________________________________________
=============================================================================================
Total return(b) 2.49% (12.44)%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 559 $ 37
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets 1.65%(c) 1.55%(d)
=============================================================================================
Ratio of net investment income (loss) to average net assets (0.35)%(c) (0.49)%(d)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(e) 11% 28%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $222,575.
(d) Annualized
(e) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------
MARCH 15, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED)
APRIL 30, TO OCTOBER 31,
2003 2002
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.26 $ 12.13
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02(a) 0.02(a)
- -----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.25 (2.89)
===============================================================================================
Total from investment operations 0.27 (2.87)
===============================================================================================
Net asset value, end of period $9.53 $ 9.26
_______________________________________________________________________________________________
===============================================================================================
Total return(b) 2.92% (23.66)%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 134 $ 160
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets 0.79%(c) 0.77%(d)
===============================================================================================
Ratio of net investment income to average net assets 0.51%(c) 0.30%(d)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(e) 11% 28%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $149,391.
(d) Annualized
(e) Not annualized for periods less than one year.
FS-235
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCK & OTHER EQUITY INTERESTS-96.42%
ADVERTISING-1.87%
Interpublic Group of Cos., Inc. (The)(a) 498,200 $ 5,679,480
- ------------------------------------------------------------------------
Lamar Advertising Co.(a) 284,000 10,201,280
========================================================================
15,880,760
========================================================================
AIR FREIGHT & LOGISTICS-1.19%
C.H. Robinson Worldwide, Inc. 274,900 10,113,571
========================================================================
APPAREL RETAIL-1.16%
Abercrombie & Fitch Co.-Class A(a) 299,800 9,857,424
========================================================================
APPLICATION SOFTWARE-4.31%
Amdocs Ltd. (United Kingdom)(a) 293,800 5,188,508
- ------------------------------------------------------------------------
Autodesk, Inc. 578,100 8,995,236
- ------------------------------------------------------------------------
Business Objects S.A.-ADR (France)(a) 327,400 7,114,402
- ------------------------------------------------------------------------
Fair Issac Corp. 175,800 9,155,664
- ------------------------------------------------------------------------
Intuit Inc.(a) 159,500 6,185,410
========================================================================
36,639,220
========================================================================
BANKS-2.02%
Compass Bancshares, Inc. 200,000 6,744,000
- ------------------------------------------------------------------------
New York Community Bancorp, Inc. 300,000 10,416,000
========================================================================
17,160,000
========================================================================
BROADCASTING & CABLE TV-2.71%
Cablevision Systems Corp.-NY Group-Class A(a) 307,900 6,903,118
- ------------------------------------------------------------------------
Cox Radio, Inc.-Class A(a) 300,000 6,843,000
- ------------------------------------------------------------------------
Entercom Communications Corp.(a) 100,000 4,859,000
- ------------------------------------------------------------------------
Westwood One, Inc.(a) 126,800 4,425,320
========================================================================
23,030,438
========================================================================
BUILDING PRODUCTS-1.08%
American Standard Cos. Inc.(a) 129,600 9,226,224
========================================================================
COMPUTER & ELECTRONICS RETAIL-2.12%
Best Buy Co., Inc.(a) 277,400 9,592,492
- ------------------------------------------------------------------------
CDW Computer Centers, Inc.(a) 197,200 8,408,608
========================================================================
18,001,100
========================================================================
CONSUMER FINANCE-1.64%
Capital One Financial Corp. 224,700 9,408,189
- ------------------------------------------------------------------------
Saxon Capital Acquisition Corp. (Acquired
07/27/01; Cost $3,120,900)(a)(b)(c)(d) 309,000 4,557,750
========================================================================
13,965,939
========================================================================
DATA PROCESSING SERVICES-6.23%
Alliance Data Systems Corp.(a) 590,200 12,394,200
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
DATA PROCESSING SERVICES-(CONTINUED)
BISYS Group, Inc. (The)(a) 494,100 $ 8,340,408
- ------------------------------------------------------------------------
Ceridian Corp.(a) 296,000 4,129,200
- ------------------------------------------------------------------------
Certegy Inc.(a) 329,150 8,225,459
- ------------------------------------------------------------------------
DST Systems, Inc.(a) 262,900 8,071,030
- ------------------------------------------------------------------------
Iron Mountain Inc.(a) 297,000 11,835,450
========================================================================
52,995,747
========================================================================
DIVERSIFIED FINANCIAL SERVICES-2.74%
Affiliated Managers Group, Inc.(a) 98,600 4,566,166
- ------------------------------------------------------------------------
American Capital Strategies, Ltd. 342,400 8,306,624
- ------------------------------------------------------------------------
Friedman, Billings, Ramsey Group, Inc.-Class A 820,155 9,005,302
- ------------------------------------------------------------------------
LaBranche & Co. Inc. 83,800 1,389,404
========================================================================
23,267,496
========================================================================
ELECTRIC UTILITIES-2.10%
FPL Group, Inc. 147,900 9,002,673
- ------------------------------------------------------------------------
Wisconsin Energy Corp. 337,500 8,886,375
========================================================================
17,889,048
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.25%
Cooper Industries, Ltd.-Class A (Bermuda) 214,000 7,939,400
- ------------------------------------------------------------------------
Rockwell Automation, Inc. 491,900 11,215,320
========================================================================
19,154,720
========================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-4.69%
Amphenol Corp.-Class A(a) 187,600 8,308,804
- ------------------------------------------------------------------------
Symbol Technologies, Inc. 783,700 8,565,841
- ------------------------------------------------------------------------
Thermo Electron Corp.(a) 309,300 5,619,981
- ------------------------------------------------------------------------
Varian Inc.(a) 282,800 8,939,308
- ------------------------------------------------------------------------
Waters Corp.(a) 353,400 8,485,134
========================================================================
39,919,068
========================================================================
ENVIRONMENTAL SERVICES-1.10%
Republic Services, Inc.(a) 435,000 9,335,100
========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.51%
Potash Corp. of Saskatchewan Inc. (Canada) 70,400 4,333,120
========================================================================
FOOTWEAR-0.93%
Reebok International Ltd.(a) 253,300 7,867,498
========================================================================
FOREST PRODUCTS-0.75%
Louisiana-Pacific Corp.(a) 793,300 6,409,864
========================================================================
</Table>
FS-236
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
GAS UTILITIES-1.14%
Kinder Morgan, Inc. 205,800 $ 9,676,716
========================================================================
GENERAL MERCHANDISE STORES-1.04%
Dollar Tree Stores, Inc.(a) 349,200 8,887,140
========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-4.31%
AdvancePCS(a) 238,400 7,166,304
- ------------------------------------------------------------------------
Caremark Rx, Inc.(a) 490,900 9,773,819
- ------------------------------------------------------------------------
Cerner Corp.(a) 100,000 1,998,000
- ------------------------------------------------------------------------
Laboratory Corp. of America Holdings(a) 301,300 8,876,298
- ------------------------------------------------------------------------
Lincare Holdings Inc.(a) 153,100 4,649,647
- ------------------------------------------------------------------------
Omnicare, Inc. 157,700 4,182,204
========================================================================
36,646,272
========================================================================
HEALTH CARE EQUIPMENT-1.57%
Bard (C.R.), Inc. 153,800 9,747,844
- ------------------------------------------------------------------------
Cytyc Corp.(a) 273,400 3,608,880
========================================================================
13,356,724
========================================================================
HEALTH CARE SUPPLIES-0.98%
Fisher Scientific International Inc.(a) 290,000 8,354,900
========================================================================
HOTELS, RESORTS & CRUISE LINES-0.36%
Starwood Hotels & Resorts Worldwide, Inc. 113,800 3,054,392
========================================================================
HOUSEHOLD APPLIANCES-0.84%
Snap-on Inc. 244,100 7,164,335
========================================================================
INDUSTRIAL GASES-1.08%
Airgas, Inc.(a) 455,000 9,204,650
========================================================================
INDUSTRIAL MACHINERY-1.97%
Parker-Hannifin Corp. 194,400 7,908,192
- ------------------------------------------------------------------------
SPX Corp.(a) 262,100 8,858,980
========================================================================
16,767,172
========================================================================
INSURANCE BROKERS-0.89%
Willis Group Holdings Ltd. (Bermuda) 242,400 7,560,456
========================================================================
INTEGRATED OIL & GAS-0.85%
Murphy Oil Corp. 174,200 7,255,430
========================================================================
IT CONSULTING & SERVICES-3.15%
Acxiom Corp.(a) 545,800 7,619,368
- ------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 289,800 6,230,700
- ------------------------------------------------------------------------
Titan Corp. (The)(a) 565,200 4,538,556
- ------------------------------------------------------------------------
Unisys Corp.(a) 806,400 8,386,560
========================================================================
26,775,184
========================================================================
LEISURE PRODUCTS-2.03%
Brunswick Corp. 216,600 4,728,378
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
LEISURE PRODUCTS-(CONTINUED)
Hasbro, Inc. 782,700 $ 12,523,200
========================================================================
17,251,578
========================================================================
LIFE & HEALTH INSURANCE-0.54%
Nationwide Financial Services, Inc.-Class A 163,000 4,588,450
========================================================================
MANAGED HEALTH CARE-2.39%
Anthem, Inc.(a) 153,000 10,501,920
- ------------------------------------------------------------------------
Coventry Health Care, Inc.(a) 240,900 9,833,538
========================================================================
20,335,458
========================================================================
MUTUAL FUNDS-1.99%
iShares Nasdaq Biotechnology Index Fund(a) 295,100 16,909,230
========================================================================
OFFICE ELECTRONICS-1.09%
Zebra Technologies Corp.-Class A(a) 138,900 9,260,463
========================================================================
OIL & GAS DRILLING-1.23%
Pride International, Inc.(a) 672,900 10,443,408
========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.86%
BJ Services Co.(a) 285,700 10,430,907
- ------------------------------------------------------------------------
Key Energy Services, Inc.(a) 539,500 5,432,765
========================================================================
15,863,672
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.84%
Devon Energy Corp. 152,021 7,182,983
========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-1.12%
Valero Energy Corp. 260,000 9,555,000
========================================================================
PAPER PACKAGING-0.50%
Smurfit-Stone Container Corp.(a) 300,800 4,232,256
========================================================================
PAPER PRODUCTS-1.16%
Bowater Inc. 253,000 9,849,290
========================================================================
PERSONAL PRODUCTS-0.85%
NBTY, Inc.(a) 464,500 7,199,750
========================================================================
PHARMACEUTICALS-3.00%
Allergan, Inc. 58,100 4,081,525
- ------------------------------------------------------------------------
Biovail Corp. (Canada)(a) 152,000 5,494,800
- ------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(a) 97,600 5,625,664
- ------------------------------------------------------------------------
Mylan Laboratories Inc. 143,400 4,053,918
- ------------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom)(a) 315,047 6,269,435
========================================================================
25,525,342
========================================================================
PROPERTY & CASUALTY INSURANCE-3.92%
ACE Ltd. (Cayman Islands) 208,917 6,910,974
- ------------------------------------------------------------------------
PMI Group, Inc. (The) 421,300 12,984,466
- ------------------------------------------------------------------------
</Table>
FS-237
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-(CONTINUED)
KyRadian Group Inc. 338,500 $ 13,438,450
========================================================================
33,333,890
========================================================================
PUBLISHING-1.08%
Knight-Ridder, Inc. 142,400 9,191,920
========================================================================
REAL ESTATE-3.29%
American Financial Realty Trust (Acquired
09/04/02; Cost $9,401,000)(b)(d) 940,100 10,905,160
- ------------------------------------------------------------------------
Annaly Mortgage Management Inc. 450,000 8,550,000
- ------------------------------------------------------------------------
Plum Creek Timber Co., Inc. 368,200 8,564,332
========================================================================
28,019,492
========================================================================
REINSURANCE-2.80%
Everest Re Group, Ltd. (Bermuda) 77,500 5,397,875
- ------------------------------------------------------------------------
PartnerRe Ltd. (Bermuda) 178,000 9,523,000
- ------------------------------------------------------------------------
Platinum Underwriters Holdings, Ltd.
(Bermuda) 337,200 8,918,940
========================================================================
23,839,815
========================================================================
RESTAURANTS-2.00%
Brinker International, Inc.(a) 305,600 9,702,800
- ------------------------------------------------------------------------
Ruby Tuesday, Inc. 371,500 7,318,550
========================================================================
17,021,350
========================================================================
SEMICONDUCTOR EQUIPMENT-0.97%
Novellus Systems, Inc.(a) 295,600 8,288,624
========================================================================
SEMICONDUCTORS-2.32%
Integrated Circuit Systems, Inc.(a) 375,700 8,160,204
- ------------------------------------------------------------------------
Intersil Corp.-Class A(a) 276,300 5,111,550
- ------------------------------------------------------------------------
Microchip Technology Inc. 311,162 6,469,058
========================================================================
19,740,812
========================================================================
SPECIALTY CHEMICALS-1.12%
International Flavors & Fragrances Inc. 301,000 9,565,780
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
SPECIALTY STORES-1.18%
Advance Auto Parts, Inc.(a) 202,400 $ 10,067,376
========================================================================
TELECOMMUNICATIONS EQUIPMENT-1.56%
Avocent Corp.(a) 172,400 5,106,488
- ------------------------------------------------------------------------
Harris Corp. 284,900 8,136,744
========================================================================
13,243,232
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $710,332,125) 820,258,879
========================================================================
MONEY MARKET FUNDS-3.74%
STIC Liquid Assets Portfolio(e) 15,900,354 15,900,354
- ------------------------------------------------------------------------
STIC Prime Portfolio(e) 15,900,354 15,900,354
========================================================================
Total Money Market Funds (Cost
$31,800,708) 31,800,708
========================================================================
TOTAL INVESTMENTS-100.16% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $742,132,833) 852,059,587
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-17.97%
STIC Liquid Assets Portfolio(e)(f) 76,447,245 76,447,245
- ------------------------------------------------------------------------
STIC Prime Portfolio(e)(f) 76,447,245 76,447,245
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $152,894,490) 152,894,490
========================================================================
TOTAL INVESTMENTS-118.13% (Cost $895,027,323) 1,004,954,077
========================================================================
OTHER ASSETS LESS LIABILITIES-(18.13%) (154,236,833)
========================================================================
NET ASSETS-100.00% $850,717,244
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 04/30/03 was $15,462,910,
which represented 1.82% of the Fund's net assets.
(c) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(d) Security considered to be illiquid. The market value of the securities at
04/30/03 was $15,462,910, which represented 1.82% of the Fund's net assets.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor.
(f) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned.
See Notes to Financial Statements.
FS-238
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$895,027,323)* $1,004,954,077
- ------------------------------------------------------------
Foreign currencies, at value (cost $78) 84
- ------------------------------------------------------------
Receivables for:
Investments sold 7,847,217
- ------------------------------------------------------------
Fund shares sold 787,752
- ------------------------------------------------------------
Dividends 158,049
- ------------------------------------------------------------
Investment for deferred compensation plan 40,148
- ------------------------------------------------------------
Other assets 39,292
============================================================
Total assets 1,013,826,619
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 7,531,292
- ------------------------------------------------------------
Fund shares reacquired 1,346,254
- ------------------------------------------------------------
Deferred compensation plan 40,148
- ------------------------------------------------------------
Collateral upon return of securities
loaned 152,894,490
- ------------------------------------------------------------
Accrued distribution fees 728,864
- ------------------------------------------------------------
Accrued trustees' fees 1,121
- ------------------------------------------------------------
Accrued transfer agent fees 481,591
- ------------------------------------------------------------
Accrued operating expenses 85,615
============================================================
Total liabilities 163,109,375
============================================================
Net assets applicable to shares outstanding $ 850,717,244
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 790,135,680
- ------------------------------------------------------------
Undistributed net investment income (loss) (3,617,898)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (45,729,549)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 109,929,011
============================================================
$ 850,717,244
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 457,722,206
____________________________________________________________
============================================================
Class B $ 336,177,544
____________________________________________________________
============================================================
Class C $ 55,972,950
____________________________________________________________
============================================================
Class R $ 836,658
____________________________________________________________
============================================================
Institutional Class $ 7,886
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 33,869,252
____________________________________________________________
============================================================
Class B 26,168,760
____________________________________________________________
============================================================
Class C 4,359,917
____________________________________________________________
============================================================
Class R 62,007
____________________________________________________________
============================================================
Institutional Class 580
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 13.51
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $13.51 divided by
94.50%) $ 14.30
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 12.85
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 12.84
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 13.49
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 13.60
____________________________________________________________
============================================================
</Table>
* At April 30, 2003, securities with an aggregate market value of $150,038,132
were on loan to brokers.
See Notes to Financial Statements.
FS-239
STATEMENT OF OPERATIONS
For the six months ended April 30, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $5,543) $ 3,671,497
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 359,453
- -------------------------------------------------------------------------
Interest 194
- -------------------------------------------------------------------------
Security lending income 154,032
=========================================================================
Total investment income 4,185,176
=========================================================================
EXPENSES:
Advisory fees 2,831,443
- -------------------------------------------------------------------------
Administrative services fees 111,654
- -------------------------------------------------------------------------
Custodian fees 55,458
- -------------------------------------------------------------------------
Distribution fees -- Class A 783,076
- -------------------------------------------------------------------------
Distribution fees -- Class B 1,669,657
- -------------------------------------------------------------------------
Distribution fees -- Class C 275,176
- -------------------------------------------------------------------------
Distribution fees -- Class R 478
- -------------------------------------------------------------------------
Transfer agent fees 1,711,563
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 20
- -------------------------------------------------------------------------
Trustees' fees 6,757
- -------------------------------------------------------------------------
Other 300,212
=========================================================================
Total expenses 7,745,494
=========================================================================
Less: Fees waived, expenses reimbursed and expenses paid
indirectly (13,266)
=========================================================================
Net expenses 7,732,228
=========================================================================
Net investment income (loss) (3,547,052)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (5,098,471)
- -------------------------------------------------------------------------
Foreign currencies 59,712
- -------------------------------------------------------------------------
Option contracts written 126,096
=========================================================================
(4,912,663)
=========================================================================
Change in net unrealized appreciation of:
Investment securities 52,031,058
- -------------------------------------------------------------------------
Foreign currencies 1,354
=========================================================================
52,032,412
=========================================================================
Net gain from investment securities, foreign currencies and
option contracts 47,119,749
=========================================================================
Net increase in net assets resulting from operations $43,572,697
_________________________________________________________________________
=========================================================================
</Table>
See Notes to Financial Statements.
FS-240
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2003 and the year ended October 31, 2002
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (3,547,052) $ (6,585,862)
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts (4,912,663) (27,642,639)
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts 52,032,412 (101,615,274)
============================================================================================
Net increase (decrease) in net assets resulting from
operations 43,572,697 (135,843,775)
============================================================================================
Share transactions-net:
Class A (22,608,736) (49,872,882)
- --------------------------------------------------------------------------------------------
Class B (26,956,266) (51,574,661)
- --------------------------------------------------------------------------------------------
Class C (3,118,835) (497,034)
- --------------------------------------------------------------------------------------------
Class R 789,964 12,300
- --------------------------------------------------------------------------------------------
Institutional Class -- 10,000
============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (51,893,873) (101,922,277)
============================================================================================
Net increase (decrease) in net assets (8,321,176) (237,766,052)
============================================================================================
NET ASSETS:
Beginning of period 859,038,420 1,096,804,472
============================================================================================
End of period $850,717,244 $ 859,038,420
____________________________________________________________________________________________
============================================================================================
</Table>
See Notes to Financial Statements.
FS-241
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Capital Development Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers multiple classes of shares. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States unless
otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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
FS-242
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 are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
H. 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. Transfer agency fees and expenses
and other shareholder recordkeeping fees and expenses are charged to each
class pursuant to a transfer agency and service agreement adopted by the
Fund with respect to such class. All other expenses are allocated among the
classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million. AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market funds in which
the Fund has invested (excluding investments made in affiliated money market
funds with cash collateral from securities loaned by the Fund). For the six
months ended April 30, 2003, AIM waived fees of $6,356.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2003, AIM
was paid $111,654 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 2003,
AFS retained $916,961 for such services. For the six months ended April 30,
2003, AFS reimbursed fees of $16 on the Institutional Class.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and the 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 shares, Class B shares, Class C shares and Class R
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.35% of the Fund's average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B and Class C shares and 0.50% of the average daily net assets of Class R
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own the appropriate class of shares
of the Fund. Any amounts not paid as a service fee under the Plans would
constitute an asset-based sales charge. NASD Rules also impose a cap on the
total sales charges, including asset-based sales charges that may be paid by any
class of shares of the Fund. Pursuant to the Plans, for the six months ended
April 30, 2003, the Class A, Class B, Class C and Class R shares paid $783,076,
$1,669,657, $275,176 and $478, respectively.
Front-end sales commissions and contingent deferred sales charges
(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. Contingent deferred
sales charges ("CDSCs") are deducted from redemption proceeds prior to
remittance to the shareholder. During six months ended April 30, 2003, AIM
Distributors retained $50,567 in front-end sales commissions from the sale of
Class A shares and $362, $55, $3,059 and $0 for Class A, Class B, Class C and
Class R shares, respectively, for CDSCs imposed upon redemptions by
shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended April 30, 2003, the Fund paid legal fees of
$2,067 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $6,108 and reductions in
custodian fees of $786 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $6,894.
FS-243
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
AIM has established an interfund lending facility 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.
During the reporting period, the Fund was a participant in a committed line
of credit facility with a syndicate administered by Citibank, N.A. The Fund
could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the line of credit could borrow on a first come, first served basis.
The funds which were party to the line of credit were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed line of credit facility expired May 20, 2003.
During the six months ended April 30, 2003, the Fund did not borrow under
the interfund lending or the committed line of credit facility.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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
may be temporarily less than the value of the securities on loan.
At April 30, 2003, securities with an aggregate value of $150,038,132 were
on loan to brokers. The loans were secured by cash collateral of $152,894,490
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended April 30, 2003, the Fund received fees of $154,032 for
securities lending.
NOTE 7--CALL OPTION CONTRACTS WRITTEN
Transactions in call options written during the six months ended April 30, 2003
are summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ----------------------------------------------------------
Beginning of period -- $ --
- ----------------------------------------------------------
Written 1,300 126,096
- ----------------------------------------------------------
Expired (1,300) (126,096)
==========================================================
End of period -- $ --
__________________________________________________________
==========================================================
</Table>
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
October 31, 2009 $11,152,255
- ----------------------------------------------------------
October 31, 2010 27,828,753
==========================================================
Total capital loss carryforward $38,981,008
__________________________________________________________
==========================================================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $405,908,944 and $425,249,687, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $132,384,333
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (22,473,441)
===========================================================
Net unrealized appreciation of investment
securities $109,910,892
___________________________________________________________
===========================================================
</Table>
Cost of investments for tax purposes is $895,043,185.
FS-244
NOTE 10--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with a CDSC. Under some circumstances, Class A shares and
Class R shares are subject to CDSCs. Class R shares and Institutional Class
shares are sold at net asset value. Generally, Class B shares will automatically
convert to Class A shares eight years after the end of the calendar month of
purchase. Changes in shares outstanding during the six months ended April 30,
2003 and the year ended October 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 4,300,132 $ 55,974,344 8,723,183 $ 137,031,183
- ------------------------------------------------------------------------------------------------------------------------
Class B 1,039,576 12,817,521 3,358,008 50,474,614
- ------------------------------------------------------------------------------------------------------------------------
Class C 412,340 5,087,212 1,443,905 21,757,217
- ------------------------------------------------------------------------------------------------------------------------
Class R* 63,099 813,826 749 12,300
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class** -- -- 580 10,000
========================================================================================================================
Conversion of Class B shares to Class A shares:
Class A 109,267 1,422,121 -- --
- ------------------------------------------------------------------------------------------------------------------------
Class B (114,824) (1,422,121) -- --
========================================================================================================================
Reacquired:
Class A (6,190,362) (80,005,201) (12,317,285) (186,904,065)
- ------------------------------------------------------------------------------------------------------------------------
Class B (3,140,995) (38,351,666) (7,163,019) (102,049,275)
- ------------------------------------------------------------------------------------------------------------------------
Class C (667,999) (8,206,047) (1,519,831) (22,254,251)
- ------------------------------------------------------------------------------------------------------------------------
Class R* (1,841) (23,862) -- --
========================================================================================================================
(4,191,607) $(51,893,873) (7,473,710) $(101,922,277)
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
** Institutional Class shares commenced sales on March 15, 2002.
FS-245
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, --------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.80 $ 14.69 $ 21.79 $ 15.24 $ 12.89 $ 14.57
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.04)(a) (0.04) (0.13) (0.10)(a) (0.06)(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.75 (1.85) (4.27) 6.68 2.45 (1.62)
===========================================================================================================================
Total from investment operations 0.71 (1.89) (4.31) 6.55 2.35 (1.68)
===========================================================================================================================
Less distributions from net realized gains -- -- (2.79) -- -- --
===========================================================================================================================
Net asset value, end of period $ 13.51 $ 12.80 $ 14.69 $ 21.79 $ 15.24 $ 12.89
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 5.55% (12.87)% (21.76)% 42.98% 18.23% (11.53)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $457,722 $456,268 $576,660 $759,838 $579,514 $717,263
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 1.55%(c) 1.38% 1.33% 1.28% 1.38% 1.28%
===========================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.55)%(c) (0.29)% (0.21)% (0.60)% (0.70)% (0.40)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(d) 51% 120% 130% 101% 117% 78%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$451,180,124.
(d) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, --------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.21 $ 14.10 $ 21.16 $ 14.90 $ 12.70 $ 14.46
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.14)(a) (0.15) (0.26) (0.20)(a) (0.16)(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.71 (1.75) (4.12) 6.52 2.40 (1.60)
===========================================================================================================================
Total from investment operations 0.64 (1.89) (4.27) 6.26 2.20 (1.76)
===========================================================================================================================
Less distributions from net realized gains -- -- (2.79) -- -- --
===========================================================================================================================
Net asset value, end of period $ 12.85 $ 12.21 $ 14.10 $ 21.16 $ 14.90 $ 12.70
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 5.24% (13.40)% (22.29)% 42.01% 17.32% (12.17)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $336,178 $346,456 $454,018 $617,576 $451,508 $493,993
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 2.20%(c) 2.03% 1.99% 1.99% 2.12% 2.02%
===========================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.20)%(c) (0.94)% (0.87)% (1.30)% (1.44)% (1.14)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(d) 51% 120% 130% 101% 117% 78%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$336,698,895.
(d) Not annualized for periods less than one year.
FS-246
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ---------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.20 $ 14.10 $ 21.15 $ 14.89 $ 12.69 $ 14.45
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.14)(a) (0.14) (0.25) (0.20)(a) (0.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.71 (1.76) (4.12) 6.51 2.40 (1.60)
=================================================================================================================================
Total from investment operations 0.64 (1.90) (4.26) 6.26 2.20 (1.76)
=================================================================================================================================
Less distributions from net realized gains -- -- (2.79) -- -- --
=================================================================================================================================
Net asset value, end of period $ 12.84 $ 12.20 $ 14.10 $ 21.15 $ 14.89 $ 12.69
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 5.25% (13.48)% (22.24)% 42.04% 17.34% (12.18)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $55,973 $56,298 $66,127 $82,982 $53,832 $48,293
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.20%(c) 2.03% 1.99% 1.99% 2.12% 2.02%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.20)%(c) (0.94)% (0.87)% (1.30)% (1.44)% (1.14)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 51% 120% 130% 101% 117% 78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$55,491,275.
(d) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
------------------------------
JUNE 3, 2003
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.79 $ 16.62
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.03)(a)
- --------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.74 (3.80)
============================================================================================
Total from investment operations 0.70 (3.83)
============================================================================================
Net asset value, end of period $13.49 $ 12.79
____________________________________________________________________________________________
============================================================================================
Total return(b) 5.47% (23.05)%
____________________________________________________________________________________________
============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 837 $ 10
____________________________________________________________________________________________
============================================================================================
Ratio of expenses to average net assets 1.70%(c) 1.54%(d)
============================================================================================
Ratio of net investment income (loss) to average net assets (0.70)%(c) (0.44)%(d)
____________________________________________________________________________________________
============================================================================================
Portfolio turnover rate(e) 51% 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 is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $192,893.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-247
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------
MARCH 15,
2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.84 $ 17.25
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01(a) 0.02(a)
- --------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.75 (4.43)
============================================================================================
Total from investment operations 0.76 (4.41)
============================================================================================
Net asset value, end of period $13.60 $ 12.84
____________________________________________________________________________________________
============================================================================================
Total return(b) 5.92% (25.57)%
____________________________________________________________________________________________
============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 8 $ 7
____________________________________________________________________________________________
============================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 0.89%(c) 0.84%(d)
- --------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 1.33%(c) 0.99%(d)
============================================================================================
Ratio of net investment income to average net assets 0.12%(c) 0.25%(d)
____________________________________________________________________________________________
============================================================================================
Portfolio turnover rate(e) 51% 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 is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $7,528.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-248
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-88.16%
ADVERTISING-1.57%
Omnicom Group Inc. 800,000 $ 49,520,000
===========================================================================
AEROSPACE & DEFENSE-3.98%
Lockheed Martin Corp. 492,200 24,634,610
- ---------------------------------------------------------------------------
Northrop Grumman Corp. 560,000 49,252,000
- ---------------------------------------------------------------------------
Raytheon Co. 1,716,000 51,359,880
===========================================================================
125,246,490
===========================================================================
APPAREL RETAIL-1.55%
Limited Brands 3,355,000 48,781,700
===========================================================================
APPLICATION SOFTWARE-0.58%
SAP A.G.-ADR (Germany) 712,000 18,163,120
===========================================================================
BANKS-3.05%
Bank of America Corp. 530,000 39,246,500
- ---------------------------------------------------------------------------
Washington Mutual, Inc. 1,440,000 56,880,000
===========================================================================
96,126,500
===========================================================================
BUILDING PRODUCTS-1.80%
American Standard Cos. Inc.(a) 449,000 31,964,310
- ---------------------------------------------------------------------------
Masco Corp. 1,174,500 24,746,715
===========================================================================
56,711,025
===========================================================================
COMPUTER & ELECTRONICS RETAIL-1.72%
Best Buy Co., Inc.(a) 1,570,000 54,290,600
===========================================================================
COMPUTER HARDWARE-2.53%
Dell Computer Corp.(a) 700,000 20,237,000
- ---------------------------------------------------------------------------
Hewlett-Packard Co. 1,000,000 16,300,000
- ---------------------------------------------------------------------------
International Business Machines Corp. 510,000 43,299,000
===========================================================================
79,836,000
===========================================================================
DATA PROCESSING SERVICES-1.45%
Automatic Data Processing, Inc. 1,355,000 45,568,650
===========================================================================
DIVERSIFIED CHEMICALS-0.88%
Dow Chemical Co. (The) 850,000 27,744,000
===========================================================================
DIVERSIFIED FINANCIAL SERVICES-4.22%
Citigroup Inc. 1,540,000 60,445,000
- ---------------------------------------------------------------------------
Morgan Stanley 830,000 37,142,500
- ---------------------------------------------------------------------------
Principal Financial Group, Inc. 1,215,000 35,356,500
===========================================================================
132,944,000
===========================================================================
ELECTRIC UTILITIES-1.37%
FPL Group, Inc. 430,000 26,174,100
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
ELECTRIC UTILITIES-(CONTINUED)
TXU Corp. 850,000 $ 16,932,000
===========================================================================
43,106,100
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.41%
Emerson Electric Co. 875,000 44,362,500
===========================================================================
ENVIRONMENTAL SERVICES-0.99%
Waste Management, Inc. 1,440,000 31,276,800
===========================================================================
FOOD RETAIL-2.37%
Kroger Co. (The)(a) 3,210,000 45,903,000
- ---------------------------------------------------------------------------
Safeway Inc.(a) 1,720,000 28,586,400
===========================================================================
74,489,400
===========================================================================
FOOTWEAR-1.52%
NIKE, Inc.-Class B 894,500 47,882,585
===========================================================================
GENERAL MERCHANDISE STORES-0.89%
Wal-Mart Stores, Inc. 500,000 28,160,000
===========================================================================
HEALTH CARE SUPPLIES-1.61%
Alcon, Inc. (Switzerland)(a) 1,150,000 50,657,500
===========================================================================
HOME IMPROVEMENT RETAIL-1.29%
Home Depot, Inc. (The) 1,445,000 40,647,850
===========================================================================
HOTELS, RESORTS & CRUISE LINES-1.07%
Carnival Corp. (Panama) 1,225,000 33,797,750
===========================================================================
HOUSEHOLD PRODUCTS-1.07%
Kimberly-Clark Corp. 680,000 33,843,600
===========================================================================
INDUSTRIAL MACHINERY-2.93%
Dover Corp. 1,690,000 48,570,600
- ---------------------------------------------------------------------------
Illinois Tool Works Inc. 685,000 43,826,300
===========================================================================
92,396,900
===========================================================================
INTEGRATED OIL & GAS-4.37%
ChevronTexaco Corp. 520,000 32,661,200
- ---------------------------------------------------------------------------
ConocoPhillips 610,000 30,683,000
- ---------------------------------------------------------------------------
Exxon Mobil Corp. 1,225,000 43,120,000
- ---------------------------------------------------------------------------
Occidental Petroleum Corp. 1,050,000 31,342,500
===========================================================================
137,806,700
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.54%
AT&T Corp. 1,000,000 17,050,000
===========================================================================
LIFE & HEALTH INSURANCE-1.21%
Prudential Financial, Inc. 1,190,000 38,044,300
===========================================================================
</Table>
FS-249
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
NETWORKING EQUIPMENT-0.57%
Cisco Systems, Inc.(a) 1,200,000 $ 18,048,000
===========================================================================
OIL & GAS DRILLING-1.01%
GlobalSantaFe Corp. (Cayman Islands) 1,500,000 31,740,000
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.07%
Baker Hughes Inc. 1,200,000 33,600,000
===========================================================================
PACKAGED FOODS & MEATS-9.71%
Campbell Soup Co. 1,510,000 33,265,300
- ---------------------------------------------------------------------------
ConAgra Foods, Inc. 1,330,300 27,936,300
- ---------------------------------------------------------------------------
General Mills, Inc. 1,930,000 87,062,300
- ---------------------------------------------------------------------------
Kellogg Co. 1,930,000 63,188,200
- ---------------------------------------------------------------------------
Kraft Foods Inc.-Class A 1,400,000 43,260,000
- ---------------------------------------------------------------------------
Sara Lee Corp. 3,045,000 51,095,100
===========================================================================
305,807,200
===========================================================================
PERSONAL PRODUCTS-1.08%
Gillette Co. (The) 1,120,000 34,104,000
===========================================================================
PHARMACEUTICALS-9.22%
Abbott Laboratories 790,000 32,097,700
- ---------------------------------------------------------------------------
Bristol-Myers Squibb Co. 1,450,000 37,033,000
- ---------------------------------------------------------------------------
Johnson & Johnson 405,000 22,825,800
- ---------------------------------------------------------------------------
Merck & Co. Inc. 560,000 32,580,800
- ---------------------------------------------------------------------------
Pfizer Inc. 2,170,000 66,727,500
- ---------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 940,000 43,898,000
- ---------------------------------------------------------------------------
Wyeth 1,270,000 55,283,100
===========================================================================
290,445,900
===========================================================================
PROPERTY & CASUALTY INSURANCE-2.95%
ACE Ltd. (Cayman Islands) 1,025,000 33,907,000
- ---------------------------------------------------------------------------
Travelers Property Casualty Corp.-Class A 856,486 13,900,768
- ---------------------------------------------------------------------------
Travelers Property Casualty Corp.-Class B 1,054,271 17,131,904
- ---------------------------------------------------------------------------
XL Capital Ltd.-Class A (Cayman Islands) 340,000 27,982,000
===========================================================================
92,921,672
===========================================================================
PUBLISHING-1.10%
New York Times Co. (The)-Class A 750,000 34,785,000
===========================================================================
RAILROADS-1.82%
Norfolk Southern Corp. 1,334,000 28,294,140
- ---------------------------------------------------------------------------
Union Pacific Corp. 490,000 29,164,800
===========================================================================
57,458,940
===========================================================================
RESTAURANTS-1.20%
McDonald's Corp. 2,205,000 37,705,500
===========================================================================
SEMICONDUCTOR EQUIPMENT-0.94%
KLA-Tencor Corp.(a) 720,000 $ 29,520,000
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
SEMICONDUCTORS-4.97%
Analog Devices, Inc.(a) 850,000 28,152,000
- ---------------------------------------------------------------------------
Intel Corp. 3,500,000 64,400,000
- ---------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan)(a) 2,266,000 18,966,420
- ---------------------------------------------------------------------------
Xilinx, Inc.(a) 1,665,000 45,071,550
===========================================================================
156,589,970
===========================================================================
SOFT DRINKS-1.00%
Coca-Cola Co. (The) 780,000 31,512,000
===========================================================================
SYSTEMS SOFTWARE-5.55%
Computer Associates International, Inc. 5,360,000 87,046,400
- ---------------------------------------------------------------------------
Microsoft Corp. 1,820,000 46,537,400
- ---------------------------------------------------------------------------
Oracle Corp.(a) 3,460,000 41,104,800
===========================================================================
174,688,600
===========================================================================
Total Common Stocks & Other Equity
Interests (Cost $2,879,258,250) 2,777,380,852
===========================================================================
<Caption>
PRINCIPAL
AMOUNT
CORPORATE DEBT-0.10%
COMPUTER HARDWARE-0.10%
Candescent Technologies Corp., Sr. Unsec.
Gtd. Sub. Deb., 8.00%, 05/01/03 (Acquired
04/17/98-04/19/01; Cost
$47,529,750)(b)(c)(d) $60,700,000 3,217,100
===========================================================================
Total Corporate Debt (Cost $49,098,968) 3,217,100
===========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-12.94%
STIC Liquid Assets Portfolio(e) 203,794,868 203,794,868
- ---------------------------------------------------------------------------
STIC Prime Portfolio(e) 203,794,868 203,794,868
===========================================================================
Total Money Market Funds (Cost
$407,589,736) 407,589,736
===========================================================================
TOTAL INVESTMENTS-101.20% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$3,335,946,954) 3,188,187,688
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.34%
STIC Liquid Assets Portfolio(e)(f) 42,144,500 42,144,500
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $42,144,500) 42,144,500
===========================================================================
TOTAL INVESTMENTS-102.54% (Cost
$3,378,091,454) 3,230,332,188
===========================================================================
OTHER ASSETS LESS LIABILITIES-(2.54%) (79,989,167)
===========================================================================
NET ASSETS-100.00% $3,150,343,021
___________________________________________________________________________
===========================================================================
</Table>
FS-250
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Deb. - Debentures
Gtd. - Guaranteed
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The market value of this security at 04/30/03 represented 0.10% of the
Fund's net assets. This security is considered to be illiquid.
(c) Defaulted security. Currently, the issuer is in default with respect to
principal and interest payments.
(d) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor.
(f) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned.
See Notes to Financial Statements.
FS-251
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$3,378,091,454)* $3,230,332,188
- ------------------------------------------------------------
Receivables for:
Investments sold 8,116,171
- ------------------------------------------------------------
Fund shares sold 1,138,956
- ------------------------------------------------------------
Dividends 3,480,410
- ------------------------------------------------------------
Investment for deferred compensation plan 128,521
- ------------------------------------------------------------
Other assets 76,495
============================================================
Total assets 3,243,272,741
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 46,445,152
- ------------------------------------------------------------
Deferred compensation plan 128,521
- ------------------------------------------------------------
Collateral upon return of securities
loaned 42,144,500
- ------------------------------------------------------------
Accrued distribution fees 2,062,199
- ------------------------------------------------------------
Accrued trustees' fees 2,310
- ------------------------------------------------------------
Accrued transfer agent fees 1,727,684
- ------------------------------------------------------------
Accrued operating expenses 419,354
============================================================
Total liabilities 92,929,720
============================================================
Net assets applicable to shares outstanding $3,150,343,021
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $4,210,297,184
- ------------------------------------------------------------
Undistributed net investment income 280,648
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (912,475,545)
- ------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities and foreign
currencies (147,759,266)
============================================================
$3,150,343,021
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,890,369,263
____________________________________________________________
============================================================
Class B $1,102,040,835
____________________________________________________________
============================================================
Class C $ 155,677,684
____________________________________________________________
============================================================
Class R $ 722,902
____________________________________________________________
============================================================
Institutional Class $ 1,532,337
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 193,576,407
____________________________________________________________
============================================================
Class B 117,271,380
____________________________________________________________
============================================================
Class C 16,518,713
____________________________________________________________
============================================================
Class R 74,209
____________________________________________________________
============================================================
Institutional Class 152,792
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.77
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.77 divided by
94.50%) $ 10.34
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 9.40
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.42
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.74
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 10.03
____________________________________________________________
============================================================
</Table>
* At April 30, 2003, securities with an aggregate market value of $38,730,990
were on loan to brokers.
See Notes to Financial Statements.
FS-252
STATEMENT OF OPERATIONS
For the six months ended April 30, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $23,397) $ 25,823,721
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds 2,379,246
- ---------------------------------------------------------------------------
Interest 494
- ---------------------------------------------------------------------------
Security lending income 210,685
===========================================================================
Total investment income 28,414,146
===========================================================================
EXPENSES:
Advisory fees 10,291,533
- ---------------------------------------------------------------------------
Administrative services fees 276,758
- ---------------------------------------------------------------------------
Custodian fees 120,801
- ---------------------------------------------------------------------------
Distribution fees -- Class A 2,942,548
- ---------------------------------------------------------------------------
Distribution fees -- Class B 5,644,785
- ---------------------------------------------------------------------------
Distribution fees -- Class C 796,585
- ---------------------------------------------------------------------------
Distribution fees -- Class R 472
- ---------------------------------------------------------------------------
Transfer agent fees 5,410,598
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 737
- ---------------------------------------------------------------------------
Trustees' fees 14,249
- ---------------------------------------------------------------------------
Other 564,589
===========================================================================
Total expenses 26,063,655
===========================================================================
Less: Fees waived and expenses paid indirectly (61,720)
===========================================================================
Net expenses 26,001,935
===========================================================================
Net investment income 2,412,211
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from investment securities (137,134,420)
- ---------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 187,078,411
- ---------------------------------------------------------------------------
Foreign currencies (67)
===========================================================================
187,078,344
===========================================================================
Net gain from investment securities and foreign currencies 49,943,924
===========================================================================
Net increase in net assets resulting from operations $ 52,356,135
___________________________________________________________________________
===========================================================================
</Table>
See Notes to Financial Statements.
FS-253
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2003 and the year ended October 31, 2002
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 2,412,211 $ (8,504,860)
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (137,134,420) 304,583,841
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 187,078,344 (628,211,415)
===============================================================================================
Net increase (decrease) in net assets resulting from
operations 52,356,135 (332,132,434)
===============================================================================================
Share transactions-net:
Class A (241,572,564) (870,998,051)
- -----------------------------------------------------------------------------------------------
Class B (117,637,517) (391,079,522)
- -----------------------------------------------------------------------------------------------
Class C (16,928,246) (61,301,813)
- -----------------------------------------------------------------------------------------------
Class R 683,243 17,606
- -----------------------------------------------------------------------------------------------
Institutional Class 41,284 (60,090)
===============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (375,413,800) (1,323,421,870)
===============================================================================================
Net increase (decrease) in net assets (323,057,665) (1,655,554,304)
===============================================================================================
NET ASSETS:
Beginning of period 3,473,400,686 5,128,954,990
===============================================================================================
End of period $3,150,343,021 $ 3,473,400,686
_______________________________________________________________________________________________
===============================================================================================
</Table>
See Notes to Financial Statements.
FS-254
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Charter Fund (the "Fund") is a series portfolio of AIM Equity Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers multiple classes of shares. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund.
The Fund's investment objective is growth of capital. Each company listed in
the Schedule of Investments is organized in the United States unless otherwise
noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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. Premiums and
discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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
FS-255
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 are included with the net realized and unrealized gain or loss
from investments in the Statement of Operations.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. 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. Transfer agency fees and expenses
and other shareholder recordkeeping fees and expenses are charged to each
class pursuant to a transfer agency and service agreement adopted by the
Fund with respect to such class. All other expenses are allocated among the
classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment agreement, the
Fund pays an advisory fee to AIM at the annual rate of 1.00% of the first $30
million of the Fund's average daily net assets, plus 0.75% of the Fund's average
daily net assets in excess of $30 million to and including $150 million, plus
0.625% of the Fund's average daily net assets in excess of $150 million.
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 in which the Fund has invested (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the Fund). For
the six months ended April 30, 2003, AIM waived fees of $36,960. Under the terms
of a master sub-advisory agreement between AIM and A I M Capital Management,
Inc. ("AIM Capital"), AIM pays AIM Capital 50% of the amount paid by the Fund to
AIM.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2003, AIM
was paid $276,758 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 2003,
AFS retained $2,730,354 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and the 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 shares, Class B shares, Class C shares and Class R
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.30% of the Fund's average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B and Class C shares and 0.50% of the average daily net assets of Class R
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own the appropriate class of shares
of the Fund. Any amounts not paid as a service fee under the Plans would
constitute an asset-based sales charge. NASD Rules also impose a cap on the
total sales charges, including asset-based sales charges that may be paid by any
class of shares of the Fund. Pursuant to the Plans, for the six months ended
April 30, 2003, the Class A, Class B, Class C and Class R shares paid
$2,942,548, $5,644,785, $796,585 and $472, respectively.
Front-end sales commissions and contingent deferred sales charges
(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. Contingent deferred
sales charges ("CDSCs") are deducted from redemption proceeds prior to
remittance to the shareholder. During six months ended April 30, 2003, AIM
Distributors retained $136,242 in front-end sales commissions from the sale of
Class A shares and $2,440, $1,255, $6,111 and $0 for Class A, Class B, Class C
and Class R shares, respectively, for CDSCs imposed upon redemptions by
shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended April 30, 2003, the Fund paid legal fees of
$4,392 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $23,240 and reductions in
custodian fees of $1,520 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $24,760.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
AIM has established an interfund lending facility 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.
FS-256
During the reporting period, the Fund was a participant in a committed line
of credit facility with a syndicate administered by Citibank, N.A. The Fund
could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the line of credit could borrow on a first come, first served basis.
The funds which were party to the line of credit were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed line of credit facility expired May 20, 2003.
During the six months ended April 30, 2003, the Fund did not borrow under
the interfund lending or the committed line of credit facility.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At April 30, 2003, securities with an aggregate value of $38,730,990 were on
loan to brokers. The loans were secured by cash collateral of $42,144,500
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended April 30, 2003, the Fund received fees of
$210,685 for securities lending.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
October 31, 2009 $771,331,122
__________________________________________________________
==========================================================
</Table>
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $608,052,304 and $972,593,540, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 241,646,795
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (392,447,882)
============================================================
Net unrealized appreciation (depreciation)
of investment securities $(150,801,087)
____________________________________________________________
============================================================
Cost of investments for tax purposes is $3,381,133,275.
</Table>
FS-257
NOTE 9--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with a CDSC. Under some circumstances, Class A shares and
Class R shares are subject to CDSCs. Class R shares and Institutional Class
shares are sold at net asset value. Generally, Class B shares will automatically
convert to Class A shares eight years after the end of the calendar month of
purchase. Changes in shares outstanding during the six months ended April 30,
2003 and the year ended October 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
---------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 9,448,811 $ 89,382,634 16,193,575 $ 174,972,073
- -----------------------------------------------------------------------------------------------------------------------------
Class B 4,491,669 41,315,790 9,302,039 97,387,968
- -----------------------------------------------------------------------------------------------------------------------------
Class C 1,218,765 11,263,567 2,633,061 27,700,439
- -----------------------------------------------------------------------------------------------------------------------------
Class R* 75,796 715,247 1,719 17,663
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class 15,449 150,785 45,275 481,439
=============================================================================================================================
Conversion of Class B shares to Class A shares:
Class A 285,825 2,709,596 717,246 7,724,451
- -----------------------------------------------------------------------------------------------------------------------------
Class B (296,584) (2,709,596) (739,880) (7,724,451)
=============================================================================================================================
Reacquired:
Class A (35,210,782) (333,664,794) (99,779,666) (1,053,694,575)
- -----------------------------------------------------------------------------------------------------------------------------
Class B (17,241,307) (156,243,711) (47,214,599) (480,743,039)
- -----------------------------------------------------------------------------------------------------------------------------
Class C (3,086,600) (28,191,813) (8,599,959) (89,002,252)
- -----------------------------------------------------------------------------------------------------------------------------
Class R* (3,301) (32,004) (5) (57)
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class (11,268) (109,501) (51,011) (541,529)
=============================================================================================================================
(40,313,527) $(375,413,800) (127,492,205) $(1,323,421,870)
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
FS-258
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.57 $ 10.46 $ 18.07 $ 17.16 $ 13.32 $ 13.41
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02(a) 0.01(b) (0.03) (0.04)(a) 0.02 0.12
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.18 (0.90) (6.70) 2.30 4.39 1.23
=================================================================================================================================
Total from investment operations 0.20 (0.89) (6.73) 2.26 4.41 1.35
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.03) (0.10)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.88) (1.35) (0.54) (1.34)
=================================================================================================================================
Total distributions -- -- (0.88) (1.35) (0.57) (1.44)
=================================================================================================================================
Net asset value, end of period $ 9.77 $ 9.57 $ 10.46 $ 18.07 $ 17.16 $ 13.32
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 2.09% (8.51)% (38.75)% 13.60% 34.05% 11.20%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,890,369 $2,096,866 $3,159,304 $5,801,869 $4,948,666 $3,706,938
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.33%(d) 1.22% 1.16% 1.06% 1.05% 1.08%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.33%(d) 1.22% 1.17% 1.08% 1.07% 1.10%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.43%(d) 0.09%(b) (0.24)% (0.20)% 0.11% 0.95%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 21% 103% 78% 80% 107% 154%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$1,977,955,439.
(e) Not annualized for periods less than one year.
FS-259
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ----------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.24 $ 10.18 $ 17.72 $ 16.97 $ 13.24 $ 13.37
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.08)(b) (0.13) (0.17)(a) (0.10) 0.02
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.17 (0.86) (6.53) 2.27 4.37 1.22
=================================================================================================================================
Total from investment operations 0.16 (0.94) (6.66) 2.10 4.27 1.24
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- -- (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.88) (1.35) (0.54) (1.34)
=================================================================================================================================
Total distributions -- -- (0.88) (1.35) (0.54) (1.37)
=================================================================================================================================
Net asset value, end of period $ 9.40 $ 9.24 $ 10.18 $ 17.72 $ 16.97 $ 13.24
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 1.73% (9.23)% (39.14)% 12.76% 33.06% 10.33%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,102,041 $1,204,617 $1,719,470 $3,088,611 $2,206,752 $1,408,687
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.03%(d) 1.92% 1.86% 1.80% 1.80% 1.84%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.03%(d) 1.92% 1.87% 1.82% 1.82% 1.86%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.27)%(d) (0.61)%(b) (0.94)% (0.94)% (0.64)% 0.19%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 21% 103% 78% 80% 107% 154%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$1,138,312,982.
(e) Not annualized for periods less than one year.
FS-260
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -----------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.27 $ 10.21 $ 17.77 $ 17.01 $ 13.27 $ 13.39
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.08)(b) (0.13) (0.17)(a) (0.09) 0.02
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.16 (0.86) (6.55) 2.28 4.37 1.23
=================================================================================================================================
Total from investment operations 0.15 (0.94) (6.68) 2.11 4.28 1.25
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- -- (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.88) (1.35) (0.54) (1.34)
=================================================================================================================================
Total distributions -- -- (0.88) (1.35) (0.54) (1.37)
=================================================================================================================================
Net asset value, end of period $ 9.42 $ 9.27 $ 10.21 $ 17.77 $ 17.01 $ 13.27
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 1.62% (9.21)% (39.14)% 12.78% 33.06% 10.39%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $155,678 $170,444 $248,533 $412,872 $138,467 $37,846
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.03%(d) 1.92% 1.86% 1.80% 1.80% 1.84%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.03%(d) 1.92% 1.87% 1.82% 1.82% 1.86%
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.27)%(d) (0.61)%(b) (0.94)% (0.94)% (0.64)% 0.19%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 21% 103% 78% 80% 107% 154%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$160,637,350.
(e) Not annualized for periods less than one year.
FS-261
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
---------------------------------------
SIX MONTHS JUNE 3, 2002
ENDED (DATE SALES COMMENCED)
APRIL 30, TO OCTOBER 31,
2003 2002
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.56 $ 10.94
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01(a) 0.00
- -----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.17 (1.38)
=====================================================================================================
Total from investment operations 0.18 (1.38)
=====================================================================================================
Net asset value, end of period $9.74 $ 9.56
_____________________________________________________________________________________________________
=====================================================================================================
Total return(b) 1.88% (12.61)%
_____________________________________________________________________________________________________
=====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 723 $ 16
_____________________________________________________________________________________________________
=====================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.53%(c) 1.42%(d)
- -----------------------------------------------------------------------------------------------------
Without fee waivers 1.53%(c) 1.42%(d)
=====================================================================================================
Ratio of net investment income (loss) to average net assets 0.23%(c) (0.11)%(d)
_____________________________________________________________________________________________________
=====================================================================================================
Portfolio turnover rate(e) 21% 103%
_____________________________________________________________________________________________________
=====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $190,351.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-262
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -------------------------------------------------
2003 2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.80 $10.67 $ 18.33 $17.33 $ 13.42 $ 13.48
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05(a) 0.06(b) 0.04 0.52 0.09 0.18
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.18 (0.93) (6.82) 1.83 4.43 1.24
================================================================================================================================
Total from investment operations 0.23 (0.87) (6.78) 2.35 4.52 1.42
================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.07) (0.14)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.88) (1.35) (0.54) (1.34)
================================================================================================================================
Total distributions -- -- (0.88) (1.35) (0.61) (1.48)
================================================================================================================================
Net asset value, end of period $10.03 $ 9.80 $ 10.67 $18.33 $ 17.33 $ 13.42
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 2.35% (8.15)% (38.46)% 14.02% 34.61% 11.69%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,532 $1,457 $ 1,648 $3,234 $66,801 $43,815
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 0.80%(d) 0.79% 0.68% 0.66% 0.65% 0.66%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 0.80%(d) 0.83% 0.69% 0.68% 0.67% 0.67%
================================================================================================================================
Ratio of net investment income to average net assets 0.96%(d) 0.52%(b) 0.25% 0.20% 0.51% 1.37%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(e) 21% 103% 78% 80% 107% 154%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios prior to November 1, 2001
have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$1,486,817.
(e) Not annualized for periods less than one year.
FS-263
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-94.84%
ADVERTISING-1.52%
Lamar Advertising Co.(a) 3,000,000 $ 107,760,000
===========================================================================
AEROSPACE & DEFENSE-4.30%
L-3 Communications Holdings, Inc.(a) 1,820,000 80,808,000
- ---------------------------------------------------------------------------
Lockheed Martin Corp. 3,000,000 150,150,000
- ---------------------------------------------------------------------------
Northrop Grumman Corp. 850,000 74,757,500
===========================================================================
305,715,500
===========================================================================
AIR FREIGHT & LOGISTICS-0.35%
FedEx Corp. 420,800 25,197,504
===========================================================================
AIRLINES-0.90%
Southwest Airlines Co. 4,000,000 63,840,000
===========================================================================
APPAREL RETAIL-2.92%
Abercrombie & Fitch Co.-Class A(a) 1,000,000 32,880,000
- ---------------------------------------------------------------------------
Gap, Inc. (The) 6,000,000 99,780,000
- ---------------------------------------------------------------------------
Ross Stores, Inc. 443,800 16,820,020
- ---------------------------------------------------------------------------
TJX Cos., Inc. (The) 3,000,000 57,750,000
===========================================================================
207,230,020
===========================================================================
APPLICATION SOFTWARE-2.46%
Citrix Systems, Inc.(a) 2,000,000 37,920,000
- ---------------------------------------------------------------------------
Electronic Arts Inc.(a) 850,000 50,379,500
- ---------------------------------------------------------------------------
Intuit Inc.(a) 1,500,000 58,170,000
- ---------------------------------------------------------------------------
Mercury Interactive Corp.(a) 839,800 28,502,812
===========================================================================
174,972,312
===========================================================================
BANKS-1.58%
Bank of America Corp. 500,000 37,025,000
- ---------------------------------------------------------------------------
New York Community Bancorp, Inc. 49,700 1,725,584
- ---------------------------------------------------------------------------
Washington Mutual, Inc. 1,250,000 49,375,000
- ---------------------------------------------------------------------------
Wells Fargo & Co. 500,000 24,130,000
===========================================================================
112,255,584
===========================================================================
BIOTECHNOLOGY-3.41%
Amgen Inc.(a) 1,989,200 121,957,852
- ---------------------------------------------------------------------------
Genzyme Corp.(a) 697,300 28,087,244
- ---------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 937,400 43,251,636
- ---------------------------------------------------------------------------
IDEC Pharmaceuticals Corp.(a) 1,486,700 48,689,425
===========================================================================
241,986,157
===========================================================================
BROADCASTING & CABLE TV-2.01%
Clear Channel Communications, Inc.(a) 2,000,000 78,220,000
- ---------------------------------------------------------------------------
Hispanic Broadcasting Corp.(a) 750,000 19,237,500
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Univision Communications Inc.-Class A(a) 1,500,000 $ 45,420,000
===========================================================================
142,877,500
===========================================================================
CASINOS & GAMBLING-0.80%
MGM Mirage(a) 2,000,000 56,840,000
===========================================================================
COMPUTER & ELECTRONICS RETAIL-1.65%
CDW Computer Centers, Inc.(a) 2,750,000 117,260,000
===========================================================================
COMPUTER HARDWARE-1.53%
Dell Computer Corp.(a) 3,750,000 108,412,500
===========================================================================
COMPUTER STORAGE & PERIPHERALS-0.65%
EMC Corp.(a) 5,110,200 46,451,718
===========================================================================
DATA PROCESSING SERVICES-1.86%
Fiserv, Inc.(a) 4,500,000 132,480,000
===========================================================================
DEPARTMENT STORES-0.48%
Kohl's Corp.(a) 600,000 34,080,000
===========================================================================
DIVERSIFIED FINANCIAL SERVICES-8.15%
American Express Co. 1,766,100 66,864,546
- ---------------------------------------------------------------------------
Citigroup Inc. 2,250,000 88,312,500
- ---------------------------------------------------------------------------
Fannie Mae 500,000 36,195,000
- ---------------------------------------------------------------------------
Freddie Mac 500,000 28,950,000
- ---------------------------------------------------------------------------
Goldman Sachs Group, Inc. 1,100,000 83,490,000
- ---------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 2,005,400 82,321,670
- ---------------------------------------------------------------------------
Moody's Corp. 1,250,000 60,362,500
- ---------------------------------------------------------------------------
Morgan Stanley 1,713,600 76,683,600
- ---------------------------------------------------------------------------
SLM Corp. 500,000 56,000,000
===========================================================================
579,179,816
===========================================================================
DRUG RETAIL-0.87%
Walgreen Co. 2,000,000 61,720,000
===========================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-0.77%
Molex Inc. 1,500,000 35,010,000
- ---------------------------------------------------------------------------
Vishay Intertechnology, Inc.(a) 1,596,600 19,957,500
===========================================================================
54,967,500
===========================================================================
EMPLOYMENT SERVICES-0.69%
Robert Half International Inc.(a) 3,000,000 48,840,000
===========================================================================
FOOD DISTRIBUTORS-0.51%
SYSCO Corp. 1,250,000 35,912,500
===========================================================================
</Table>
FS-264
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
FOOTWEAR-0.56%
NIKE, Inc.-Class B 750,000 $ 40,147,500
===========================================================================
GENERAL MERCHANDISE STORES-2.31%
Family Dollar Stores, Inc. 1,500,000 51,285,000
- ---------------------------------------------------------------------------
Wal-Mart Stores, Inc. 2,000,000 112,640,000
===========================================================================
163,925,000
===========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-2.42%
AdvancePCS(a) 1,089,603 32,753,466
- ---------------------------------------------------------------------------
Cardinal Health, Inc. 1,071,600 59,238,048
- ---------------------------------------------------------------------------
Caremark Rx, Inc.(a) 4,011,400 79,866,974
===========================================================================
171,858,488
===========================================================================
HEALTH CARE EQUIPMENT-4.79%
Biomet, Inc. 3,770,675 114,854,760
- ---------------------------------------------------------------------------
Boston Scientific Corp.(a) 841,000 36,205,050
- ---------------------------------------------------------------------------
Medtronic, Inc. 2,042,600 97,513,724
- ---------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 1,211,500 63,555,290
- ---------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 600,000 28,140,000
===========================================================================
340,268,824
===========================================================================
HEALTH CARE FACILITIES-0.41%
Health Management Associates, Inc.-Class A 1,706,000 29,104,360
===========================================================================
HOME IMPROVEMENT RETAIL-0.93%
Lowe's Cos., Inc. 1,500,000 65,835,000
===========================================================================
HOUSEHOLD PRODUCTS-1.51%
Clorox Co. (The) 750,000 33,915,000
- ---------------------------------------------------------------------------
Procter & Gamble Co. (The) 816,100 73,326,585
===========================================================================
107,241,585
===========================================================================
INDUSTRIAL MACHINERY-0.49%
Danaher Corp. 500,000 34,490,000
===========================================================================
INTEGRATED OIL & GAS-0.46%
Exxon Mobil Corp. 920,500 32,401,600
===========================================================================
INTERNET RETAIL-0.43%
eBay Inc.(a) 327,000 30,335,790
===========================================================================
IT CONSULTING & SERVICES-0.70%
SunGard Data Systems Inc.(a) 2,298,500 49,417,750
===========================================================================
LIFE & HEALTH INSURANCE-0.51%
AFLAC Inc. 1,100,000 35,981,000
===========================================================================
MANAGED HEALTH CARE-2.01%
Aetna Inc. 417,800 20,806,440
- ---------------------------------------------------------------------------
UnitedHealth Group Inc. 661,700 60,962,421
- ---------------------------------------------------------------------------
WellPoint Health Networks Inc.(a) 806,000 61,207,640
===========================================================================
142,976,501
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
MOTORCYCLE MANUFACTURERS-1.41%
Harley-Davidson, Inc. 2,250,000 $ 99,990,000
===========================================================================
MOVIES & ENTERTAINMENT-1.33%
Pixar, Inc.(a) 500,000 29,195,000
- ---------------------------------------------------------------------------
Viacom Inc.-Class B(a) 1,500,000 65,115,000
===========================================================================
94,310,000
===========================================================================
MULTI-LINE INSURANCE-1.22%
American International Group, Inc. 1,500,000 86,925,000
===========================================================================
NETWORKING EQUIPMENT-1.69%
Cisco Systems, Inc.(a) 8,000,000 120,320,000
===========================================================================
OIL & GAS DRILLING-1.87%
ENSCO International Inc. 1,519,000 38,582,600
- ---------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 1,000,000 39,200,000
- ---------------------------------------------------------------------------
Noble Corp. (Cayman Islands)(a) 1,000,000 30,950,000
- ---------------------------------------------------------------------------
Transocean Inc. 1,250,000 23,812,500
===========================================================================
132,545,100
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.48%
BJ Services Co.(a) 1,169,600 42,702,096
- ---------------------------------------------------------------------------
Smith International, Inc.(a) 900,000 32,004,000
- ---------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 750,000 30,172,500
===========================================================================
104,878,596
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.89%
Apache Corp. 525,000 30,056,250
- ---------------------------------------------------------------------------
Devon Energy Corp. 700,000 33,075,000
===========================================================================
63,131,250
===========================================================================
PACKAGED FOODS & MEATS-0.49%
General Mills, Inc. 777,600 35,077,536
===========================================================================
PERSONAL PRODUCTS-0.54%
Gillette Co. (The) 1,250,000 38,062,500
===========================================================================
PHARMACEUTICALS-8.31%
Allergan, Inc. 291,400 20,470,850
- ---------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 885,700 45,808,404
- ---------------------------------------------------------------------------
Johnson & Johnson 714,300 40,257,948
- ---------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(a)(b) 1,960,600 113,008,984
- ---------------------------------------------------------------------------
Pfizer Inc. 5,789,800 178,036,350
- ---------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 2,244,800 104,832,160
- ---------------------------------------------------------------------------
Wyeth 2,017,500 87,821,775
===========================================================================
590,236,471
===========================================================================
PUBLISHING-0.53%
Gannett Co., Inc. 500,000 37,860,000
===========================================================================
</Table>
FS-265
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
RESTAURANTS-2.82%
Brinker International, Inc.(a) 2,640,200 $ 83,826,350
- ---------------------------------------------------------------------------
Outback Steakhouse, Inc. 1,335,800 47,741,492
- ---------------------------------------------------------------------------
P.F. Chang's China Bistro, Inc.(a) 700,000 29,330,000
- ---------------------------------------------------------------------------
Wendy's International, Inc. 1,352,600 39,279,504
===========================================================================
200,177,346
===========================================================================
SEMICONDUCTOR EQUIPMENT-3.73%
Applied Materials, Inc.(a) 5,000,000 73,000,000
- ---------------------------------------------------------------------------
KLA-Tencor Corp.(a) 1,739,400 71,315,400
- ---------------------------------------------------------------------------
Lam Research Corp.(a) 4,000,000 58,120,000
- ---------------------------------------------------------------------------
Novellus Systems, Inc.(a) 1,000,000 28,040,000
- ---------------------------------------------------------------------------
Teradyne, Inc.(a) 3,000,000 34,800,000
===========================================================================
265,275,400
===========================================================================
SEMICONDUCTORS-5.86%
Analog Devices, Inc.(a) 3,000,000 99,360,000
- ---------------------------------------------------------------------------
Intel Corp. 3,000,000 55,200,000
- ---------------------------------------------------------------------------
Linear Technology Corp. 2,000,000 68,940,000
- ---------------------------------------------------------------------------
Maxim Integrated Products, Inc. 1,750,000 68,757,500
- ---------------------------------------------------------------------------
Microchip Technology Inc. 5,068,952 105,383,512
- ---------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan)(a) 2,240,800 18,755,496
===========================================================================
416,396,508
===========================================================================
SPECIALTY STORES-1.90%
Bed Bath & Beyond Inc.(a) 2,350,000 92,848,500
- ---------------------------------------------------------------------------
Staples, Inc.(a) 2,200,000 41,888,000
===========================================================================
134,736,500
===========================================================================
SYSTEMS SOFTWARE-3.88%
Microsoft Corp. 9,500,000 242,915,000
- ---------------------------------------------------------------------------
VERITAS Software Corp.(a) 1,500,000 33,015,000
===========================================================================
275,930,000
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT-0.77%
Nokia Oyj (Finland) 1,330,100 $ 22,545,722
- ---------------------------------------------------------------------------
Nortel Networks Corp. (Canada)(a) 12,500,000 32,250,000
===========================================================================
54,795,722
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.18%
Nextel Communications, Inc.-Class A(a) 2,040,000 30,171,600
- ---------------------------------------------------------------------------
Vodafone Group PLC (United Kingdom) 27,345,190 54,029,030
===========================================================================
84,200,630
===========================================================================
Total Common Stocks and Other Equity
Interests (Cost $6,237,120,293) 6,736,810,568
===========================================================================
MONEY MARKET FUNDS-3.77%
STIC Liquid Assets Portfolio(c) 133,930,283 133,930,283
- ---------------------------------------------------------------------------
STIC Prime Portfolio(c) 133,930,283 133,930,283
===========================================================================
Total Money Market Funds (Cost
$267,860,566) 267,860,566
===========================================================================
TOTAL INVESTMENTS-98.61% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$6,504,980,859) 7,004,671,134
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED-2.18%
MONEY MARKET FUNDS-2.18%
STIC Liquid Assets Portfolio(c)(d) 129,639,700 129,639,700
- ---------------------------------------------------------------------------
STIC Prime Portfolio(c)(d) 24,938,484 24,938,484
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $154,578,184) 154,578,184
===========================================================================
TOTAL INVESTMENTS-100.79% (Cost
$6,659,559,043) 7,159,249,318
===========================================================================
OTHER ASSETS LESS LIABILITIES-(0.79%) (55,976,158)
===========================================================================
NET ASSETS-100.00% $7,103,273,160
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The Investment Company Act of 1940 defines affiliates as those companies in
which a fund holds 5% or more of the outstanding voting securities. The Fund
has not owned enough of the outstanding voting securities of the issuer to
have control (as defined in the Investment Company Act of 1940) of that
issuer. The following is a summary of the transactions with affiliates for
the period ended April 30, 2003.
<Table>
<Caption>
CHANGE IN
MARKET VALUE PURCHASES SALES UNREALIZED MARKET VALUE DIVIDEND REALIZED
10/31/2002 AT COST AT COST APPR./(DEPR.) 4/30/2003 INCOME GAIN/(LOSS)
--------------------------------------------------------------------------------------------------------------------
Medicis
Pharmaceutical
Corp.-Class A $91,800,000 $ -- $(2,837,098) $24,046,082 $113,008,984 $ -- $(875,337)
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(c) The money market fund and the Fund are affiliated by having the same
investment advisor.
(d) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned.
See Notes to Financial Statements.
FS-266
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$6,659,559,043)* $ 7,159,249,318
- ------------------------------------------------------------
Receivables for:
Investments sold 186,786,588
- ------------------------------------------------------------
Fund shares sold 5,129,721
- ------------------------------------------------------------
Dividends 2,348,815
- ------------------------------------------------------------
Investment for deferred compensation plan 264,873
- ------------------------------------------------------------
Other assets 114,550
============================================================
Total assets 7,353,893,865
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 68,548,043
- ------------------------------------------------------------
Fund shares reacquired 16,292,394
- ------------------------------------------------------------
Deferred compensation plan 264,873
- ------------------------------------------------------------
Collateral upon return of securities
loaned 154,578,184
- ------------------------------------------------------------
Accrued distribution fees 3,663,937
- ------------------------------------------------------------
Accrued trustees' fees 5,000
- ------------------------------------------------------------
Accrued transfer agent fees 5,335,511
- ------------------------------------------------------------
Accrued operating expenses 1,932,763
============================================================
Total liabilities 250,620,705
============================================================
Net assets applicable to shares outstanding $ 7,103,273,160
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 9,421,267,999
- ------------------------------------------------------------
Undistributed net investment income (loss) (27,392,698)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (2,790,292,416)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 499,690,275
============================================================
$ 7,103,273,160
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 6,202,228,681
____________________________________________________________
============================================================
Class B $ 598,860,912
____________________________________________________________
============================================================
Class C $ 173,184,114
____________________________________________________________
============================================================
Class R $ 1,447,960
____________________________________________________________
============================================================
Institutional Class $ 127,551,493
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 356,225,314
____________________________________________________________
============================================================
Class B 36,296,215
____________________________________________________________
============================================================
Class C 10,499,292
____________________________________________________________
============================================================
Class R 83,000
____________________________________________________________
============================================================
Institutional Class 6,829,484
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 17.41
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $17.41 divided by
94.50%) $ 18.42
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 16.50
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 16.49
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 17.45
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 18.68
____________________________________________________________
============================================================
</Table>
* At April 30, 2003, securities with an aggregate market value of $148,921,546
were on loan to brokers.
See Notes to Financial Statements.
FS-267
STATEMENT OF OPERATIONS
For the six months ended April 30, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $85,767) $ 21,522,892
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds 1,366,996
- ---------------------------------------------------------------------------
Security lending income 94,343
===========================================================================
Total investment income 22,984,231
===========================================================================
EXPENSES:
Advisory fees 22,476,868
- ---------------------------------------------------------------------------
Administrative services fees 335,277
- ---------------------------------------------------------------------------
Custodian fees 267,859
- ---------------------------------------------------------------------------
Distribution fees -- Class A 9,399,568
- ---------------------------------------------------------------------------
Distribution fees -- Class B 2,952,704
- ---------------------------------------------------------------------------
Distribution fees -- Class C 862,017
- ---------------------------------------------------------------------------
Distribution fees -- Class R 1,386
- ---------------------------------------------------------------------------
Transfer agent fees 12,191,891
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 59,914
- ---------------------------------------------------------------------------
Trustees' fees 27,389
- ---------------------------------------------------------------------------
Other 1,379,555
===========================================================================
Total expenses 49,954,428
===========================================================================
Less: Fees waived and expenses paid indirectly (347,710)
===========================================================================
Net expenses 49,606,718
===========================================================================
Net investment income (loss) (26,622,487)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (324,761,137)
- ---------------------------------------------------------------------------
Foreign currencies 484,940
===========================================================================
(324,276,197)
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 417,075,659
- ---------------------------------------------------------------------------
Foreign currencies 17,825
- ---------------------------------------------------------------------------
Option contracts written (123,292)
===========================================================================
416,970,192
===========================================================================
Net gain from investment securities, foreign currencies and
option contracts 92,693,995
===========================================================================
Net increase in net assets resulting from operations $ 66,071,508
___________________________________________________________________________
===========================================================================
</Table>
See Notes to Financial Statements.
FS-268
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2003 and the year ended October 31, 2002
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (26,622,487) $ (81,004,558)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (324,276,197) (1,231,119,667)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and option contracts 416,970,192 143,436,189
================================================================================================
Net increase (decrease) in net assets resulting from
operations 66,071,508 (1,168,688,036)
================================================================================================
Share transactions-net:
Class A (637,329,746) (1,905,685,542)
- ------------------------------------------------------------------------------------------------
Class B (29,996,027) (89,586,163)
- ------------------------------------------------------------------------------------------------
Class C (12,208,086) (44,303,197)
- ------------------------------------------------------------------------------------------------
Class R 1,142,612 204,500
- ------------------------------------------------------------------------------------------------
Institutional Class 2,880,061 (10,243,640)
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (675,511,186) (2,049,614,042)
================================================================================================
Net increase (decrease) in net assets (609,439,678) (3,218,302,078)
================================================================================================
NET ASSETS:
Beginning of period 7,712,712,838 10,931,014,916
================================================================================================
End of period $ 7,103,273,160 $ 7,712,712,838
________________________________________________________________________________________________
================================================================================================
</Table>
See Notes to Financial Statements.
FS-269
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Constellation Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers multiple classes of shares. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund.
The Fund's investment objective is growth of capital. Each company listed in
the Schedule of Investments is organized in the United States unless otherwise
noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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
FS-270
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 are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
H. 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. Transfer agency fees and expenses
and other shareholder recordkeeping fees and expenses are charged to each
class pursuant to a transfer agency and service agreement adopted by the
Fund with respect to such class. All other expenses are allocated among the
classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment agreement, the
Fund pays an advisory fee to AIM at the annual rate of 1.00% of the first $30
million of the Fund's average daily net assets, plus 0.75% of the Fund's average
daily net assets in excess of $30 million to and including $150 million, plus
0.625% of the Fund's average daily net assets in excess of $150 million. AIM has
voluntarily agreed to waive advisory fees payable by the Fund to AIM at the
annual rate of 0.025% for each $5 billion increment in net assets over $5
billion, up to a maximum waiver of 0.175% on net assets in excess of $35
billion. Further, AIM has voluntarily agreed to waive advisory fees of the Fund
in the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds in which the Fund has invested (excluding investments made in
affiliated money market funds with cash collateral from securities loaned by the
Fund). Voluntary fee waivers may be rescinded, terminated or modified with
approval of Board of Trustees without further notice to investors. For the six
months ended April 30, 2003, AIM waived fees of $295,954. Under the terms of a
master sub-advisory agreement between AIM and A I M Capital Management, Inc.
("AIM Capital"), AIM pays AIM Capital 50% of the amount paid by the Fund to AIM.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2003, AIM
was paid $335,277 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 2003,
AFS retained $5,821,255 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and the 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 shares, Class B shares, Class C shares and Class R
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.30% of the Fund's average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B and Class C shares and 0.50% of the average daily net assets of Class R
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own the appropriate class of shares
of the Fund. Any amounts not paid as a service fee under the Plans would
constitute an asset-based sales charge. NASD Rules also impose a cap on the
total sales charges, including asset-based sales charges that may be paid by any
class of shares of the Fund. Pursuant to the Plans, for the six months ended
April 30, 2003, the Class A, Class B, Class C and Class R shares paid
$9,399,568, $2,952,704, $862,017 and $1,386, respectively.
Front-end sales commissions and contingent deferred sales charges
(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. Contingent deferred
sales charges ("CDSCs") are deducted from redemption proceeds prior to
remittance to the shareholder. During six months ended April 30, 2003, AIM
Distributors retained $432,290 in front-end sales commissions from the sale of
Class A shares and $2,486, $0, $7,398 and $0 for Class A, Class B, Class C and
Class R shares, respectively, for CDSCs imposed upon redemptions by
shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended April 30, 2003, the Fund paid legal fees of
$8,001 for services rendered by Kramer, Levin, Naftalis & Frankel LLP
FS-271
as counsel to the Board of Trustees. A member of that firm is a trustee of the
Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $50,786 and reductions in
custodian fees of $970 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $51,756.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
AIM has established an interfund lending facility 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.
During the reporting period, the Fund was a participant in a committed line
of credit facility with a syndicate administered by Citibank, N.A. The Fund
could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the line of credit could borrow on a first come, first served basis.
The funds which were party to the line of credit were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed line of credit facility expired May 20, 2003.
During the six months ended April 30, 2003, the Fund did not borrow under
the interfund lending or the committed line of credit facility.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At April 30, 2003, securities with an aggregate value of $148,921,546 were
on loan to brokers. The loans were secured by cash collateral of $154,578,184
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended April 30, 2003, the Fund received fees of $94,343 for
securities lending.
NOTE 7--CALL OPTION CONTRACTS
Transactions in call options written during the six months ended April 30, 2003
are summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------
Beginning of period 1,551 $ 398,595
- -------------------------------------------------------------------------------
Written 1,375 291,491
- -------------------------------------------------------------------------------
Exercised (1,551) (398,595)
- -------------------------------------------------------------------------------
Expired (1,375) (291,491)
===============================================================================
End of period -- $ --
_______________________________________________________________________________
===============================================================================
</Table>
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- --------------------------------------------------------------------------------
October 31, 2009 $1,224,074,030
- --------------------------------------------------------------------------------
October 31, 2010 1,223,985,487
================================================================================
Total capital loss carryforward $2,448,059,517
________________________________________________________________________________
================================================================================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $1,611,842,886 and $2,470,575,380, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of investment securities $1,263,076,420
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (768,371,395)
===============================================================================
Net unrealized appreciation of investment securities $ 494,705,025
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $6,664,544,293.
</Table>
FS-272
NOTE 10--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with a CDSC. Under some circumstances, Class A shares and
Class R shares are subject to CDSCs. Class R shares and Institutional Class
shares are sold at net asset value. Generally, Class B shares will automatically
convert to Class A shares eight years after the end of the calendar month of
purchase. Changes in shares outstanding during the six months ended April 30,
2003 and the year ended October 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 22,251,277 $ 373,428,788 48,969,691 $ 970,494,859
- -------------------------------------------------------------------------------------------------------------------------------
Class B 2,350,445 37,555,133 5,811,283 111,506,491
- -------------------------------------------------------------------------------------------------------------------------------
Class C 956,708 15,271,713 2,391,741 46,150,281
- -------------------------------------------------------------------------------------------------------------------------------
Class R* 92,422 1,530,783 13,083 204,591
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class 615,736 11,106,198 6,254,346 139,801,926
===============================================================================================================================
Conversion of Class B shares to Class A shares:
Class A 107,070 1,805,515 223,534 4,426,684
- -------------------------------------------------------------------------------------------------------------------------------
Class B (112,840) (1,805,515) (234,440) (4,426,684)
===============================================================================================================================
Reacquired:
Class A (60,246,141) (1,012,564,049) (147,108,087) (2,880,607,085)
- -------------------------------------------------------------------------------------------------------------------------------
Class B (4,163,040) (65,745,645) (10,685,339) (196,665,970)
- -------------------------------------------------------------------------------------------------------------------------------
Class C (1,731,710) (27,479,799) (4,824,172) (90,453,478)
- -------------------------------------------------------------------------------------------------------------------------------
Class R* (22,500) (388,171) (5) (91)
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class (455,724) (8,226,137) (6,757,582) (150,045,566)
===============================================================================================================================
(40,358,297) $ (675,511,186) (105,945,947) $(2,049,614,042)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
FS-273
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.20 $ 19.72 $ 43.50 $ 34.65 $ 26.37 $ 29.23
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.15)(a) (0.12) (0.26) (0.17) (0.14)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.27 (2.37) (16.24) 12.39 9.18 (0.62)
=================================================================================================================================
Total from investment operations 0.21 (2.52) (16.36) 12.13 9.01 (0.76)
=================================================================================================================================
Less distributions from net realized
gains -- -- (7.42) (3.28) (0.73) (2.10)
=================================================================================================================================
Net asset value, end of period $ 17.41 $ 17.20 $ 19.72 $ 43.50 $ 34.65 $ 26.37
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.22% (12.78)% (43.10)% 36.56% 34.81% (2.30)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $6,202,229 $6,780,055 $9,703,277 $19,268,977 $14,292,905 $12,391,844
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers 1.32%(c) 1.26% 1.14% 1.08% 1.10% 1.10%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.33%(c) 1.27% 1.17% 1.11% 1.12% 1.12%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.68)%(c) (0.74)% (0.46)% (0.61)% (0.50)% (0.47)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 23% 57% 75% 88% 62% 76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$6,318,310,156.
(d) Not annualized for periods less than one year.
FS-274
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------------------------------------
NOVEMBER 3, 1997
SIX MONTHS (DATE SALES
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ---------------------------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.36 $ 18.89 $ 42.28 $ 34.00 $ 26.11 $ 30.04
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11) (0.27)(a) (0.28) (0.58)(a) (0.42) (0.37)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.25 (2.26) (15.69) 12.14 9.04 (1.46)
=================================================================================================================================
Total from investment operations 0.14 (2.53) (15.97) 11.56 8.62 (1.83)
=================================================================================================================================
Less distributions from net realized
gains -- -- (7.42) (3.28) (0.73) (2.10)
=================================================================================================================================
Net asset value, end of period $ 16.50 $ 16.36 $ 18.89 $ 42.28 $ 34.00 $ 26.11
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.86% (13.39)% (43.49)% 35.51% 33.64% (5.86)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $598,861 $625,294 $818,343 $1,315,524 $589,718 $275,676
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers 2.02%(c) 1.96% 1.86% 1.85% 1.98% 1.98%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.03%(c) 1.97% 1.89% 1.88% 2.00% 2.00%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (1.38)%(c) (1.44)% (1.17)% (1.38)% (1.38)% (1.36)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 23% 57% 75% 88% 62% 76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$595,434,717.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-275
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.36 $ 18.88 $ 42.27 $ 33.99 $ 26.10 $ 29.18
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11) (0.27)(a) (0.29) (0.59)(a) (0.42) (0.37)(a)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.24 (2.25) (15.68) 12.15 9.04 (0.61)
========================================================================================================================
Total from investment operations 0.13 (2.52) (15.97) 11.56 8.62 (0.98)
========================================================================================================================
Less distributions from net realized
gains -- -- (7.42) (3.28) (0.73) (2.10)
========================================================================================================================
Net asset value, end of period $ 16.49 $ 16.36 $ 18.88 $ 42.27 $ 33.99 $ 26.10
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 0.80% (13.35)% (43.51)% 35.52% 33.65% (3.12)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $173,184 $184,393 $258,786 $434,544 $161,490 $76,522
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.02%(c) 1.96% 1.86% 1.85% 1.98% 1.97%
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.03%(c) 1.97% 1.89% 1.88% 2.00% 1.99%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.38)%(c) (1.44)% (1.17)% (1.38)% (1.38)% (1.35)%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(d) 23% 57% 75% 88% 62% 76%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$173,832,119.
(d) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
---------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
- --------------------------------------------------------------------------
Net asset value, beginning of period $17.26 $ 19.82
- --------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11) (0.07)(a)
- --------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.30 (2.49)
==========================================================================
Total from investment operations 0.19 (2.56)
==========================================================================
Net asset value, end of period $17.45 $ 17.26
__________________________________________________________________________
==========================================================================
Total return(b) 1.10% (12.92)%
__________________________________________________________________________
==========================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,448 $ 226
__________________________________________________________________________
==========================================================================
Ratio of expenses to average net assets:
With fee waivers 1.52%(c) 1.53%(d)
- --------------------------------------------------------------------------
Without fee waivers 1.53%(c) 1.54%(d)
__________________________________________________________________________
==========================================================================
Ratio of net investment income (loss) to
average net assets (0.88)%(c) (1.01)%(d)
__________________________________________________________________________
==========================================================================
Portfolio turnover rate(e) 23% 57%
__________________________________________________________________________
==========================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $559,184.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-276
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.40 $ 21.00 $ 45.55 $ 36.01 $ 27.25 $ 30.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.06)(a) 0.01 (0.09) (0.01) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.29 (2.54) (17.14) 12.91 9.50 (0.65)
=================================================================================================================================
Total from investment operations 0.28 (2.60) (17.13) 12.82 9.49 (0.65)
=================================================================================================================================
Less distributions from net realized
gains -- -- (7.42) (3.28) (0.73) (2.10)
=================================================================================================================================
Net asset value, end of period $ 18.68 $ 18.40 $ 21.00 $ 45.55 $ 36.01 $ 27.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.52% (12.38)% (42.80)% 37.14% 35.46% (1.85)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $127,551 $122,746 $150,609 $288,097 $244,369 $189,039
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 0.78%(c) 0.80% 0.65% 0.65% 0.64% 0.63%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 0.79%(c) 0.81% 0.68% 0.68% 0.66% 0.65%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.13)%(c) (0.28)% 0.03% (0.18)% (0.04)% (0.01)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 23% 57% 75% 88% 62% 76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$122,068,861.
(d) Not annualized for periods less than one year.
FS-277
AIM CORE STRATEGIES FUND
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS & OTHER
EQUITY INTERESTS--96.97%
AEROSPACE & DEFENSE--2.01%
Precision Castparts Corp. 150 $ 4,153
- --------------------------------------------------------------------------------
Rockwell Collins, Inc. 220 4,704
- --------------------------------------------------------------------------------
United Technologies Corp. 120 7,417
================================================================================
16,274
================================================================================
APPAREL RETAIL--1.07%
Abercrombie & Fitch Co.-Class A(a) 100 3,288
- --------------------------------------------------------------------------------
Gap, Inc. (The) 150 2,494
- --------------------------------------------------------------------------------
Talbots, Inc. (The) 100 2,865
================================================================================
8,647
================================================================================
APPAREL, ACCESSORIES & LUXURY GOODS--0.25%
Jones Apparel Group, Inc.(a) 70 1,996
================================================================================
APPLICATION SOFTWARE--0.32%
PeopleSoft, Inc.(a) 170 2,555
================================================================================
BANKS--7.83%
Bank of America Corp. 200 14,810
- --------------------------------------------------------------------------------
Bank One Corp. 200 7,210
- --------------------------------------------------------------------------------
Huntington Bancshares Inc. 460 8,952
- --------------------------------------------------------------------------------
IndyMac Bancorp, Inc. 80 1,782
- --------------------------------------------------------------------------------
National City Corp. 280 8,389
- --------------------------------------------------------------------------------
Synovus Financial Corp. 150 2,920
- --------------------------------------------------------------------------------
U.S. Bancorp. 380 8,417
- --------------------------------------------------------------------------------
Wachovia Corp. 130 4,967
- --------------------------------------------------------------------------------
Washington Mutual, Inc. 150 5,925
================================================================================
63,372
================================================================================
BIOTECHNOLOGY--1.25%
Amgen Inc.(a) 150 9,196
- --------------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 20 923
================================================================================
10,119
================================================================================
BROADCASTING & CABLE TV--0.77%
Clear Channel Communications, Inc.(a) 60 2,347
- --------------------------------------------------------------------------------
Comcast Corp.-Class A(a) 122 3,893
================================================================================
6,240
================================================================================
CASINOS & GAMBLING--0.25%
GTECH Holdings Corp.(a) 60 2,020
================================================================================
CATALOG RETAIL--0.33%
USA Interactive(a) 90 2,695
================================================================================
</Table>
FS-278
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------
COMPUTER & ELECTRONICS RETAIL--0.64%
Best Buy Co., Inc.(a) 150 $ 5,187
================================================================================
COMPUTER HARDWARE--4.13%
Dell Computer Corp.(a) 640 18,502
- --------------------------------------------------------------------------------
Hewlett-Packard Co. 290 4,727
- --------------------------------------------------------------------------------
International Business Machines Corp. 120 10,188
================================================================================
33,417
================================================================================
COMPUTER STORAGE & PERIPHERALS--0.24%
Storage Technology Corp.(a) 80 1,978
================================================================================
CONSUMER FINANCE--0.67%
Capital One Financial Corp. 130 5,443
================================================================================
DATA PROCESSING SERVICES--2.56%
CheckFree Corp.(a)(b) 250 6,893
- --------------------------------------------------------------------------------
First Data Corp. 180 7,061
- --------------------------------------------------------------------------------
Fiserv, Inc.(a) 50 1,472
- --------------------------------------------------------------------------------
Global Payments Inc. 110 3,411
- --------------------------------------------------------------------------------
Paychex, Inc. 60 1,868
================================================================================
20,705
================================================================================
DEPARTMENT STORES--0.42%
J.C. Penney Co., Inc. 200 3,412
================================================================================
DIVERSIFIED COMMERCIAL SERVICES--0.57%
Equifax Inc. 200 4,638
================================================================================
DIVERSIFIED FINANCIAL SERVICES--7.57%
American Express Co. 300 11,358
- --------------------------------------------------------------------------------
Bear Stearns Cos., Inc. (The) 40 2,674
- --------------------------------------------------------------------------------
Citigroup Inc. 510 20,018
- --------------------------------------------------------------------------------
Fannie Mae 165 11,944
- --------------------------------------------------------------------------------
Freddie Mac(b) 110 6,369
- --------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 130 5,337
- --------------------------------------------------------------------------------
Morgan Stanley 80 3,580
================================================================================
61,280
================================================================================
</Table>
FS-279
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------
DRUG RETAIL--0.36%
CVS Corp. 120 $ 2,905
================================================================================
ELECTRIC UTILITIES--2.22%
Entergy Corp. 120 5,593
- --------------------------------------------------------------------------------
Southern Co. (The) 425 12,363
================================================================================
17,956
================================================================================
ELECTRICAL COMPONENTS & EQUIPMENT--0.33%
American Power Conversion Corp.(a) 170 2,649
================================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.22%
PerkinElmer, Inc. 180 1,786
================================================================================
FOOD DISTRIBUTORS--0.46%
Sysco Corp. 130 3,735
================================================================================
FOOD RETAIL--0.49%
Kroger Co. (The)(a) 280 4,004
================================================================================
FOOTWEAR--0.27%
Reebok International Ltd.(a) 70 2,174
================================================================================
GENERAL MERCHANDISE STORES--2.30%
Wal-Mart Stores, Inc. 330 18,586
================================================================================
HEALTH CARE DISTRIBUTORS & SERVICES--1.52%
Cardinal Health, Inc. 60 3,317
- --------------------------------------------------------------------------------
Caremark Rx, Inc.(a) 120 2,389
- --------------------------------------------------------------------------------
Express Scripts, Inc.(a) 50 2,948
- --------------------------------------------------------------------------------
Pharmaceutical Product Development, Inc.(a) 70 1,832
- --------------------------------------------------------------------------------
Quintiles Transnational Corp.(a) 130 1,827
================================================================================
12,313
================================================================================
HEALTH CARE EQUIPMENT--1.56%
Becton, Dickinson & Co. 230 8,142
- --------------------------------------------------------------------------------
Cytyc Corp.(a) 190 2,508
- --------------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 70 2,017
================================================================================
12,667
================================================================================
HEALTH CARE SUPPLIES--0.22%
Bausch & Lomb Inc. 50 1,758
================================================================================
</Table>
FS-280
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------
HOME IMPROVEMENT RETAIL--1.53%
Home Depot, Inc. (The) 270 $ 7,595
- --------------------------------------------------------------------------------
Lowe's Cos., Inc. 110 4,828
================================================================================
12,423
================================================================================
HOUSEHOLD PRODUCTS--2.89%
Clorox Co. (The) 120 5,426
- --------------------------------------------------------------------------------
Procter & Gamble Co. (The) 200 17,970
================================================================================
23,396
================================================================================
INDUSTRIAL CONGLOMERATES--4.28%
General Electric Co. 960 28,272
- --------------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 410 6,396
================================================================================
34,668
================================================================================
INTEGRATED OIL & GAS--4.14%
Exxon Mobil Corp. 650 22,880
- --------------------------------------------------------------------------------
Occidental Petroleum Corp. 220 6,567
- --------------------------------------------------------------------------------
Royal Dutch Petroleum Co.-New York Shares
(Netherlands) 100 4,088
================================================================================
33,535
================================================================================
INTEGRATED TELECOMMUNICATION SERVICES--2.59%
BellSouth Corp. 65 1,657
- --------------------------------------------------------------------------------
SBC Communications Inc. 330 7,709
- --------------------------------------------------------------------------------
Verizon Communications Inc. 310 11,588
================================================================================
20,954
================================================================================
INTERNET SOFTWARE & SERVICES--0.31%
VeriSign, Inc.(a) 200 2,484
================================================================================
IT CONSULTING & SERVICES--0.29%
SunGard Data Systems Inc.(a) 110 2,365
================================================================================
LEISURE PRODUCTS--0.89%
Mattel, Inc. 330 7,174
================================================================================
LIFE & HEALTH INSURANCE--2.26%
AFLAC Inc. 250 8,178
- --------------------------------------------------------------------------------
John Hancock Financial Services, Inc. 110 3,192
- --------------------------------------------------------------------------------
MetLife, Inc. 240 6,895
================================================================================
18,265
================================================================================
</Table>
FS-281
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------
MANAGED HEALTH CARE--2.12%
Anthem, Inc.(a) 90 $ 6,178
- --------------------------------------------------------------------------------
UnitedHealth Group Inc. 70 6,449
- --------------------------------------------------------------------------------
WellPoint Health Networks Inc.(a) 60 4,556
================================================================================
17,183
================================================================================
METAL & GLASS CONTAINERS--0.86%
Pactiv Corp.(a) 340 6,977
================================================================================
MOVIES & ENTERTAINMENT--0.54%
AOL Time Warner Inc.(a) 130 1,778
- --------------------------------------------------------------------------------
Viacom Inc.-Class B(a) 60 2,605
================================================================================
4,383
================================================================================
MULTI-LINE INSURANCE--0.72%
American International Group, Inc. 100 5,795
================================================================================
MULTI-UTILITIES & UNREGULATED POWER--0.24%
SCANA Corp. 60 1,904
================================================================================
MUTUAL FUNDS--0.57%
S&P 500 Depositary Receipts Trust 50 4,596
================================================================================
NETWORKING EQUIPMENT--1.75%
Cisco Systems, Inc.(a) 940 14,138
================================================================================
OFFICE ELECTRONICS--0.48%
IKON Office Solutions, Inc. 500 3,880
================================================================================
OIL & GAS EQUIPMENT & SERVICES--0.80%
Halliburton Co. 240 5,138
- --------------------------------------------------------------------------------
Tidewater Inc. 50 1,345
================================================================================
6,483
================================================================================
OIL & GAS EXPLORATION & PRODUCTION--0.51%
XTO Energy, Inc. 213 4,154
================================================================================
PACKAGED FOODS & MEATS--1.52%
ConAgra Foods, Inc. 290 6,090
- --------------------------------------------------------------------------------
Sara Lee Corp. 370 6,209
================================================================================
12,299
================================================================================
</Table>
FS-282
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------
PAPER PACKAGING--0.32%
Sealed Air Corp.(a) 60 $ 2,571
================================================================================
PHARMACEUTICALS--10.39%
Abbott Laboratories 210 8,532
- --------------------------------------------------------------------------------
Johnson & Johnson 480 27,053
- --------------------------------------------------------------------------------
Lilly (Eli) & Co. 80 5,106
- --------------------------------------------------------------------------------
Merck & Co. Inc. 200 11,636
- --------------------------------------------------------------------------------
Pfizer Inc. 850 26,138
- --------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 120 3,488
- --------------------------------------------------------------------------------
Wyeth 50 2,177
================================================================================
84,130
================================================================================
PROPERTY & CASUALTY INSURANCE--0.73%
Allstate Corp. (The) 80 3,023
- --------------------------------------------------------------------------------
Travelers Property Casualty Corp.-Class B 180 2,925
================================================================================
5,948
================================================================================
REAL ESTATE INVESTMENT TRUSTS--0.15%
Host Marriott Corp.(a) 160 1,235
================================================================================
RESTAURANTS--0.86%
Brinker International, Inc.(a) 110 3,493
- --------------------------------------------------------------------------------
Yum! Brands, Inc.(a) 140 3,458
================================================================================
6,951
================================================================================
SEMICONDUCTORS--2.67%
Intel Corp. 700 12,880
- --------------------------------------------------------------------------------
Maxim Integrated Products, Inc. 50 1,965
- --------------------------------------------------------------------------------
NVIDIA Corp.(a) 120 1,712
- --------------------------------------------------------------------------------
QLogic Corp.(a) 60 2,639
- --------------------------------------------------------------------------------
Xilinx, Inc.(a) 90 2,436
================================================================================
21,632
================================================================================
SOFT DRINKS--2.78%
Coca-Cola Co. (The)(b) 160 6,464
- --------------------------------------------------------------------------------
Coca-Cola Enterprises, Inc. 70 1,364
- --------------------------------------------------------------------------------
Pepsi Bottling Group, Inc. (The) 210 4,313
- --------------------------------------------------------------------------------
PepsiCo, Inc. 240 10,387
================================================================================
22,528
================================================================================
SPECIALTY STORES--1.49%
AutoNation, Inc.(a) 120 1,662
- --------------------------------------------------------------------------------
Foot Locker, Inc. 150 1,650
- --------------------------------------------------------------------------------
PETCO Animal Supplies, Inc.(a) 100 2,113
- --------------------------------------------------------------------------------
Staples, Inc.(a) 350 6,664
================================================================================
12,089
================================================================================
</Table>
FS-283
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------
SYSTEMS SOFTWARE--4.87%
Microsoft Corp. 1,020 $ 26,081
- --------------------------------------------------------------------------------
Oracle Corp.(a) 750 8,910
- --------------------------------------------------------------------------------
Symantec Corp.(a) 50 2,198
- --------------------------------------------------------------------------------
VERITAS Software Corp.(a) 100 2,201
================================================================================
39,390
================================================================================
TELECOMMUNICATIONS EQUIPMENT--0.73%
Advanced Fibre Communications, Inc.(a) 180 2,754
- --------------------------------------------------------------------------------
QUALCOMM Inc. 100 3,189
================================================================================
5,943
================================================================================
TOBACCO--0.38%
Altria Group, Inc. 100 3,076
================================================================================
TRADING COMPANIES & DISTRIBUTORS--0.64%
MSC Industrial Direct Co., Inc.-Class A(a) 280 5,180
================================================================================
WIRELESS TELECOMMUNICATION SERVICES--0.84%
AT&T Wireless Services Inc.(a) 370 2,390
- --------------------------------------------------------------------------------
Nextel Communications, Inc.-Class A(a) 300 4,437
================================================================================
6,827
================================================================================
Total Common Stocks & Other Equity Interests
(Cost $820,959) 785,067
================================================================================
TOTAL INVESTMENTS--96.97% (Cost $820,959) 785,067
================================================================================
OTHER ASSETS LESS LIABILITIES--3.03% 24,498
================================================================================
NET ASSETS--100.00% $809,565
________________________________________________________________________________
================================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 1
section E and Note 8.
See Notes to Financial Statements.
FS-284
AIM CORE STRATEGIES FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2003
(UNAUDITED)
<Table>
ASSETS:
Investments, at market value (cost $820,959) $ 785,067
- ------------------------------------------------------------------------------
Cash 25,757
- ------------------------------------------------------------------------------
Receivables for:
Due from advisor 21,413
- ------------------------------------------------------------------------------
Dividends 839
- ------------------------------------------------------------------------------
Investment for deferred compensation plan 3,411
- ------------------------------------------------------------------------------
Other assets 106
==============================================================================
Total assets 836,593
______________________________________________________________________________
==============================================================================
LIABILITIES:
Payables for:
Options written (premiums received $218) 333
- ------------------------------------------------------------------------------
Deferred compensation plan 3,411
- ------------------------------------------------------------------------------
Accrued trustees' fees 688
- ------------------------------------------------------------------------------
Accrued transfer agent fees 11
- ------------------------------------------------------------------------------
Accrued operating expenses 22,585
==============================================================================
Total liabilities 27,028
==============================================================================
Net assets applicable to shares outstanding $ 809,565
______________________________________________________________________________
==============================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 998,957
- ------------------------------------------------------------------------------
Undistributed net investment income (loss) (3,375)
- ------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities
and option contracts (150,011)
- ------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment securities
and option contracts (36,006)
==============================================================================
$ 809,565
______________________________________________________________________________
==============================================================================
NET ASSETS:
Class A $ 323,825
______________________________________________________________________________
==============================================================================
Class B $ 242,870
______________________________________________________________________________
==============================================================================
Class C $ 242,870
______________________________________________________________________________
==============================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 40,723
______________________________________________________________________________
==============================================================================
Class B 30,542
______________________________________________________________________________
==============================================================================
Class C 30,542
______________________________________________________________________________
==============================================================================
Class A:
Net asset value per share $ 7.95
- ------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $7.95 divided by 94.50%) $ 8.41
______________________________________________________________________________
==============================================================================
Class B:
Net asset value and offering price per share $ 7.95
______________________________________________________________________________
==============================================================================
Class C:
Net asset value and offering price per share $ 7.95
______________________________________________________________________________
==============================================================================
</Table>
See Notes to Financial Statements.
FS-285
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2003
(UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $27) $ 5,735
==============================================================================
EXPENSES:
Advisory fees 2,916
- ------------------------------------------------------------------------------
Administrative services fees 24,795
- ------------------------------------------------------------------------------
Custodian fees 2,074
- ------------------------------------------------------------------------------
Distribution fees--Class A 544
- ------------------------------------------------------------------------------
Distribution fees--Class B 1,167
- ------------------------------------------------------------------------------
Distribution fees--Class C 1,167
- ------------------------------------------------------------------------------
Transfer agent fees 59
- ------------------------------------------------------------------------------
Trustees' fees 4,034
- ------------------------------------------------------------------------------
Printing 9,675
- ------------------------------------------------------------------------------
Professional fees 10,024
- ------------------------------------------------------------------------------
Other 1,146
==============================================================================
Total expenses 57,601
==============================================================================
Less: Fees waived, expenses reimbursed and expenses paid indirectly (50,798
==============================================================================
Net expenses 6,803
==============================================================================
Net investment income (loss) (1,068)
______________________________________________________________________________
==============================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (50,959)
- ------------------------------------------------------------------------------
Option contracts written 1,422
- ------------------------------------------------------------------------------
(49,537)
- ------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 61,135
- ------------------------------------------------------------------------------
Option contracts written (191)
==============================================================================
60,944
==============================================================================
Net gain from investment securities and option contracts 11,407
==============================================================================
Net increase in net assets resulting from operations $ 10,339
______________________________________________________________________________
==============================================================================
</Table>
See Notes to Financial Statements.
FS-286
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 2003 AND THE PERIOD DECEMBER 31, 2001
(DATE OPERATIONS COMMENCED) TO OCTOBER 31, 2002
(UNAUDITED)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
----------- -----------
OPERATIONS:
Net investment income (loss) $ (1,068) $ (3,380)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
option contracts (49,537) (100,474)
- ------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and option contracts 60,944 (96,950)
======================================================================================================
Net increase (decrease) in net assets resulting from operations 10,339 (200,804)
======================================================================================================
Distributions to shareholders from net investment income:
Class A (5,600) --
- ------------------------------------------------------------------------------------------------------
Class B (4,200) --
- ------------------------------------------------------------------------------------------------------
Class C (4,200) --
======================================================================================================
Net increase (decrease) in net assets resulting from distributions (14,000) --
======================================================================================================
Share transactions-net:
Class A 5,600 400,010
- ------------------------------------------------------------------------------------------------------
Class B 4,200 300,010
- ------------------------------------------------------------------------------------------------------
Class C 4,200 300,010
======================================================================================================
Net increase in net assets resulting from share transactions 14,000 1,000,030
======================================================================================================
Net increase in net assets 10,339 799,226
======================================================================================================
NET ASSETS:
Beginning of period 799,226 --
======================================================================================================
End of period $ 809,565 $ 799,226
______________________________________________________________________________________________________
======================================================================================================
</Table>
See Notes to Financial Statements.
FS-287
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Core Strategies Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
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 to provide long-term growth of capital.
Each company listed in the Schedule of Investments is organized in the United
States unless otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS - Securities, including restricted securities, are valued
according to the following policy. A security listed or traded on an exchange
(except convertible bonds) is valued at its last sales price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales on a particular day, the security is
valued at the closing bid price on that day. Each security traded in the
over-the-counter market (but not securities reported on the NASDAQ National
Market System) is valued at the basis of prices furnished by independent
pricing services or market makers. Each security reported on the NASDAQ
National Market System is valued at the NASDAQ Official Closing Price
("NOCP") as of the close of the customary trading session on the valuation
date or absent a NOCP, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate, yield,
quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices are
not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in the
case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market quotations
are not readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Trust's officers
in a manner specifically authorized by the Board of Trustees. Short-term
obligations having 60 days or less to maturity and commercial paper are
valued at amortized cost which approximates market value. For purposes of
determining net asset value per share, futures and option contracts generally
will be valued 15 minutes after the close of the customary trading session of
the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the close
of the customary trading session of the NYSE which would not be reflected in
the computation of the Fund's net asset value. If a development/event is so
significant that there is a reasonably high degree of certainty as to both
the effect and the degree of effect that the development/event has actually
caused that closing price to no longer reflect actual value, the closing
prices, as determined at the close of the applicable foreign market, may be
adjusted to reflect the fair value of the affected foreign securities as of
the close of the NYSE as determined in good faith by or under the supervision
of the Board of Trustees.
FS-288
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. Premiums and discounts
are amortized and/or accreted for financial reporting purposes.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS - Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. FEDERAL INCOME TAXES - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
E. COVERED CALL OPTIONS - The Fund may write call options, on a covered basis;
that is, the Fund will own the underlying security. When the Fund writes a
covered call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the liability
is subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the mean
between the last bid and asked prices on that day. If a written call option
expires on the stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or a loss if the
closing purchase transaction exceeds the premium received when the option was
written) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. If a
written option is exercised, the Fund realizes a gain or a loss from the sale
of the underlying security and the proceeds of the sale are increased by the
premium originally received. A risk in writing a call option is that the Fund
gives up the opportunity for profit if the market price of the security
increases and the option is exercised.
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. Transfer agency fees and expenses and other
shareholder recordkeeping fees and expenses are charged to each class
pursuant to a transfer agency and service agreement adopted by the Fund with
respect to such class. All other expenses are allocated among the classes
based on relative net assets.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $1
billion of the Fund's average daily net assets, plus 0.70% of the Fund's next $1
billion of average daily net assets, plus 0.625% of the Fund's average daily
nest assets in excess of $2 billion. AIM has voluntarily agreed to waive fees
and/or reimburse expenses (excluding interest, taxes, dividends on short sales,
extraordinary items and increases in expenses due to expense offset
arrangements, if any) for Class A, Class B and Class C shares to the extent
necessary to limit the total annual fund operating expenses of Class A shares to
1.75%. Voluntary expense limitations may be rescinded, terminated or modified at
any time without further notice to investors. During periods of voluntary
waivers or reimbursements to the extent the annualized expense ratio does not
exceed the voluntary limit for the period committed, AIM will retain its ability
to be reimbursed for such fee waivers or reimbursements prior to the end of each
fiscal year. Further, AIM has voluntarily agreed to waive advisory fees of the
Fund in the amount of 25% of the advisory fee AIM receives from the affiliated
money market funds in which the Fund has invested (excluding investments made in
affiliated money market funds with cash collateral from securities loaned by the
Fund). For the six months ended April 30, 2003, AIM waived fees of $2,916 and
reimbursed fees of $44,840.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2003, AIM
was paid $24,795 for such services.
FS-289
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 2003,
AFS retained $30 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and Class C shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B or Class C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. NASD
Rules also impose a cap on the total amount of sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
AIM Distributors has voluntarily agreed to waive all fees during the time the
shares are not available for sale. This waiver may be rescinded, terminated or
modified at any time. AIM Distributors has voluntarily agreed to waive all fees
during the time the shares are not available for sale. This waiver may be
terminated or modified at any time. For the six months ended April 30, 2003, the
Class A, Class B and Class C shares paid $0, $0 and $0, respectively, and AIM
Distributors waived fees of $2,878.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and/or AIM Distributors.
During the six months ended April 30, 2003, the Fund paid legal fees of
$1,241 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3 - INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $5 and reductions in
custodian fees of $159 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $164.
NOTE 4 - TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5 - BORROWINGS
AIM has established an interfund lending facility 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. The Fund did not borrow or lend under the
facility during the six months ended April 30, 2003.
NOTE 6 - TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of any
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
FS-290
<Table>
<Caption>
CAPITAL
EXPIRATION LOSS CARRYFORWARD
---------- -----------------
October 31, 2010 $ 100,474
________________________________________________________________________________
================================================================================
</Table>
NOTE 7 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $267,827 and $271,675, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of investment securities $ 46,948
- --------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (82,840)
================================================================================
Net unrealized appreciation (depreciation) of investment securities $ (35,892)
________________________________________________________________________________
================================================================================
Investments have the same cost for tax and financial statement purposes.
</Table>
NOTE 8 - CALL OPTION CONTRACTS WRITTEN
Transactions in call options written during the six months ended April 30, 2003
are summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
Beginning of period 10 $ 405
- --------------------------------------------------------------------------------
Written 34 1,638
- --------------------------------------------------------------------------------
Closed (12) (574)
- --------------------------------------------------------------------------------
Exercised (2) (56)
- --------------------------------------------------------------------------------
Expired (27) (1,195)
================================================================================
End of period 3 $ 218
________________________________________________________________________________
================================================================================
</Table>
FS-291
Open call options written at April 30, 2003 were as follows:
<Table>
<Caption>
APRIL 30, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS 2003 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
----- -------- ------ --------- -------- ------------ --------------
CheckFree Corp. May-03 $25 1 $122 $278 $(156)
-----------------------------------------------------------------------------------------------
Coca-Cola Co. (The) May-03 45 1 28 5 23
-----------------------------------------------------------------------------------------------
Freddie Mac May-03 60 1 68 50 18
===============================================================================================
3 $218 $333 $(115)
_______________________________________________________________________________________________
===============================================================================================
</Table>
NOTE 9 - SHARE INFORMATION
The Fund consists of three different classes of shares that are not currently
available for sale: Class A shares, Class B shares and Class C shares. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge ("CDSC"). Under some
circumstances, Class A shares are subject to CDSCs. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase. Changes in shares outstanding during the six months
ended April 30, 2003 and the period December 31, 2001 (date operations
commenced) through October 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED DECEMBER 31, 2001 (DATE
APRIL 30, OPERATIONS COMMENCED) TO
2003 OCTOBER 31, 2002
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ----------
Sold:
Class A* -- $ -- 40,001 $ 400,010
-----------------------------------------------------------------------------------------------------------
Class B* -- -- 30,001 300,010
-----------------------------------------------------------------------------------------------------------
Class C* -- -- 30,001 300,010
-----------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A* 722 5,600 -- --
-----------------------------------------------------------------------------------------------------------
Class B* 541 4,200 -- --
-----------------------------------------------------------------------------------------------------------
Class C* 541 4,200 -- --
===========================================================================================================
1,804 $ 14,000 100,003 $1,000,030
___________________________________________________________________________________________________________
===========================================================================================================
</Table>
* Currently, all shares are owned by AIM.
FS-292
NOTE 10 - FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period indicated.
<Table>
<Caption>
CLASS A
------------------------------------------
SIX MONTHS DECEMBER 31, 2001 (DATE
ENDED OPERATIONS COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
----------- ------------------------
Net asset value, beginning of period $ 7.99 $10.00
---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.03)
---------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.11 (1.98)
===============================================================================================================
Total from investment operations 0.10 (2.01)
===============================================================================================================
Less distributions from net investment income (0.14) --
===============================================================================================================
Net asset value, end of period $ 7.95 $7.99
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(a) 1.29% (20.10)%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 324 $ 320
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.79% (b) 1.82%(c)
---------------------------------------------------------------------------------------------------------------
Without fee waivers 14.42% (b) 13.71%(c)
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of net investment income (loss) to average net assets (0.27)(b) (0.45)(c)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(d) 35% 42%
_______________________________________________________________________________________________________________
===============================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $313,648.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-293
NOTE 10 - FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------
SIX MONTHS DECEMBER 31, 2001 (DATE
ENDED OPERATIONS COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
---------- -----------------------
Net asset value, beginning of period $ 7.99 $10.00
-------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.03)
-------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.11 (1.98)
===================================================================================================================
Total from investment operations 0.10 (2.01)
===================================================================================================================
Less distributions from net investment income (0.14) --
===================================================================================================================
Net asset value, end of period $ 7.95 $ 7.99
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(a) 1.29% (20.10)%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 243 $ 240
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.79%(b) 1.82%(c)
-------------------------------------------------------------------------------------------------------------------
Without fee waivers 15.07%(b) 14.36%(c)
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of net investment income (loss) to average net assets (0.27)%(b) (0.45)%(c)
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate(d) 35% 42%
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $235,238.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-294
NOTE 10 - FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------
SIX MONTHS DECEMBER 31, 2001 (DATE
ENDED OPERATIONS COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
---------- ------------------------
Net asset value, beginning of period $ 7.99 $10.00
-------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.03)
-------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.11 (1.98)
===================================================================================================================
Total from investment operations 0.10 (2.01)
===================================================================================================================
Less distributions from net investment income (0.14) --
===================================================================================================================
Net asset value, end of period $ 7.95 $7.99
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(a) 1.29% (20.10)%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 243 $ 240
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.79% b) 1.82%(c)
-------------------------------------------------------------------------------------------------------------------
Without fee waivers 15.07%(b) 14.36%(c)
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of net investment income (loss) to average net assets (0.27)%(b) (0.45)%(c)
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate(d) 35% 42%
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $235,238.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-295
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.31%
AIRLINES-0.39%
Ryanair Holdings PLC-ADR (Ireland)(a) 47,000 $ 1,864,490
========================================================================
APPAREL RETAIL-1.83%
Abercrombie & Fitch Co.-Class A(a) 60,000 1,972,800
- ------------------------------------------------------------------------
Gap, Inc. (The) 400,000 6,652,000
========================================================================
8,624,800
========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.88%
Coach, Inc.(a) 95,000 4,133,450
========================================================================
APPLICATION SOFTWARE-2.32%
Amdocs Ltd. (United Kingdom)(a) 135,000 2,384,100
- ------------------------------------------------------------------------
Electronic Arts Inc.(a)(b) 70,000 4,148,900
- ------------------------------------------------------------------------
Mercury Interactive Corp.(a) 130,000 4,412,200
========================================================================
10,945,200
========================================================================
BANKS-2.41%
Bank of America Corp. 95,500 7,071,775
- ------------------------------------------------------------------------
Golden West Financial Corp. 26,000 1,960,920
- ------------------------------------------------------------------------
Wachovia Corp. 62,000 2,369,020
========================================================================
11,401,715
========================================================================
BIOTECHNOLOGY-4.24%
Amgen Inc.(a) 195,000 11,955,450
- ------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 175,000 8,074,500
========================================================================
20,029,950
========================================================================
BREWERS-0.92%
Anheuser-Busch Cos., Inc. 87,500 4,364,500
========================================================================
BROADCASTING & CABLE TV-1.26%
Clear Channel Communications, Inc.(a) 67,500 2,639,925
- ------------------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 100,000 3,310,000
========================================================================
5,949,925
========================================================================
COMPUTER & ELECTRONICS RETAIL-0.81%
Best Buy Co., Inc.(a) 110,000 3,803,800
========================================================================
COMPUTER HARDWARE-3.73%
Dell Computer Corp.(a) 300,000 8,673,000
- ------------------------------------------------------------------------
Hewlett-Packard Co. 210,000 3,423,000
- ------------------------------------------------------------------------
International Business Machines Corp. 65,000 5,518,500
========================================================================
17,614,500
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-0.80%
EMC Corp.(a) 415,000 3,772,350
========================================================================
CONSUMER FINANCE-0.76%
Doral Financial Corp. (Puerto Rico) 90,000 $ 3,600,900
========================================================================
DATA PROCESSING SERVICES-1.68%
Fiserv, Inc.(a) 110,000 3,238,400
- ------------------------------------------------------------------------
Paychex, Inc. 150,000 4,671,000
========================================================================
7,909,400
========================================================================
DEPARTMENT STORES-0.54%
Kohl's Corp.(a) 44,700 2,538,960
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.98%
Apollo Group, Inc.-Class A(a) 45,000 2,438,955
- ------------------------------------------------------------------------
Career Education Corp.(a) 36,000 2,164,680
========================================================================
4,603,635
========================================================================
DIVERSIFIED FINANCIAL SERVICES-9.42%
American Express Co. 110,000 4,164,600
- ------------------------------------------------------------------------
Citigroup Inc. 300,000 11,775,000
- ------------------------------------------------------------------------
Fannie Mae 35,000 2,533,650
- ------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 150,000 11,385,000
- ------------------------------------------------------------------------
J.P. Morgan Chase & Co. 265,000 7,777,750
- ------------------------------------------------------------------------
Janus Capital Group Inc. 225,000 3,127,500
- ------------------------------------------------------------------------
SLM Corp. 33,000 3,696,000
========================================================================
44,459,500
========================================================================
EMPLOYMENT SERVICES-1.26%
Hewitt Associates, Inc.-Class A(a) 85,000 2,355,350
- ------------------------------------------------------------------------
Robert Half International Inc.(a) 220,000 3,581,600
========================================================================
5,936,950
========================================================================
FOOD RETAIL-0.80%
Whole Foods Market, Inc.(a)(b) 64,000 3,799,040
========================================================================
FOOTWEAR-0.57%
NIKE, Inc.-Class B 50,000 2,676,500
========================================================================
GENERAL MERCHANDISE STORES-0.72%
Family Dollar Stores, Inc. 100,000 3,419,000
========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-2.39%
AdvancePCS(a) 100,000 3,006,000
- ------------------------------------------------------------------------
Caremark Rx, Inc.(a) 230,000 4,579,300
- ------------------------------------------------------------------------
Omnicare, Inc. 140,000 3,712,800
========================================================================
11,298,100
========================================================================
</Table>
FS-296
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-3.86%
Boston Scientific Corp.(a) 145,000 $ 6,242,250
- ------------------------------------------------------------------------
Medtronic, Inc. 115,000 5,490,100
- ------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 55,000 2,962,300
- ------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 75,000 3,517,500
========================================================================
18,212,150
========================================================================
HEALTH CARE SUPPLIES-1.35%
Alcon, Inc. (Switzerland)(a) 60,000 2,643,000
- ------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 130,000 3,745,300
========================================================================
6,388,300
========================================================================
HOTELS, RESORTS & CRUISE LINES-0.74%
Starwood Hotels & Resorts Worldwide, Inc. 130,000 3,489,200
========================================================================
HOUSEHOLD PRODUCTS-1.52%
Procter & Gamble Co. (The) 80,000 7,188,000
========================================================================
INSURANCE BROKERS-0.79%
Willis Group Holdings Ltd. (Bermuda) 120,000 3,742,800
========================================================================
INTERNET RETAIL-2.64%
Amazon.com, Inc.(a) 225,000 6,450,750
- ------------------------------------------------------------------------
eBay Inc.(a) 65,000 6,030,050
========================================================================
12,480,800
========================================================================
INTERNET SOFTWARE & SERVICES-1.31%
Yahoo! Inc.(a) 250,000 6,195,000
========================================================================
IT CONSULTING & SERVICES-1.77%
Accenture Ltd.-Class A (Bermuda)(a) 225,000 3,604,500
- ------------------------------------------------------------------------
Affiliated Computer Services, Inc.-Class A(a) 100,000 4,770,000
========================================================================
8,374,500
========================================================================
MANAGED HEALTH CARE-1.80%
Aetna Inc. 92,500 4,606,500
- ------------------------------------------------------------------------
UnitedHealth Group Inc. 42,000 3,869,460
========================================================================
8,475,960
========================================================================
MOTORCYCLE MANUFACTURERS-0.61%
Harley-Davidson, Inc. 65,000 2,888,600
========================================================================
MOVIES & ENTERTAINMENT-0.92%
Viacom Inc.-Class B(a) 100,500 4,362,705
========================================================================
MULTI-LINE INSURANCE-0.79%
HCC Insurance Holdings, Inc. 135,000 3,712,500
========================================================================
NETWORKING EQUIPMENT-4.53%
Cisco Systems, Inc.(a) 570,000 8,572,800
- ------------------------------------------------------------------------
Foundry Networks, Inc.(a) 200,000 2,176,000
- ------------------------------------------------------------------------
Juniper Networks, Inc.(a) 235,000 2,401,700
- ------------------------------------------------------------------------
McDATA Corp.-Class A(a) 340,000 $ 3,597,200
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
NETWORKING EQUIPMENT-(CONTINUED)
NetScreen Technologies, Inc.(a) 230,000 4,664,400
========================================================================
21,412,100
========================================================================
PERSONAL PRODUCTS-0.52%
Estee Lauder Cos. Inc. (The)-Class A 75,000 2,437,500
========================================================================
PHARMACEUTICALS-8.65%
Allergan, Inc. 60,000 4,215,000
- ------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 70,000 3,620,400
- ------------------------------------------------------------------------
Johnson & Johnson 85,000 4,790,600
- ------------------------------------------------------------------------
Lilly (Eli) & Co. 43,000 2,744,260
- ------------------------------------------------------------------------
Pfizer Inc. 435,000 13,376,250
- ------------------------------------------------------------------------
Taro Pharmaceutical Industries Ltd.
(Israel)(a) 61,000 2,791,360
- ------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 115,000 5,370,500
- ------------------------------------------------------------------------
Wyeth 90,000 3,917,700
========================================================================
40,826,070
========================================================================
PROPERTY & CASUALTY INSURANCE-0.85%
Progressive Corp. (The) 30,000 2,040,000
- ------------------------------------------------------------------------
Radian Group Inc. 50,000 1,985,000
========================================================================
4,025,000
========================================================================
PUBLISHING-0.72%
Getty Images, Inc.(a) 100,000 3,385,000
========================================================================
RESTAURANTS-1.07%
Brinker International, Inc.(a) 90,000 2,857,500
- ------------------------------------------------------------------------
Starbucks Corp.(a) 94,000 2,208,060
========================================================================
5,065,560
========================================================================
SEMICONDUCTOR EQUIPMENT-3.99%
Applied Materials, Inc.(a) 160,000 2,336,000
- ------------------------------------------------------------------------
Entegris Inc.(a) 450,000 5,161,500
- ------------------------------------------------------------------------
Lam Research Corp.(a) 275,000 3,995,750
- ------------------------------------------------------------------------
Novellus Systems, Inc.(a) 262,500 7,360,500
========================================================================
18,853,750
========================================================================
SEMICONDUCTORS-6.37%
Analog Devices, Inc.(a) 215,000 7,120,800
- ------------------------------------------------------------------------
Broadcom Corp.-Class A(a) 200,000 3,578,000
- ------------------------------------------------------------------------
Linear Technology Corp. 182,700 6,297,669
- ------------------------------------------------------------------------
National Semiconductor Corp.(a) 150,000 2,809,500
- ------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan)(a) 620,000 5,189,400
- ------------------------------------------------------------------------
Xilinx, Inc.(a) 187,500 5,075,625
========================================================================
30,070,994
========================================================================
SOFT DRINKS-0.81%
PepsiCo, Inc. 88,000 3,808,640
========================================================================
</Table>
FS-297
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
SPECIALTY STORES-2.00%
Advance Auto Parts, Inc.(a) 57,000 $ 2,835,180
- ------------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 100,000 3,951,000
- ------------------------------------------------------------------------
Staples, Inc.(a) 140,000 2,665,600
========================================================================
9,451,780
========================================================================
SYSTEMS SOFTWARE-6.79%
Microsoft Corp. 540,000 13,807,800
- ------------------------------------------------------------------------
Oracle Corp.(a) 800,000 9,504,000
- ------------------------------------------------------------------------
Symantec Corp.(a) 84,000 3,691,800
- ------------------------------------------------------------------------
VERITAS Software Corp.(a) 229,400 5,049,094
========================================================================
32,052,694
========================================================================
TELECOMMUNICATIONS EQUIPMENT-1.34%
Nortel Networks Corp. (Canada)(a) 1,405,000 3,624,900
- ------------------------------------------------------------------------
QUALCOMM Inc. 85,000 2,710,650
========================================================================
6,335,550
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.86%
AT&T Wireless Services Inc.(a) 700,000 4,522,000
- ------------------------------------------------------------------------
Vodafone Group PLC-ADR (United Kingdom) 215,000 $ 4,248,400
========================================================================
8,770,400
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $402,011,631) 454,752,218
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
MONEY MARKET FUNDS-3.82%
STIC Liquid Assets Portfolio(c) 9,021,498 9,021,498
- ------------------------------------------------------------------------
STIC Prime Portfolio(c) 9,021,498 9,021,498
========================================================================
Total Money Market Funds (Cost
$18,042,996) 18,042,996
========================================================================
TOTAL INVESTMENTS -- 100.13% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $420,054,627) 472,795,214
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.44%
STIC Liquid Assets Portfolio(c)(d) 6,804,400 6,804,400
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $6,804,400) 6,804,400
========================================================================
TOTAL INVESTMENTS-101.57% (Cost $426,859,027) 479,599,614
========================================================================
OTHER ASSETS LESS LIABILITIES-(1.57)% (7,402,402)
========================================================================
NET ASSETS-100.00% $472,197,212
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 1
section H and Note 7.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor.
(d) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned.
See Notes to Financial Statements.
FS-298
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$426,859,027)* $ 479,599,614
- ------------------------------------------------------------
Foreign currencies, at value (cost $192) 198
- ------------------------------------------------------------
Receivables for:
Investments sold 9,912,260
- ------------------------------------------------------------
Fund shares sold 734,338
- ------------------------------------------------------------
Dividends 125,921
- ------------------------------------------------------------
Due from advisor - See Note 2 58,910
- ------------------------------------------------------------
Investment for deferred compensation plan 23,807
- ------------------------------------------------------------
Other assets 26,085
============================================================
Total assets 490,481,133
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 9,139,312
- ------------------------------------------------------------
Fund shares reacquired 802,661
- ------------------------------------------------------------
Options written (premiums received
$122,156) 321,750
- ------------------------------------------------------------
Deferred compensation plan 23,807
- ------------------------------------------------------------
Collateral upon return of securities
loaned 6,804,400
- ------------------------------------------------------------
Accrued distribution fees 397,893
- ------------------------------------------------------------
Accrued trustees' fees 940
- ------------------------------------------------------------
Accrued transfer agent fees 614,816
- ------------------------------------------------------------
Accrued operating expenses 178,342
============================================================
Total liabilities 18,283,921
============================================================
Net assets applicable to shares outstanding $ 472,197,212
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,358,132,963
- ------------------------------------------------------------
Undistributed net investment income (loss) (4,067,677)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (934,409,073)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 52,540,999
============================================================
$ 472,197,212
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 177,556,971
____________________________________________________________
============================================================
Class B $ 212,137,221
____________________________________________________________
============================================================
Class C $ 82,503,020
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 28,021,630
____________________________________________________________
============================================================
Class B 34,347,258
____________________________________________________________
============================================================
Class C 13,359,474
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 6.34
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $6.34 divided by
94.50%) $ 6.71
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 6.18
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 6.18
____________________________________________________________
============================================================
</Table>
* At April 30, 2003, securities with an aggregate market value of $6,517,160
were on loan to brokers.
See Notes to Financial Statements.
FS-299
STATEMENT OF OPERATIONS
For the six months ended April 30, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $26,350) $ 1,754,986
- --------------------------------------------------------------------------
Dividends from affiliated money market funds 105,591
- --------------------------------------------------------------------------
Interest 12,440
- --------------------------------------------------------------------------
Security lending income 12,837
==========================================================================
Total investment income 1,885,854
==========================================================================
EXPENSES:
Advisory fees 1,996,702
- --------------------------------------------------------------------------
Administrative services fees 61,435
- --------------------------------------------------------------------------
Custodian fees 39,880
- --------------------------------------------------------------------------
Distribution fees -- Class A 310,025
- --------------------------------------------------------------------------
Distribution fees -- Class B 1,051,647
- --------------------------------------------------------------------------
Distribution fees -- Class C 411,628
- --------------------------------------------------------------------------
Transfer agent fees 1,899,090
- --------------------------------------------------------------------------
Trustees' fees 5,408
- --------------------------------------------------------------------------
Other 205,767
==========================================================================
Total expenses 5,981,582
==========================================================================
Less: Fees waived, expenses reimbursed and expenses paid
indirectly (64,864)
==========================================================================
Net expenses 5,916,718
==========================================================================
Net investment income (loss) (4,030,864)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (31,006,987)
- --------------------------------------------------------------------------
Foreign currencies (899)
- --------------------------------------------------------------------------
Option contracts written (79,985)
==========================================================================
(31,087,871)
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 58,891,670
- --------------------------------------------------------------------------
Foreign currencies 18,847
- --------------------------------------------------------------------------
Option contracts written (207,866)
==========================================================================
58,702,651
==========================================================================
Net gain from investment securities, foreign currencies and
option contracts 27,614,780
==========================================================================
Net increase in net assets resulting from operations $ 23,583,916
__________________________________________________________________________
==========================================================================
</Table>
See Notes to Financial Statements.
FS-300
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2003 and the year ended October 31, 2002
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (4,030,864) $ (12,825,259)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts (31,087,871) (202,713,132)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and option contracts 58,702,651 63,144,429
==============================================================================================
Net increase (decrease) in net assets resulting from
operations 23,583,916 (152,393,962)
==============================================================================================
Share transactions-net:
Class A (21,886,491) (64,886,914)
- ----------------------------------------------------------------------------------------------
Class B (21,899,531) (75,460,458)
- ----------------------------------------------------------------------------------------------
Class C (9,456,374) (35,199,684)
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (53,242,396) (175,547,056)
==============================================================================================
Net increase (decrease) in net assets (29,658,480) (327,941,018)
==============================================================================================
NET ASSETS:
Beginning of period 501,855,692 829,796,710
==============================================================================================
End of period $ 472,197,212 $ 501,855,692
______________________________________________________________________________________________
==============================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Dent Demographic Trends Fund (the "Fund") is a series portfolio of AIM
Equity Funds (the "Trust"). The Trust is a Delaware statutory trust registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of fifteen separate
portfolios, each having an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States unless
otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of
FS-301
determining net asset value per share, futures and option contracts
generally will be valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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 are included with the
net realized and unrealized gain or loss from investments in the Statement
of Operations.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks also include to
varying degrees, the risk of loss in excess of the variation margin
disclosed in the Statement of Assets and Liabilities.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At
FS-302
the same time, because the maximum the Fund has at risk is the cost of the
option, purchasing put options does not eliminate the potential for the
Fund to profit from an increase in the value of the securities hedged. A
risk in buying an option is that the Fund pays a premium whether or not the
option is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
J. 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. Transfer agency fees and expenses
and other shareholder recordkeeping fees and expenses are charged to each
class pursuant to a transfer agency and service agreement adopted by the
Fund with respect to such class. All other expenses are allocated among the
classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). H.S. Dent Advisors, Inc. ("H.S. Dent") is the Fund's
subadvisor. Under the terms of the master investment advisory agreement, the
Fund pays an advisory fee to AIM at the annual rate of 0.85% of the first $2
billion of the Fund's average daily net assets, plus 0.80% of the Fund's average
daily net assets exceeding $2 billion. Under the terms of a subadvisory
agreement between AIM and H.S. Dent, AIM pays H.S. Dent at the annual rate of
0.13% of the first $1 billion of the Fund's average daily net assets, plus 0.10%
of the next $1 billion of the Fund's average daily net assets, plus 0.07% of the
Fund's average daily net assets exceeding $2 billion. AIM has voluntarily agreed
to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds in which the Fund has invested
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the Fund). For the six months ended April
30, 2003, AIM waived fees of $2,192. Under an agreement to limit the aggregate
costs of certain shareholder services provided by third party administrators, a
receivable of $58,910 has been recorded for the estimated amount which AIM
reimbursed to the Fund on June 27, 2003.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2003, AIM
was paid $61,435 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 2003,
AFS retained $998,491 for such services.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and Class C shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B or Class C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. NASD
Rules also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the six months ended April 30, 2003, the Class A, Class B and Class C
shares paid $310,025, $1,051,647 and $411,628, respectively.
Front-end sales commissions and contingent deferred sales charges
(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. Contingent deferred
sales charges ("CDSCs") are deducted from redemption proceeds prior to
remittance to the shareholder. During six months ended April 30, 2003, AIM
Distributors retained $35,941 in front-end sales commissions from the sale of
Class A shares and $0, $38 and $2,323 for Class A, Class B and Class C shares,
respectively, for CDSCs imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended April 30, 2003, the Fund paid legal fees of
$1,733 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $3,762 under an expense
offset arrangement which resulted in a reduction of the Fund's total expenses of
$3,762.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
AIM has established an interfund lending facility 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.
During the reporting period, the Fund was a participant in a committed line
of credit facility with a syndicate administered by Citibank, N.A. The Fund
could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the line of credit could borrow on a first come, first served basis.
The funds which were party to the line of credit were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net
FS-303
assets for the period. The committed line of credit facility expired May 20,
2003.
During the six months ended April 30, 2003, the Fund did not borrow under
the interfund lending or the committed line of credit facility.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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
may be temporarily less than the value of the securities on loan.
At April 30, 2003, securities with an aggregate value of $6,517,160 were on
loan to brokers. The loans were secured by cash collateral of $6,804,400
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended April 30, 2003, the Fund received fees of $12,837
for securities lending.
NOTE 7--CALL OPTION CONTRACTS WRITTEN
Transactions in call options written during the six months ended April 30, 2003
are summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------
Beginning of period 275 $ 69,460
- -------------------------------------------------------------------------------
Written 17,276 2,422,932
- -------------------------------------------------------------------------------
Closed (16,661) (2,370,236)
===============================================================================
End of period 890 $ 122,156
_______________________________________________________________________________
===============================================================================
</Table>
Open call options written at April 30, 2003 were as follows:
<Table>
<Caption>
APRIL 30,
NUMBER 2003 UNREALIZED
CONTRACT STRIKE OF PREMIUMS MARKET APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- ---------------------------------------------------------------------------------
Electronic
Arts Inc. Sep-03 $70 250 $ 50,478 $ 33,750 $ 16,728
- ---------------------------------------------------------------------------------
Whole
Foods
Market,
Inc. May-03 55 640 71,678 288,000 (216,322)
=================================================================================
890 $122,156 $321,750 $(199,594)
_________________________________________________________________________________
=================================================================================
</Table>
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- --------------------------------------------------------------------------------
October 31, 2007 $ 3,389,675
- --------------------------------------------------------------------------------
October 31, 2008 144,576,334
- --------------------------------------------------------------------------------
October 31, 2009 541,794,870
- --------------------------------------------------------------------------------
October 31, 2010 195,681,695
================================================================================
Total capital loss carryforward $885,442,574
________________________________________________________________________________
================================================================================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $354,836,960 and $410,416,241, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of investment securities $57,956,652
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,152,140)
===============================================================================
Net unrealized appreciation of investment securities $49,804,512
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $429,795,102.
</Table>
FS-304
NOTE 10--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with a CDSC. Under some
circumstances, Class A shares are subject to CDSCs. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase. Changes in shares outstanding during the six months
ended April 30, 2003 and the year ended October 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,638,278 $ 9,942,711 5,537,858 $ 43,117,200
- ------------------------------------------------------------------------------------------------------------------------
Class B 1,294,607 7,638,727 3,503,829 26,984,220
- ------------------------------------------------------------------------------------------------------------------------
Class C 460,945 2,708,232 1,824,515 14,029,736
========================================================================================================================
Conversion of Class B shares to Class A shares:
Class A 70,546 426,480 214,960 1,628,659
- ------------------------------------------------------------------------------------------------------------------------
Class B (72,282) (426,480) (217,773) (1,628,659)
========================================================================================================================
Reacquired:
Class A (5,399,103) (32,255,682) (15,019,465) (109,632,773)
- ------------------------------------------------------------------------------------------------------------------------
Class B (4,999,825) (29,111,778) (14,137,854) (100,816,019)
- ------------------------------------------------------------------------------------------------------------------------
Class C (2,092,146) (12,164,606) (6,815,024) (49,229,420)
========================================================================================================================
(9,098,980) $(53,242,396) (25,108,954) $(175,547,056)
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------------------------------
JUNE 7, 1999
(DATE
SIX MONTHS OPERATIONS
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, -------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.00 $ 7.62 $ 15.40 $ 12.14 $ 10.00
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) (0.12) (0.12) (0.11) (0.03)
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.38 (1.50) (7.66) 3.37 2.17
============================================================================================================
Total from investment operations 0.34 (1.62) (7.78) 3.26 2.14
============================================================================================================
Net asset value, end of period $ 6.34 $ 6.00 $ 7.62 $ 15.40 $ 12.14
____________________________________________________________________________________________________________
============================================================================================================
Total return(a) 5.67% (21.26)% (50.52)% 26.85% 21.40%
____________________________________________________________________________________________________________
============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $177,557 $190,253 $312,377 $666,929 $163,872
____________________________________________________________________________________________________________
============================================================================================================
Ratio of expenses to average net assets 2.12%(b)(c) 1.87% 1.64% 1.50% 1.60%(c)(d)
============================================================================================================
Ratio of net investment income (loss) to
average net assets (1.31)%(b) (1.31)% (1.04)% (0.93)% (1.00)%(d)
____________________________________________________________________________________________________________
============================================================================================================
Portfolio turnover rate(e) 78% 189% 143% 90% 29%
____________________________________________________________________________________________________________
============================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$178,625,484.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements
were 2.14% (annualized) and 1.65% (annualized) for periods ended April
30, 2003 and October 31, 1999, respectively.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-305
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------------------------------
JUNE 7, 1999
(DATE
SIX MONTHS OPERATIONS
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, -------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.87 $ 7.50 $ 15.26 $ 12.11 $ 10.00
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.17) (0.18) (0.18) (0.04)
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.37 (1.46) (7.58) 3.33 2.15
============================================================================================================
Total from investment operations 0.31 (1.63) (7.76) 3.15 2.11
============================================================================================================
Net asset value, end of period $ 6.18 $ 5.87 $ 7.50 $ 15.26 $ 12.11
____________________________________________________________________________________________________________
============================================================================================================
Total return(a) 5.28% (21.73)% (50.85)% 26.01% 21.10%
____________________________________________________________________________________________________________
============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $212,137 $223,666 $367,494 $748,480 $177,430
____________________________________________________________________________________________________________
============================================================================================================
Ratio of expenses to average net assets 2.77%(b)(c) 2.53% 2.32% 2.17% 2.24%(c)(d)
============================================================================================================
Ratio of net investment income (loss) to
average net assets (1.96)%(b) (1.97)% (1.72)% (1.60)% (1.64)%(d)
____________________________________________________________________________________________________________
============================================================================================================
Portfolio turnover rate(e) 78% 189% 143% 90% 29%
____________________________________________________________________________________________________________
============================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$212,072,369.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements
were 2.79% (annualized) and 2.29% (annualized) for periods ended April
30, 2003 and October 31, 1999, respectively.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------
JUNE 7, 1999
(DATE
SIX MONTHS OPERATIONS
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.87 $ 7.50 $ 15.26 $ 12.11 $ 10.00
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.17) (0.19) (0.17) (0.04)
- -----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.37 (1.46) (7.57) 3.32 2.15
===========================================================================================================
Total from investment operations 0.31 (1.63) (7.76) 3.15 2.11
===========================================================================================================
Net asset value, end of period $ 6.18 $ 5.87 $ 7.50 $ 15.26 $ 12.11
___________________________________________________________________________________________________________
===========================================================================================================
Total return(a) 5.28% (21.73)% (50.85)% 26.01% 21.10%
___________________________________________________________________________________________________________
===========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $82,503 $87,938 $149,925 $309,821 $51,605
___________________________________________________________________________________________________________
===========================================================================================================
Ratio of expenses to average net assets 2.77%(b) 2.53% 2.32% 2.17% 2.24%(c)(d)
===========================================================================================================
Ratio of net investment income (loss) to
average net assets (1.96)%(b) (1.97)% (1.72)% (1.60)% (1.64)%(d)
___________________________________________________________________________________________________________
===========================================================================================================
Portfolio turnover rate(e) 78% 189% 143% 90% 29%
___________________________________________________________________________________________________________
===========================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$83,007,800.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements
were 2.79% (annualized) and 2.29% (annualized) for periods ended April
30, 2003 and October 31, 1999, respectively.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-306
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS-89.16%
ADVERTISING-2.22%
Lamar Advertising Co.(a) 50,000 $ 1,796,000
- ------------------------------------------------------------------------
Omnicom Group Inc. 10,000 619,000
========================================================================
2,415,000
========================================================================
AEROSPACE & DEFENSE-2.46%
Alliant Techsystems Inc.(a) 25,000 1,343,000
- ------------------------------------------------------------------------
L-3 Communications Holdings, Inc.(a) 30,000 1,332,000
========================================================================
2,675,000
========================================================================
AGRICULTURAL PRODUCTS-0.54%
Fresh Del Monte Produce Inc. (Cayman Islands) 30,000 584,400
========================================================================
AIR FREIGHT & LOGISTICS-0.57%
Ryder System, Inc. 25,000 621,000
========================================================================
APPAREL RETAIL-2.15%
AnnTaylor Stores Corp.(a) 40,000 946,400
- ------------------------------------------------------------------------
Limited Brands 70,000 1,017,800
- ------------------------------------------------------------------------
Too Inc.(a) 20,000 371,200
========================================================================
2,335,400
========================================================================
APPLICATION SOFTWARE-1.25%
Intuit Inc.(a) 35,000 1,357,300
========================================================================
BANKS-0.37%
Commerce Bancorp, Inc. 10,000 406,700
========================================================================
BIOTECHNOLOGY-1.34%
ICOS Corp.(a) 30,000 802,500
- ------------------------------------------------------------------------
Invitrogen Corp.(a) 20,000 654,000
========================================================================
1,456,500
========================================================================
BROADCASTING & CABLE TV-2.00%
Hispanic Broadcasting Corp.(a) 50,000 1,282,500
- ------------------------------------------------------------------------
Radio One, Inc.-Class D(a) 35,000 535,500
- ------------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 12,000 363,360
========================================================================
2,181,360
========================================================================
CATALOG RETAIL-0.87%
Insight Enterprises, Inc.(a) 125,000 942,500
========================================================================
COMMODITY CHEMICALS-0.42%
Georgia Gulf Corp. 20,000 452,000
========================================================================
COMPUTER & ELECTRONICS RETAIL-1.84%
CDW Computer Centers, Inc.(a) 40,000 1,705,600
- ------------------------------------------------------------------------
GameStop Corp.(a) 25,000 298,750
========================================================================
2,004,350
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMPUTER HARDWARE-1.14%
Apple Computer, Inc.(a) 30,000 $ 426,000
- ------------------------------------------------------------------------
Hewlett-Packard Co. 50,000 815,000
========================================================================
1,241,000
========================================================================
COMPUTER STORAGE & PERIPHERALS-0.40%
Applied Films Corp.(a) 20,000 435,000
========================================================================
CONSTRUCTION, FARM MACHINERY & HEAVY
TRUCKS-0.75%
AGCO Corp.(a) 45,000 819,450
========================================================================
CONSUMER FINANCE-1.13%
MBNA Corp. 65,000 1,228,500
========================================================================
DATA PROCESSING SERVICES-4.44%
Automatic Data Processing, Inc. 37,500 1,261,125
- ------------------------------------------------------------------------
BISYS Group, Inc. (The)(a) 100,000 1,688,000
- ------------------------------------------------------------------------
DST Systems, Inc.(a) 35,000 1,074,500
- ------------------------------------------------------------------------
Fiserv, Inc.(a) 27,500 809,600
========================================================================
4,833,225
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.34%
Cintas Corp. 12,500 448,750
- ------------------------------------------------------------------------
FTI Consulting, Inc.(a) 5,000 226,250
- ------------------------------------------------------------------------
Kroll Inc.(a) 35,000 780,500
========================================================================
1,455,500
========================================================================
DIVERSIFIED FINANCIAL SERVICES-1.20%
Investors Financial Services Corp. 60,000 1,308,600
========================================================================
DRUG RETAIL-1.27%
CVS Corp. 25,000 605,250
- ------------------------------------------------------------------------
Walgreen Co. 25,000 771,500
========================================================================
1,376,750
========================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-1.69%
Optimal Robotics Corp.-Class A (Canada)(a) 45,000 306,000
- ------------------------------------------------------------------------
ScanSource, Inc.(a) 35,000 696,850
- ------------------------------------------------------------------------
Waters Corp.(a) 35,000 840,350
========================================================================
1,843,200
========================================================================
EMPLOYMENT SERVICES-1.72%
Robert Half International Inc.(a) 115,000 1,872,200
========================================================================
ENVIRONMENTAL SERVICES-0.53%
Headwaters Inc.(a) 35,000 574,000
========================================================================
</Table>
FS-307
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
FOOD DISTRIBUTORS-0.45%
SUPERVALU INC. 30,000 $ 494,100
========================================================================
GENERAL MERCHANDISE STORES-1.29%
Dollar Tree Stores, Inc.(a) 55,000 1,399,750
========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-7.13%
Accredo Health, Inc.(a) 30,000 443,100
- ------------------------------------------------------------------------
AmerisourceBergen Corp. 20,000 1,157,000
- ------------------------------------------------------------------------
AMN Healthcare Services, Inc.(a) 45,000 409,500
- ------------------------------------------------------------------------
Express Scripts, Inc.(a) 50,000 2,948,000
- ------------------------------------------------------------------------
Henry Schein, Inc.(a) 10,000 431,500
- ------------------------------------------------------------------------
McKesson Corp. 60,000 1,664,400
- ------------------------------------------------------------------------
Omnicare, Inc. 15,000 397,800
- ------------------------------------------------------------------------
Patterson Dental Co.(a) 7,500 301,275
========================================================================
7,752,575
========================================================================
HEALTH CARE EQUIPMENT-0.84%
Baxter International Inc. 20,000 460,000
- ------------------------------------------------------------------------
CTI Molecular Imaging, Inc.(a) 25,000 459,000
========================================================================
919,000
========================================================================
HEALTH CARE FACILITIES-3.29%
HCA Inc. 50,000 1,605,000
- ------------------------------------------------------------------------
Health Management Associates, Inc.-Class A 17,900 305,374
- ------------------------------------------------------------------------
Triad Hospitals, Inc.(a) 55,000 1,210,550
- ------------------------------------------------------------------------
United Surgical Partners International,
Inc.(a) 25,000 463,250
========================================================================
3,584,174
========================================================================
HEALTH CARE SUPPLIES-0.93%
Fisher Scientific International Inc.(a) 35,000 1,008,350
========================================================================
HOME IMPROVEMENT RETAIL-0.39%
Home Depot, Inc. (The) 15,000 421,950
========================================================================
HOTELS, RESORTS & CRUISE LINES-2.96%
Carnival Corp. (Panama) 30,000 827,700
- ------------------------------------------------------------------------
Intrawest Corp. (Canada) 125,000 1,457,500
- ------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 35,000 939,400
========================================================================
3,224,600
========================================================================
HOUSEHOLD PRODUCTS-0.69%
Kimberly-Clark Corp. 15,000 746,550
========================================================================
INDUSTRIAL MACHINERY-3.00%
Kennametal Inc. 25,000 787,250
- ------------------------------------------------------------------------
Manitowoc Co., Inc. (The) 35,000 651,000
- ------------------------------------------------------------------------
Parker-Hannifin Corp. 20,000 813,600
- ------------------------------------------------------------------------
SPX Corp.(a) 30,000 1,014,000
========================================================================
3,265,850
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
INTERNET RETAIL-0.41%
Priceline.com Inc.(a) 200,000 $ 444,000
========================================================================
INTERNET SOFTWARE & SERVICES-0.33%
SonicWALL, Inc.(a) 100,000 357,000
========================================================================
IT CONSULTING & SERVICES-5.74%
Accenture Ltd.-Class A (Bermuda)(a) 55,000 881,100
- ------------------------------------------------------------------------
Affiliated Computer Services, Inc.-Class A(a) 25,000 1,192,500
- ------------------------------------------------------------------------
Cognizant Technology Solutions Corp.(a) 35,000 628,600
- ------------------------------------------------------------------------
SRA International, Inc.-Class A(a) 20,000 473,000
- ------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 100,000 2,150,000
- ------------------------------------------------------------------------
Titan Corp. (The)(a) 115,000 923,450
========================================================================
6,248,650
========================================================================
LEISURE FACILITIES-0.54%
Six Flags, Inc.(a) 100,000 588,000
========================================================================
LEISURE PRODUCTS-0.51%
RC2 Corp.(a) 35,000 555,800
========================================================================
MANAGED HEALTH CARE-3.38%
Aetna Inc. 11,000 547,800
- ------------------------------------------------------------------------
AMERIGROUP Corp.(a) 20,000 582,400
- ------------------------------------------------------------------------
Anthem, Inc.(a) 25,000 1,716,000
- ------------------------------------------------------------------------
Humana Inc.(a) 75,000 828,750
========================================================================
3,674,950
========================================================================
METAL & GLASS CONTAINERS-0.34%
Intertape Polymer Group Inc. (Canada)(a) 75,000 375,000
========================================================================
MOVIES & ENTERTAINMENT-0.45%
Regal Entertainment Group-Class A 25,000 490,000
========================================================================
OIL & GAS DRILLING-3.15%
ENSCO International Inc. 40,000 1,016,000
- ------------------------------------------------------------------------
Parker Drilling Co.(a) 300,000 588,000
- ------------------------------------------------------------------------
Precision Drilling Corp. (Canada)(a) 35,000 1,203,300
- ------------------------------------------------------------------------
Pride International, Inc.(a) 40,000 620,800
========================================================================
3,428,100
========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.49%
Cal Dive International, Inc.(a) 75,000 1,207,500
- ------------------------------------------------------------------------
Hanover Compressor Co.(a) 125,000 1,051,250
- ------------------------------------------------------------------------
Oil States International, Inc.(a) 40,000 455,200
========================================================================
2,713,950
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.94%
Ultra Petroleum Corp.(a) 60,000 600,000
- ------------------------------------------------------------------------
Westport Resources Corp.(a) 20,300 423,052
========================================================================
1,023,052
========================================================================
</Table>
FS-308
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
PACKAGED FOODS & MEATS-1.80%
Hershey Foods Corp. 15,000 $ 978,750
- ------------------------------------------------------------------------
Smithfield Foods, Inc.(a) 50,000 980,000
========================================================================
1,958,750
========================================================================
PERSONAL PRODUCTS-0.75%
Estee Lauder Cos. Inc. (The)-Class A 25,000 812,500
========================================================================
PHARMACEUTICALS-1.53%
American Pharmaceutical Partners, Inc.(a) 25,000 583,750
- ------------------------------------------------------------------------
Pfizer Inc. 35,000 1,076,250
========================================================================
1,660,000
========================================================================
PROPERTY & CASUALTY INSURANCE-1.15%
ACE Ltd. (Cayman Islands) 25,000 827,000
- ------------------------------------------------------------------------
Infiniti Property & Casualty Corp. 20,000 422,000
========================================================================
1,249,000
========================================================================
REINSURANCE-0.54%
Everest Re Group, Ltd. (Bermuda) 8,500 592,025
========================================================================
RESTAURANTS-2.14%
Darden Restaurants, Inc. 25,000 437,750
- ------------------------------------------------------------------------
Jack in the Box Inc.(a) 30,000 534,000
- ------------------------------------------------------------------------
Landry's Restaurants, Inc. 30,000 561,000
- ------------------------------------------------------------------------
Papa John's International, Inc.(a) 15,000 356,700
- ------------------------------------------------------------------------
Wendy's International, Inc. 15,000 435,600
========================================================================
2,325,050
========================================================================
SEMICONDUCTOR EQUIPMENT-0.99%
Cabot Microelectronics Corp.(a) 25,000 1,080,500
========================================================================
SEMICONDUCTORS-2.19%
Agere Systems Inc.-Class A(a) 400,000 716,000
- ------------------------------------------------------------------------
Microchip Technology Inc. 80,000 1,663,200
========================================================================
2,379,200
========================================================================
SOFT DRINKS-0.74%
Coca-Cola Co. (The) 20,000 808,000
========================================================================
SPECIALTY STORES-2.43%
Foot Locker, Inc. 75,000 825,000
- ------------------------------------------------------------------------
Linens 'n Things, Inc.(a) 20,000 423,800
- ------------------------------------------------------------------------
Michaels Stores, Inc.(a) 9,000 $ 281,160
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
SPECIALTY STORES-(CONTINUED)
Pier 1 Imports, Inc. 25,000 464,000
- ------------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 25,000 647,000
========================================================================
2,640,960
========================================================================
SYSTEMS SOFTWARE-1.38%
Microsoft Corp. 40,000 1,022,800
- ------------------------------------------------------------------------
NetIQ Corp.(a) 35,000 482,300
========================================================================
1,505,100
========================================================================
TELECOMMUNICATIONS EQUIPMENT-1.45%
Arris Group Inc.(a) 125,000 487,625
- ------------------------------------------------------------------------
UTStarcom, Inc.(a) 50,000 1,088,550
========================================================================
1,576,175
========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.32%
Fastenal Co. 10,000 345,900
========================================================================
TRUCKING-0.86%
Yellow Corp.(a) 35,000 934,500
========================================================================
Total Common Stocks (Cost $96,418,135) 97,001,996
========================================================================
MONEY MARKET FUNDS-12.99%
STIC Liquid Assets Portfolio(b) 7,068,820 7,068,820
- ------------------------------------------------------------------------
STIC Prime Portfolio(b) 7,068,820 7,068,820
========================================================================
Total Money Market Funds (Cost
$14,137,640) 14,137,640
========================================================================
TOTAL INVESTMENTS-102.15% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $110,555,775) 111,139,636
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-12.96%
STIC Liquid Assets Portfolio(b)(c) 14,095,815 14,095,815
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $14,095,815) 14,095,815
========================================================================
TOTAL INVESTMENTS-115.11% (Cost $124,651,590) 125,235,451
========================================================================
OTHER ASSETS LESS LIABILITIES-(15.11%) (16,434,576)
========================================================================
NET ASSETS-100.00% $108,800,875
________________________________________________________________________
========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
(c) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned.
See Notes to Financial Statements.
FS-309
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$124,651,590)* $125,235,451
- -----------------------------------------------------------
Receivables for:
Investments sold 5,190,826
- -----------------------------------------------------------
Fund shares sold 227,756
- -----------------------------------------------------------
Dividends 17,260
- -----------------------------------------------------------
Investment for deferred compensation plan 12,874
- -----------------------------------------------------------
Other assets 20,469
===========================================================
Total assets 130,704,636
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 6,980,399
- -----------------------------------------------------------
Fund shares reacquired 541,119
- -----------------------------------------------------------
Deferred compensation plan 12,874
- -----------------------------------------------------------
Collateral upon return of securities loaned 14,095,815
- -----------------------------------------------------------
Accrued distribution fees 89,093
- -----------------------------------------------------------
Accrued trustees' fees 756
- -----------------------------------------------------------
Accrued transfer agent fees 120,016
- -----------------------------------------------------------
Accrued operating expenses 63,689
===========================================================
Total liabilities 21,903,761
===========================================================
Net assets applicable to shares outstanding $108,800,875
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $287,183,295
- -----------------------------------------------------------
Undistributed net investment income (loss) (1,153,720)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and option contracts (177,812,561)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 583,861
===========================================================
$108,800,875
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 55,758,108
___________________________________________________________
===========================================================
Class B $ 36,513,289
___________________________________________________________
===========================================================
Class C $ 16,529,478
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 12,055,419
___________________________________________________________
===========================================================
Class B 8,050,882
___________________________________________________________
===========================================================
Class C 3,647,073
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 4.63
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $4.63 divided by
94.50%) $ 4.90
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 4.54
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 4.53
___________________________________________________________
===========================================================
</Table>
* At April 30, 2003, securities with an aggregate market value of $13,499,539
were on loan to brokers.
See Notes to Financial Statements.
FS-310
STATEMENT OF OPERATIONS
For the six months ended April 30, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 172,413
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 52,905
- -------------------------------------------------------------------------
Security lending income 13,309
=========================================================================
Total investment income 238,627
=========================================================================
EXPENSES:
Advisory fees 461,327
- -------------------------------------------------------------------------
Administrative services fees 24,795
- -------------------------------------------------------------------------
Custodian fees 28,431
- -------------------------------------------------------------------------
Distribution fees -- Class A 96,303
- -------------------------------------------------------------------------
Distribution fees -- Class B 184,747
- -------------------------------------------------------------------------
Distribution fees -- Class C 82,838
- -------------------------------------------------------------------------
Transfer agent fees 419,252
- -------------------------------------------------------------------------
Trustees' fees 4,641
- -------------------------------------------------------------------------
Other 76,763
=========================================================================
Total expenses 1,379,097
=========================================================================
Less: Fees waived and expenses paid indirectly (1,640)
=========================================================================
Net expenses 1,377,457
=========================================================================
Net investment income (loss) (1,138,830)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (1,797,182)
- -------------------------------------------------------------------------
Option contracts written 291,831
=========================================================================
(1,505,351)
=========================================================================
Change in net unrealized appreciation of investment
securities 14,054,504
=========================================================================
Net gain from investment securities and option contracts 12,549,153
=========================================================================
Net increase in net assets resulting from operations $11,410,323
_________________________________________________________________________
=========================================================================
</Table>
See Notes to Financial Statements.
FS-311
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2003 and the year ended October 31, 2002
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,138,830) $ (2,977,371)
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts (1,505,351) (43,488,298)
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 14,054,504 7,080,269
============================================================================================
Net increase (decrease) in net assets resulting from
operations 11,410,323 (39,385,400)
============================================================================================
Share transactions-net:
Class A (1,759,890) (10,076,931)
- --------------------------------------------------------------------------------------------
Class B (3,422,576) (8,139,807)
- --------------------------------------------------------------------------------------------
Class C (2,502,626) (2,937,370)
============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (7,685,092) (21,154,108)
============================================================================================
Net increase (decrease) in net assets 3,725,231 (60,539,508)
============================================================================================
NET ASSETS:
Beginning of period 105,075,644 165,615,152
============================================================================================
End of period $ 108,800,875 $ 105,075,644
____________________________________________________________________________________________
============================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Emerging Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers multiple classes of shares. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States unless
otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
FS-312
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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 are included with the
net realized and unrealized gain or loss from investments in the Statement
of Operations.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
H. 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. Transfer agency fees and expenses
and other shareholder recordkeeping fees and expenses are charged to each
class pursuant to a transfer agency and service agreement adopted by the
Fund with respect to such class. All other expenses are allocated among the
classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.85% of
the first $1 billion of the Fund's average daily net assets plus 0.80% of the
Fund's average daily net assets over $1 billion. AIM has voluntarily agreed to
waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds in which the Fund has invested
(excluding investments made in money market funds with cash collateral from
securities loaned by the Fund). For the six months ended April 30, 2003, AIM
waived fees of $766.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2003, AIM
was paid $24,795 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing
FS-313
transfer agency and shareholder services to the Fund. During the six months
ended April 30, 2003, AFS retained $226,575 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and Class C shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B or Class C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. NASD
Rules also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the six months ended April 30, 2003, the Class A, Class B and Class C
shares paid $96,303, $184,747 and $82,838, respectively.
Front-end sales commissions and contingent deferred sales charges
(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. Contingent deferred
sales charges ("CDSCs") are deducted from redemption proceeds prior to
remittance to the shareholder. During the six months ended April 30, 2003, AIM
Distributors retained $10,032 in front-end sales commissions from the sale of
Class A shares and $278, $158 and $930 for Class A, Class B and Class C shares,
respectively, for CDSCs imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended April 30, 2003, the Fund paid legal fees of
$1,273 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $874 under an expense
offset arrangement which resulted in a reduction of the Fund's total expenses of
$874.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
AIM has established an interfund lending facility 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.
During the reporting period, the Fund was a participant in a committed line
of credit facility with a syndicate administered by Citibank, N.A. The Fund
could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the line of credit could borrow on a first come, first served basis.
The funds which were party to the line of credit were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed line of credit facility expired May 20, 2003.
During the six months ended April 30, 2003, the Fund did not borrow under
the interfund lending or the committed line of credit facility.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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
may be temporarily less than the value of the securities on loan.
At April 30, 2003, securities with an aggregate value of $13,499,539 were on
loan to brokers. The loans were secured by cash collateral of $14,095,815
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended April 30, 2003, the Fund received fees of $13,309
for securities lending.
NOTE 7--CALL OPTION CONTRACTS
Transactions in call options written during the six months ended April 30, 2003
are summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ----------------------------------------------------------
Beginning of period -- $ --
- ----------------------------------------------------------
Written 6,300 445,583
- ----------------------------------------------------------
Closed (4,650) (326,387)
- ----------------------------------------------------------
Exercised (276) (22,857)
- ----------------------------------------------------------
Expired (1,374) (96,339)
==========================================================
End of period -- $ --
__________________________________________________________
==========================================================
</Table>
FS-314
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
October 31, 2009 $128,445,323
- ----------------------------------------------------------
October 31, 2010 45,298,855
==========================================================
Total capital loss carryforward $173,744,178
__________________________________________________________
==========================================================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $157,884,051 and $165,038,585, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 5,377,269
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (5,041,761)
===========================================================
Net unrealized appreciation of investment
securities $ 335,508
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $124,899,943.
</Table>
NOTE 10--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with a CDSC. Under some
circumstances, Class A shares are subject to CDSCs. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase. Changes in shares outstanding during the six months
ended April 30, 2003 and the year ended October 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 5,752,258 $ 25,389,591 8,104,455 $ 45,061,733
- -----------------------------------------------------------------------------------------------------------------------
Class B 1,000,322 4,331,744 1,711,610 9,848,093
- -----------------------------------------------------------------------------------------------------------------------
Class C 436,921 1,896,887 1,313,206 7,417,468
=======================================================================================================================
Conversion of Class B shares to Class A shares:
Class A 40,111 173,037 70,830 388,408
- -----------------------------------------------------------------------------------------------------------------------
Class B (40,885) (173,037) (72,057) (388,408)
=======================================================================================================================
Reacquired:
Class A (6,326,126) (27,322,518) (10,450,880) (55,527,072)
- -----------------------------------------------------------------------------------------------------------------------
Class B (1,811,824) (7,581,283) (3,473,227) (17,599,492)
- -----------------------------------------------------------------------------------------------------------------------
Class C (1,038,429) (4,399,513) (1,969,513) (10,354,838)
=======================================================================================================================
(1,987,652) $ (7,685,092) (4,765,576) $(21,154,108)
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
FS-315
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------
MARCH 31, 2000
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, --------------------- OCTOBER 31,
2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.12 $ 5.46 $ 10.50 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.08)(a) (0.10) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.55 (1.26) (4.51) 0.54
===========================================================================================================================
Total from investment operations 0.51 (1.34) (4.61) 0.50
===========================================================================================================================
Less distributions from net realized gains -- -- (0.43) --
===========================================================================================================================
Net asset value, end of period $ 4.63 $ 4.12 $ 5.46 $ 10.50
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 12.38% (24.54)% (45.37)% 5.00%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $55,758 $51,822 $81,114 $147,101
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 2.22%(c) 1.89% 1.71%(d) 1.68%(e)
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.78)%(c) (1.54)% (1.32)% (1.04)%(e)
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(f) 157% 407% 242% 111%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$55,486,594.
(d) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 1.83%.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS B
-------------------------------------------------------------
MARCH 31, 2000
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, --------------------- OCTOBER 31,
2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.05 $ 5.40 $ 10.47 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.12)(a) (0.14) (0.07)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.54 (1.23) (4.50) 0.54
===========================================================================================================================
Total from investment operations 0.49 (1.35) (4.64) 0.47
===========================================================================================================================
Less distributions from net realized gains -- -- (0.43) --
===========================================================================================================================
Net asset value, end of period $ 4.54 $ 4.05 $ 5.40 $ 10.47
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 12.10% (25.00)% (45.81)% 4.70%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $36,513 $36,060 $58,019 $94,740
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 2.87%(c) 2.55% 2.36%(d) 2.37%(e)
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (2.43)%(c) (2.19)% (1.98)% (1.73)%(e)
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(f) 157% 407% 242% 111%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$37,255,638.
(d) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 2.48%.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-316
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------
MARCH 31, 2000
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, --------------------- OCTOBER 31,
2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.05 $ 5.40 $ 10.46 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.12)(a) (0.14) (0.07)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.53 (1.23) (4.49) 0.53
===========================================================================================================================
Total from investment operations 0.48 (1.35) (4.63) 0.46
===========================================================================================================================
Less distributions from net realized gains -- -- (0.43) --
===========================================================================================================================
Net asset value, end of period $ 4.53 $ 4.05 $ 5.40 $ 10.46
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 11.85% (25.00)% (45.76)% 4.60%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $16,529 $17,194 $26,483 $41,361
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 2.87%(c) 2.55% 2.36%(d) 2.37%(e)
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (2.43)%(c) (2.19)% (1.98)% (1.73)%(e)
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(f) 157% 407% 242% 111%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$16,704,824.
(d) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 2.48%.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-317
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.32%
ADVERTISING-5.01%
Interpublic Group of Cos., Inc. (The)(a) 347,500 $ 3,961,500
- ------------------------------------------------------------------------
Omnicom Group Inc. 87,300 5,403,870
========================================================================
9,365,370
========================================================================
AEROSPACE & DEFENSE-1.75%
Honeywell International Inc. 138,600 3,270,960
========================================================================
APPAREL RETAIL-3.20%
Gap, Inc. (The) 359,100 5,971,833
========================================================================
BANKS-6.75%
Bank of America Corp. 60,900 4,509,645
- ------------------------------------------------------------------------
Bank of New York Co., Inc. (The) 163,000 4,311,350
- ------------------------------------------------------------------------
Bank One Corp. 105,000 3,785,250
========================================================================
12,606,245
========================================================================
BUILDING PRODUCTS-2.48%
Masco Corp. 219,800 4,631,186
========================================================================
CONSTRUCTION, FARM MACHINERY & HEAVY
TRUCKS-1.47%
Deere & Co. 62,200 2,738,666
========================================================================
CONSUMER ELECTRONICS-1.29%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 129,270 2,414,763
========================================================================
DATA PROCESSING SERVICES-4.40%
Ceridian Corp.(a) 215,300 3,003,435
- ------------------------------------------------------------------------
First Data Corp. 133,200 5,225,436
========================================================================
8,228,871
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-3.90%
Cendant Corp.(a) 322,000 4,598,160
- ------------------------------------------------------------------------
H&R Block, Inc. 69,700 2,691,814
========================================================================
7,289,974
========================================================================
DIVERSIFIED FINANCIAL SERVICES-14.73%
Citigroup Inc. 185,293 7,272,751
- ------------------------------------------------------------------------
Freddie Mac 117,900 6,826,410
- ------------------------------------------------------------------------
J.P. Morgan Chase & Co. 152,000 4,461,200
- ------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 104,000 4,269,200
- ------------------------------------------------------------------------
Morgan Stanley 105,000 4,698,750
========================================================================
27,528,311
========================================================================
ENVIRONMENTAL SERVICES-2.95%
Waste Management, Inc. 253,750 $ 5,511,450
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
FOOD RETAIL-3.45%
Kroger Co. (The)(a) 289,100 4,134,130
- ------------------------------------------------------------------------
Safeway Inc.(a) 139,000 2,310,180
========================================================================
6,444,310
========================================================================
GENERAL MERCHANDISE STORES-2.67%
Target Corp. 149,100 4,985,904
========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-2.23%
McKesson Corp. 150,000 4,161,000
========================================================================
HEALTH CARE FACILITIES-2.19%
HCA Inc. 47,000 1,508,700
- ------------------------------------------------------------------------
Tenet Healthcare Corp.(a) 174,000 2,582,160
========================================================================
4,090,860
========================================================================
INDUSTRIAL CONGLOMERATES-5.92%
General Electric Co. 133,000 3,916,850
- ------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 458,400 7,151,040
========================================================================
11,067,890
========================================================================
INDUSTRIAL MACHINERY-2.07%
Illinois Tool Works Inc. 60,600 3,877,188
========================================================================
INSURANCE BROKERS-1.20%
Marsh & McLennan Cos., Inc. 47,100 2,245,728
========================================================================
LIFE & HEALTH INSURANCE-1.63%
Prudential Financial, Inc. 95,000 3,037,150
========================================================================
MANAGED HEALTH CARE-1.82%
UnitedHealth Group Inc. 36,900 3,399,597
========================================================================
MOVIES & ENTERTAINMENT-3.16%
Walt Disney Co. (The) 316,800 5,911,488
========================================================================
OIL & GAS DRILLING-3.93%
ENSCO International Inc. 139,000 3,530,600
- ------------------------------------------------------------------------
Transocean Inc. (Cayman Islands) 200,277 3,815,277
========================================================================
7,345,877
========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.79%
Schlumberger Ltd. (Netherlands) 124,200 5,207,706
========================================================================
PHARMACEUTICALS-4.55%
Pfizer Inc. 110,399 3,394,769
- ------------------------------------------------------------------------
Wyeth 117,200 5,101,716
========================================================================
8,496,485
========================================================================
</Table>
FS-318
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
PHOTOGRAPHIC PRODUCTS-1.47%
Eastman Kodak Co. 92,100 $ 2,754,711
========================================================================
PROPERTY & CASUALTY INSURANCE-2.63%
ACE Ltd. (Cayman Islands) 148,300 4,905,764
========================================================================
SEMICONDUCTOR EQUIPMENT-2.93%
Applied Materials, Inc.(a) 375,000 5,475,000
========================================================================
SYSTEMS SOFTWARE-2.68%
Computer Associates International, Inc. 308,500 5,010,040
========================================================================
TELECOMMUNICATIONS EQUIPMENT-1.07%
Motorola, Inc. 252,500 1,997,275
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $201,679,756) 179,971,602
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
MONEY MARKET FUNDS-3.79%
STIC Liquid Assets Portfolio(b) 3,536,898 $ 3,536,898
- ------------------------------------------------------------------------
STIC Prime Portfolio(b) 3,536,898 3,536,898
========================================================================
Total Money Market Funds (Cost
$7,073,796) 7,073,796
========================================================================
TOTAL INVESTMENTS-100.11% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $208,753,552) 187,045,398
========================================================================
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.08%
STIC Liquid Assets Portfolio(b)(c) 150,000 150,000
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $150,000) 150,000
========================================================================
TOTAL INVESTMENTS-100.19% (Cost $208,903,552) 187,195,398
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.19%) (363,544)
========================================================================
NET ASSETS-100.00% $186,831,854
________________________________________________________________________
========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
(c) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned.
See Notes to Financial Statements.
FS-319
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$208,903,552)* $187,195,398
- -----------------------------------------------------------
Receivables for:
Fund shares sold 447,490
- -----------------------------------------------------------
Dividends 108,286
- -----------------------------------------------------------
Investment for deferred compensation plan 16,310
- -----------------------------------------------------------
Other assets 35,201
===========================================================
Total assets 187,802,685
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 499,944
- -----------------------------------------------------------
Deferred compensation plan 16,310
- -----------------------------------------------------------
Collateral upon return of securities loaned 150,000
- -----------------------------------------------------------
Accrued distribution fees 176,166
- -----------------------------------------------------------
Accrued trustees' fees 967
- -----------------------------------------------------------
Accrued transfer agent fees 85,767
- -----------------------------------------------------------
Accrued operating expenses 41,677
===========================================================
Total liabilities 970,831
===========================================================
Net assets applicable to shares outstanding $186,831,854
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $236,647,394
- -----------------------------------------------------------
Undistributed net investment income (loss) (251,498)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (27,855,888)
- -----------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (21,708,154)
===========================================================
$186,831,854
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 99,590,036
___________________________________________________________
===========================================================
Class B $ 64,419,202
___________________________________________________________
===========================================================
Class C $ 22,720,301
___________________________________________________________
===========================================================
Class R $ 102,315
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 10,395,007
___________________________________________________________
===========================================================
Class B 6,845,240
___________________________________________________________
===========================================================
Class C 2,414,684
___________________________________________________________
===========================================================
Class R 10,695
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 9.58
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $9.58 divided by
94.50%) $ 10.14
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 9.41
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 9.41
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 9.57
___________________________________________________________
===========================================================
</Table>
* At April 30, 2003, securities with an aggregate market value of $139,500 were
on loan to brokers.
See Notes to Financial Statements.
FS-320
STATEMENT OF OPERATIONS
For the six months ended April 30, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $7,560) $ 1,337,726
- --------------------------------------------------------------------------
Dividends from affiliated money market funds 60,390
- --------------------------------------------------------------------------
Security lending income 29
==========================================================================
Total investment income 1,398,145
==========================================================================
EXPENSES:
Advisory fees 554,437
- --------------------------------------------------------------------------
Administrative services fees 24,795
- --------------------------------------------------------------------------
Custodian fees 20,633
- --------------------------------------------------------------------------
Distribution fees -- Class A 171,098
- --------------------------------------------------------------------------
Distribution fees -- Class B 321,240
- --------------------------------------------------------------------------
Distribution fees -- Class C 113,677
- --------------------------------------------------------------------------
Distribution fees -- Class R 147
- --------------------------------------------------------------------------
Transfer agent fees 329,253
- --------------------------------------------------------------------------
Trustees' fees 4,729
- --------------------------------------------------------------------------
Other 93,431
==========================================================================
Total expenses 1,633,440
==========================================================================
Less: Fees waived and expenses paid indirectly (2,446)
==========================================================================
Net expenses 1,630,994
==========================================================================
Net investment income (loss) (232,849)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain (loss) from investment securities (10,890,245)
- --------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 16,504,259
==========================================================================
Net gain from investment securities 5,614,014
==========================================================================
Net increase in net assets resulting from operations $ 5,381,165
__________________________________________________________________________
==========================================================================
</Table>
See Notes to Financial Statements.
FS-321
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2003 and the year ended October 31, 2002
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (232,849) $ (400,729)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (10,890,245) (13,193,071)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 16,504,259 (26,617,408)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 5,381,165 (40,211,208)
==========================================================================================
Share transactions-net:
Class A 2,308,590 47,013,800
- ------------------------------------------------------------------------------------------
Class B (1,380,988) 19,109,813
- ------------------------------------------------------------------------------------------
Class C 284,603 6,186,422
- ------------------------------------------------------------------------------------------
Class R 92,263 10,003
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions 1,304,468 72,320,038
==========================================================================================
Net increase in net assets 6,685,633 32,108,830
==========================================================================================
NET ASSETS:
Beginning of period 180,146,221 148,037,391
==========================================================================================
End of period $186,831,854 $180,146,221
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Large Cap Basic Value Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers multiple classes of shares. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund.
The Fund's primary investment objective is long-term growth of capital with
a secondary objective of current income. Each company listed in the Schedule of
Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically
FS-322
authorized by the Board of Trustees. Short-term obligations having 60 days
or less to maturity and commercial paper are valued at amortized cost which
approximates market value. For purposes of determining net asset value per
share, futures and option contracts generally will be valued 15 minutes
after the close of the customary trading session of the New York Stock
Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. Transfer agency fees and expenses
and other shareholder recordkeeping fees and expenses are charged to each
class pursuant to a transfer agency and service agreement adopted by the
Fund with respect to such class. All other expenses are allocated among the
classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.60% of
the first $1 billion of the Fund's average daily net assets, plus 0.575% over $1
billion to and including $2 billion of the Fund's average daily net assets and
0.55% of the Fund's average daily net assets over $2 billion. AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market funds in which
the Fund has invested (excluding investments made in affiliated money market
funds with cash collateral from securities loaned by the Fund). For the six
months ended April 30, 2003, AIM waived fees of $893.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2003, AIM
was paid $24,795 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 2003,
AFS retained $165,229 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C and Class R 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 shares, Class B shares, Class C shares and Class R shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.35% of the Fund's average daily net assets of Class A
shares, 1.00% of the average daily net assets of Class B and Class C shares and
0.50% of the average daily net assets of Class R shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B, Class C or Class R shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the six months ended April 30,
2003, the Class A, Class B, Class C and Class R shares paid $171,098, $321,240,
$113,677 and $147, respectively.
Front-end sales commissions and contingent deferred sales charges
(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. Contingent deferred
sales charges ("CDSCs") are deducted from redemption proceeds prior to
remittance to the shareholder. During the six months ended April 30, 2003, AIM
Distributors retained $26,881 in front-end sales commissions from the sale of
Class A shares and $681, $0, $3,058 and $0 for Class A, Class B, Class C and
Class R shares, respectively, for CDSCs imposed upon redemptions by
shareholders.
FS-323
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended April 30, 2003, the Fund paid legal fees of
$1,369 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $1,322 and reductions in
custodian fees of $231 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $1,553.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
AIM has established an interfund lending facility 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.
During the reporting period, the Fund was a participant in a committed line
of credit facility with a syndicate administered by Citibank, N.A. The Fund
could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the line of credit could borrow on a first come, first served basis.
The funds which were party to the line of credit were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed line of credit facility expired May 20, 2003.
During the six months ended April 30, 2003, the Fund did not borrow under
the interfund lending or committed line of credit facility.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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
may be temporarily less than the value of the securities on loan.
At April 30, 2003, securities with an aggregate value of $139,500 were on
loan to brokers. The loans were secured by cash collateral of $150,000 received
by the Fund and subsequently invested in an affiliated money market fund. For
the six months ended April 30, 2003, the Fund received fees of $29 for
securities lending.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
October 31, 2009 $ 2,651,488
- ----------------------------------------------------------
October 31, 2010 13,408,092
==========================================================
Total capital loss carryforward $16,059,580
__________________________________________________________
==========================================================
</Table>
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $31,398,829 and $20,431,704, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 8,489,512
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (31,102,248)
===========================================================
Net unrealized appreciation (depreciation) of
investment securities $(22,612,736)
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $209,808,134.
</Table>
FS-324
NOTE 9--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares,
Class B shares, Class C shares and Class R shares. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with a
CDSC. Class R shares are sold at net asset value. Under some circumstances,
Class A shares and Class R shares are subject to CDSCs. Generally, Class B
shares will automatically convert to Class A shares eight years after the end of
the calendar month of purchase. Changes in shares outstanding during the six
months ended April 30, 2003 and the year ended October 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,424,906 $ 31,944,034 12,345,842 $130,431,434
- ---------------------------------------------------------------------------------------------------------------------
Class B 1,498,863 13,691,916 4,427,046 47,877,276
- ---------------------------------------------------------------------------------------------------------------------
Class C 625,135 5,763,641 1,524,511 16,806,696
- ---------------------------------------------------------------------------------------------------------------------
Class R* 10,950 101,715 862 10,003
=====================================================================================================================
Conversion of Class B shares to Class A shares:
Class A 97,842 898,170 69,318 788,677
- ---------------------------------------------------------------------------------------------------------------------
Class B (99,484) (898,170) (71,494) (788,677)
=====================================================================================================================
Reacquired:
Class A (3,384,611) (30,533,614) (8,433,346) (84,206,311)
- ---------------------------------------------------------------------------------------------------------------------
Class B (1,609,409) (14,174,734) (2,706,026) (27,978,786)
- ---------------------------------------------------------------------------------------------------------------------
Class C (612,016) (5,479,038) (1,028,142) (10,620,274)
- ---------------------------------------------------------------------------------------------------------------------
Class R* (1,117) (9,452) -- --
=====================================================================================================================
(48,941) $ 1,304,468 6,128,571 $ 72,320,038
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------
JUNE 30, 1999
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ---------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.20 $ 10.94 $ 12.05 $ 9.40 $10.00
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00 0.01(a) 0.02(a) 0.07(a) 0.03
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.38 (1.75) (1.07) 2.88 (0.63)
====================================================================================================================
Total from investment operations 0.38 (1.74) (1.05) 2.95 (0.60)
====================================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.04) (0.18) --
- --------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.02) (0.12) --
====================================================================================================================
Total distributions -- -- (0.06) (0.30) --
====================================================================================================================
Net asset value, end of period $ 9.58 $ 9.20 $ 10.94 $12.05 $ 9.40
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 4.13% (15.90)% (8.74)% 32.21% (6.00)%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $99,590 $94,387 $68,676 $5,888 $1,153
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.46%(c) 1.38% 1.27% 1.25% 1.25%(d)
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.46%(c) 1.38% 1.36% 8.21% 10.02%(d)
====================================================================================================================
Ratio of net investment income to
average net assets 0.05%(c) 0.11% 0.17% 0.62% 0.87%(d)
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate(e) 12% 37% 18% 57% 10%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$98,580,479.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-325
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------
AUGUST 1, 2000
SIX MONTHS YEAR ENDED (DATE SALES
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, --------------------- OCTOBER 31,
2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.07 $ 10.86 $ 12.02 $10.85
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.06)(a) (0.06)(a) 0.00
- ----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.37 (1.73) (1.05) 1.17
==========================================================================================================
Total from investment operations 0.34 (1.79) (1.11) 1.17
==========================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.03) --
- ----------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.02) --
==========================================================================================================
Total distributions -- -- (0.05) --
==========================================================================================================
Net asset value, end of period $ 9.41 $ 9.07 $ 10.86 $12.02
__________________________________________________________________________________________________________
==========================================================================================================
Total return(b) 3.75% (16.48)% (9.25)% 10.78%
__________________________________________________________________________________________________________
==========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $64,419 $63,977 $58,681 $2,815
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.11%(c) 2.02% 1.95% 1.93%(d)
- ----------------------------------------------------------------------------------------------------------
Without fee waivers 2.11%(c) 2.02% 2.04% 8.89%(d)
==========================================================================================================
Ratio of net investment income (loss) to
average net assets (0.60)%(c) (0.53)% (0.51)% (0.06)%(d)
__________________________________________________________________________________________________________
==========================================================================================================
Portfolio turnover rate(e) 12% 37% 18% 57%
__________________________________________________________________________________________________________
==========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$64,780,456.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-326
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------
AUGUST 1, 2000
SIX MONTHS YEAR ENDED (DATE SALES
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, --------------------- OCTOBER 31,
2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.07 $ 10.85 $ 12.02 $10.85
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.06)(a) (0.06)(a) 0.00
- ----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.37 (1.72) (1.06) 1.17
==========================================================================================================
Total from investment operations 0.34 (1.78) (1.12) 1.17
==========================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.03) --
- ----------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.02) --
==========================================================================================================
Total distributions -- -- (0.05) --
==========================================================================================================
Net asset value, end of period $ 9.41 $ 9.07 $ 10.85 $12.02
__________________________________________________________________________________________________________
==========================================================================================================
Total return(b) 3.75% (16.41)% (9.33)% 10.78%
__________________________________________________________________________________________________________
==========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $22,720 $21,775 $20,680 $1,248
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.11%(c) 2.02% 1.95% 1.93%(d)
- ----------------------------------------------------------------------------------------------------------
Without fee waivers 2.11%(c) 2.02% 2.04% 8.89%(d)
==========================================================================================================
Ratio of net investment income (loss) to
average net assets (0.60)%(c) (0.53)% (0.51)% (0.06)%(d)
__________________________________________________________________________________________________________
==========================================================================================================
Portfolio turnover rate(e) 12% 37% 18% 57%
__________________________________________________________________________________________________________
==========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$22,923,844.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-327
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-----------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.20 $ 11.60
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00) 0.002(a)
- -------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.37 (2.40)
===========================================================================================
Total from investment operations 0.37 (2.40)
===========================================================================================
Net asset value, end of period $ 9.57 $ 9.20
___________________________________________________________________________________________
===========================================================================================
Total return(b) 4.02% (20.69)%
___________________________________________________________________________________________
===========================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 102 $ 8
___________________________________________________________________________________________
===========================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.61%(c) 1.54%(d)
- -------------------------------------------------------------------------------------------
Without fee waivers 1.61%(c) 1.54%(d)
===========================================================================================
Ratio of net investment income (loss) to average net assets (0.10)%(c) (0.05)%(d)
___________________________________________________________________________________________
===========================================================================================
Portfolio turnover rate(e) 12% 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 is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $59,211.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 11--SUBSEQUENT EVENT
The Board of Directors of INVESCO Stock Funds, Inc. ("Seller") unanimously
approved, on June 9, 2003, an Agreement and Plan of Reorganization (the "Plan")
pursuant to which INVESCO Value Equity Fund ("Selling Fund"), a series of
Seller, would transfer all of its assets to AIM Large Cap Basic Value Fund
("Buying Fund"), a series of AIM Equity Funds ("the Reorganization"). As a
result of the Reorganization, shareholders of Selling Fund would receive shares
of Buying Fund in exchange for their shares of Selling Fund, and Selling Fund
would cease operations.
The Plan requires approval of Selling Fund shareholders and will be submitted
to the shareholders for their consideration at a meeting to be held on or around
September 25, 2003. If the Plan is approved by shareholders of Selling Fund and
certain conditions required by the Plan are satisfied, the transaction is
expected to become effective shortly thereafter.
Effective on or about October 1, 2003, it is anticipated that Selling Fund
will be closed to new investors.
FS-328
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-89.79%
ADVERTISING-1.44%
Omnicom Group Inc. 5,800 $ 359,020
=====================================================================
AEROSPACE & DEFENSE-1.24%
United Technologies Corp. 5,000 309,050
=====================================================================
APPAREL RETAIL-1.26%
Limited Brands 21,700 315,518
=====================================================================
APPLICATION SOFTWARE-0.63%
SAP A.G.-ADR (Germany) 6,200 158,162
=====================================================================
AUTO PARTS & EQUIPMENT-0.79%
Johnson Controls, Inc. 2,400 197,376
=====================================================================
BANKS-7.91%
Bank of America Corp. 5,200 385,060
- ---------------------------------------------------------------------
Cullen/Frost Bankers, Inc. 9,600 314,784
- ---------------------------------------------------------------------
FleetBoston Financial Corp. 12,700 336,804
- ---------------------------------------------------------------------
KeyCorp 13,100 315,841
- ---------------------------------------------------------------------
U.S. Bancorp 10,400 230,360
- ---------------------------------------------------------------------
Wachovia Corp. 10,300 393,563
=====================================================================
1,976,412
=====================================================================
BREWERS-1.06%
Anheuser-Busch Cos., Inc. 5,300 264,364
=====================================================================
BUILDING PRODUCTS-1.63%
Masco Corp. 19,300 406,651
=====================================================================
COMPUTER HARDWARE-2.56%
Diebold, Inc. 8,600 343,828
- ---------------------------------------------------------------------
International Business Machines Corp. 3,500 297,150
=====================================================================
640,978
=====================================================================
CONSTRUCTION MATERIALS-1.15%
Vulcan Materials Co. 8,200 286,754
=====================================================================
DATA PROCESSING SERVICES-2.48%
Automatic Data Processing, Inc. 7,600 255,588
- ---------------------------------------------------------------------
First Data Corp. 9,300 364,839
=====================================================================
620,427
=====================================================================
DEPARTMENT STORES-0.57%
Nordstrom, Inc. 8,200 142,106
=====================================================================
DIVERSIFIED CHEMICALS-2.00%
E. I. Du Pont de Nemours and Co. 6,400 272,192
- ---------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
DIVERSIFIED CHEMICALS-(CONTINUED)
PPG Industries, Inc. 4,700 $ 227,997
=====================================================================
500,189
=====================================================================
DIVERSIFIED FINANCIAL SERVICES-6.88%
Citigroup Inc. 9,300 365,025
- ---------------------------------------------------------------------
Fannie Mae 5,100 369,189
- ---------------------------------------------------------------------
Merrill Lynch & Co., Inc. 7,700 316,085
- ---------------------------------------------------------------------
Morgan Stanley 9,700 434,075
- ---------------------------------------------------------------------
Principal Financial Group, Inc. 8,100 235,710
=====================================================================
1,720,084
=====================================================================
ELECTRIC UTILITIES-4.78%
Exelon Corp. 6,300 334,152
- ---------------------------------------------------------------------
FirstEnergy Corp. 8,900 300,197
- ---------------------------------------------------------------------
Public Service Enterprise Group Inc. 9,800 377,006
- ---------------------------------------------------------------------
Wisconsin Energy Corp. 7,000 184,310
=====================================================================
1,195,665
=====================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.85%
Emerson Electric Co. 4,200 212,940
=====================================================================
FOOTWEAR-1.26%
NIKE, Inc.-Class B 5,900 315,827
=====================================================================
GENERAL MERCHANDISE STORES-0.95%
Wal-Mart Stores, Inc. 4,200 236,544
=====================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-1.23%
IMS Health Inc. 19,900 306,460
=====================================================================
HEALTH CARE EQUIPMENT-2.94%
Bard (C.R.), Inc. 6,000 380,280
- ---------------------------------------------------------------------
Becton, Dickinson & Co. 10,000 354,000
=====================================================================
734,280
=====================================================================
HOME IMPROVEMENT RETAIL-0.91%
Home Depot, Inc. (The) 8,100 227,853
=====================================================================
HOTELS, RESORTS & CRUISE LINES-1.20%
Carnival Corp. (Panama) 10,900 300,731
=====================================================================
HOUSEHOLD APPLIANCES-2.19%
Black & Decker Corp. (The) 7,900 325,875
- ---------------------------------------------------------------------
Snap-on Inc. 7,500 220,125
=====================================================================
546,000
=====================================================================
</Table>
FS-329
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
HOUSEHOLD PRODUCTS-2.42%
Kimberly-Clark Corp. 7,300 $ 363,321
- ---------------------------------------------------------------------
Procter & Gamble Co. (The) 2,700 242,595
=====================================================================
605,916
=====================================================================
INDUSTRIAL MACHINERY-2.51%
Dover Corp. 10,000 287,400
- ---------------------------------------------------------------------
Illinois Tool Works Inc. 5,300 339,094
=====================================================================
626,494
=====================================================================
INSURANCE BROKERS-0.99%
Marsh & McLennan Cos., Inc. 5,200 247,936
=====================================================================
INTEGRATED OIL & GAS-5.25%
BP PLC-ADR (United Kingdom) 7,500 289,050
- ---------------------------------------------------------------------
ChevronTexaco Corp. 3,100 194,711
- ---------------------------------------------------------------------
ConocoPhillips 5,700 286,710
- ---------------------------------------------------------------------
Eni S.p.A. (Italy) 19,600 279,851
- ---------------------------------------------------------------------
Total S.A. (France) 2,000 262,754
=====================================================================
1,313,076
=====================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.23%
SBC Communications Inc. 13,200 308,352
=====================================================================
LEISURE PRODUCTS-0.95%
Polaris Industries Inc. 4,500 237,915
=====================================================================
LIFE & HEALTH INSURANCE-1.09%
Prudential Financial, Inc. 8,500 271,745
=====================================================================
MULTI-LINE INSURANCE-1.04%
Hartford Financial Services Group, Inc. (The) 6,400 260,864
=====================================================================
OFFICE SERVICES & SUPPLIES-1.39%
Pitney Bowes, Inc. 9,900 347,589
=====================================================================
OIL & GAS EQUIPMENT & SERVICES-0.73%
Baker Hughes Inc. 6,500 182,000
=====================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.56%
Apache Corp. 2,460 140,835
=====================================================================
PACKAGED FOODS & MEATS-3.26%
General Mills, Inc. 10,300 464,633
- ---------------------------------------------------------------------
Kellogg Co. 3,500 114,590
- ---------------------------------------------------------------------
Sara Lee Corp. 14,000 234,920
=====================================================================
814,143
=====================================================================
PERSONAL PRODUCTS-1.20%
Avon Products, Inc. 2,800 162,876
- ---------------------------------------------------------------------
Gillette Co. (The) 4,500 137,025
=====================================================================
299,901
=====================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
PHARMACEUTICALS-9.24%
Abbott Laboratories 7,500 $ 304,725
- ---------------------------------------------------------------------
Bristol-Myers Squibb Co. 12,400 316,696
- ---------------------------------------------------------------------
Johnson & Johnson 7,300 411,428
- ---------------------------------------------------------------------
Merck & Co. Inc. 7,500 436,350
- ---------------------------------------------------------------------
Pfizer Inc. 12,300 378,225
- ---------------------------------------------------------------------
Wyeth 10,600 461,418
=====================================================================
2,308,842
=====================================================================
PROPERTY & CASUALTY INSURANCE-3.50%
ACE Ltd. (Cayman Islands) 9,000 297,720
- ---------------------------------------------------------------------
MGIC Investment Corp. 5,900 268,214
- ---------------------------------------------------------------------
St. Paul Cos., Inc. (The) 9,000 309,060
=====================================================================
874,994
=====================================================================
RESTAURANTS-1.87%
McDonald's Corp. 9,300 159,030
- ---------------------------------------------------------------------
Outback Steakhouse, Inc. 8,600 307,364
=====================================================================
466,394
=====================================================================
SEMICONDUCTORS-2.48%
Intel Corp. 19,300 355,120
- ---------------------------------------------------------------------
Microchip Technology Inc. 5,500 114,345
- ---------------------------------------------------------------------
Texas Instruments Inc. 8,100 149,769
=====================================================================
619,234
=====================================================================
SOFT DRINKS-0.70%
Coca-Cola Co. (The) 4,300 173,720
=====================================================================
SYSTEMS SOFTWARE-1.47%
Microsoft Corp. 14,400 368,208
=====================================================================
Total Common Stocks & Other Equity
Interests (Cost $22,165,376) 22,441,549
=====================================================================
<Caption>
PRINCIPAL
AMOUNT
BONDS & NOTES-4.53%
AEROSPACE & DEFENSE-0.35%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06 $ 75,000 87,973
======================================================================
BROADCASTING & CABLE TV-0.97%
Clear Channel Communications, Inc., Sr.
Unsec. Notes, 7.88%, 06/15/05 50,000 55,357
- ----------------------------------------------------------------------
TCI Communications, Inc., Medium Term Notes,
8.35%, 02/15/05 100,000 108,405
- ----------------------------------------------------------------------
Turner Broadcasting System, Inc., Sr. Notes,
7.40%, 02/01/04 75,000 77,907
======================================================================
241,669
======================================================================
CONSUMER FINANCE-0.44%
Household Finance Corp., Sr. Unsec. Global
Notes, 8.00%, 05/09/05 100,000 111,411
======================================================================
</Table>
FS-330
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES-0.81%
Bear Stearns, Cos. Inc. (The), Global Notes,
3.00%, 03/30/06 $100,000 $ 101,682
- ----------------------------------------------------------------------
General Electric Capital Corp.-Series A,
Medium Term Global Notes, 2.85%, 01/30/06 100,000 101,612
======================================================================
203,294
======================================================================
ELECTRIC UTILITIES-0.71%
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05 160,000 177,342
======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.68%
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds, 8.25%, 06/15/05 50,000 55,499
- ----------------------------------------------------------------------
SBC Communications Capital Corp.-Series D,
Medium Term Notes, 7.11%, 08/14/06 100,000 113,676
======================================================================
169,175
======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-0.57%
Anadarko Petroleum Corp. (Canada), Unsec.
Yankee Deb., 7.38%, 05/15/06 $125,000 $ 142,468
======================================================================
Total Bonds & Notes (Cost $1,125,153) 1,133,332
======================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-6.94%
STIC Liquid Assets Portfolio(a) 867,590 867,590
- ----------------------------------------------------------------------
STIC Prime Portfolio(a) 867,590 867,590
======================================================================
Total Money Market Funds (Cost
$1,735,180) 1,735,180
======================================================================
TOTAL INVESTMENTS-101.26% (Cost $25,025,709) 25,310,061
======================================================================
OTHER ASSETS LESS LIABILITIES-(1.26%) (315,593)
======================================================================
NET ASSETS-100.00% $24,994,468
______________________________________________________________________
======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Deb. - Debentures
Gtd. - Guaranteed
Sr. - Senior
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
Notes to Schedule of Investments:
(a) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-331
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$25,025,709) $25,310,061
- -----------------------------------------------------------
Receivables for:
Investments sold 44,241
- -----------------------------------------------------------
Fund shares sold 104,405
- -----------------------------------------------------------
Dividends and interest 48,090
- -----------------------------------------------------------
Investment for deferred compensation plan 3,430
- -----------------------------------------------------------
Other assets 25,544
===========================================================
Total assets 25,535,771
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 418,559
- -----------------------------------------------------------
Fund shares reacquired 48,779
- -----------------------------------------------------------
Deferred compensation plan 3,430
- -----------------------------------------------------------
Accrued distribution fees 20,239
- -----------------------------------------------------------
Accrued trustees' fees 2,017
- -----------------------------------------------------------
Accrued transfer agent fees 18,921
- -----------------------------------------------------------
Accrued operating expenses 29,358
===========================================================
Total liabilities 541,303
===========================================================
Net assets applicable to shares outstanding $24,994,468
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $25,855,111
- -----------------------------------------------------------
Undistributed net investment income (loss) (14,614)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (1,130,381)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 284,352
===========================================================
$24,994,468
___________________________________________________________
===========================================================
NET ASSETS:
Class A $11,486,703
___________________________________________________________
===========================================================
Class B $11,178,616
___________________________________________________________
===========================================================
Class C $ 2,329,149
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 1,292,859
___________________________________________________________
===========================================================
Class B 1,268,923
___________________________________________________________
===========================================================
Class C 264,686
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 8.88
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $8.88 divided by
94.50%) $ 9.40
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 8.81
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 8.80
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-332
STATEMENT OF OPERATIONS
For the six months ended April 30, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $312) $ 172,324
- ------------------------------------------------------------------------
Dividends from affiliated money market funds 16,906
- ------------------------------------------------------------------------
Interest 3,676
========================================================================
Total investment income 192,906
========================================================================
EXPENSES:
Advisory fees 73,264
- ------------------------------------------------------------------------
Administrative services fees 24,795
- ------------------------------------------------------------------------
Custodian fees 12,536
- ------------------------------------------------------------------------
Distribution fees -- Class A 15,226
- ------------------------------------------------------------------------
Distribution fees -- Class B 45,345
- ------------------------------------------------------------------------
Distribution fees -- Class C 8,837
- ------------------------------------------------------------------------
Transfer agent fees 47,123
- ------------------------------------------------------------------------
Trustees' fees 5,378
- ------------------------------------------------------------------------
Registration and filing fees 20,578
- ------------------------------------------------------------------------
Professional fees 15,231
- ------------------------------------------------------------------------
Other 9,380
========================================================================
Total expenses 277,693
========================================================================
Less: Fees waived and expenses paid indirectly (72,222)
========================================================================
Net expenses 205,471
========================================================================
Net investment income (loss) (12,565)
========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (927,266)
- ------------------------------------------------------------------------
Foreign currencies (1,876)
- ------------------------------------------------------------------------
Option contracts written 4,942
========================================================================
(924,200)
========================================================================
Change in net unrealized appreciation of investment
securities 1,505,244
========================================================================
Net gain from investment securities, foreign currencies and
option contracts 581,044
========================================================================
Net increase in net assets resulting from operations $ 568,479
________________________________________________________________________
========================================================================
</Table>
See Notes to Financial Statements.
FS-333
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2003 and the period December 31, 2001 (date
operations commenced) through October 31, 2002
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (12,565) $ (40,975)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts (924,200) (206,181)
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 1,505,244 (1,220,892)
========================================================================================
Net increase (decrease) in net assets resulting from
operations 568,479 (1,468,048)
========================================================================================
Share transactions-net:
Class A 3,319,861 8,520,795
- ----------------------------------------------------------------------------------------
Class B 3,877,405 7,728,359
- ----------------------------------------------------------------------------------------
Class C 1,179,369 1,268,248
========================================================================================
Net increase in net assets resulting from share
transactions 8,376,635 17,517,402
========================================================================================
Net increase in net assets 8,945,114 16,049,354
========================================================================================
NET ASSETS:
Beginning of period 16,049,354 --
========================================================================================
End of period $24,994,468 $16,049,354
________________________________________________________________________________________
========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Large Cap Core Equity Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers multiple classes of shares. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund.
The Fund's primary investment objective is growth of capital with a
secondary objective of current income. Each company listed in the Schedule of
Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically
FS-334
authorized by the Board of Trustees. Short-term obligations having 60 days
or less to maturity and commercial paper are valued at amortized cost which
approximates market value. For purposes of determining net asset value per
share, futures and option contracts generally will be valued 15 minutes
after the close of the customary trading session of the New York Stock
Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
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. Premiums and
discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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 are included with the
net realized and unrealized gain or loss from investments in the Statement
of Operations.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
H. 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. Transfer agency fees and expenses
and other shareholder recordkeeping fees and expenses are charged to each
class pursuant to a transfer agency and service agreement adopted by the
Fund with respect to such class. All other expenses are allocated among the
classes based on relative net assets.
FS-335
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $1
billion of the Fund's average daily net assets, plus 0.70% of the Fund's next $1
billion of average daily net assets, plus 0.625% of the Fund's average daily net
assets in excess of $2 billion. AIM has voluntarily agreed to waive fees and/or
reimburse expenses (excluding interest, taxes, dividends on short sales,
extraordinary items and increases in expenses due to expense offset
arrangements, if any) for Class A, Class B and Class C shares to the extent
necessary to limit the total annual fund operating expenses of Class A shares to
1.75%. Voluntary fee waivers or reimbursements may be rescinded, terminated or
modified at any time without further notice to investors. During periods of
voluntary fee waivers or reimbursements, to the extent that the annualized
expense ratio does not exceed the voluntary expense limit for the period, AIM
will retain its ability to be reimbursed for such fee waivers or reimbursements
prior to the end of each fiscal year. Further, AIM has voluntarily agreed to
waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds in which the Fund has invested
(excluding investments made in money market funds with cash collateral from
securities loaned by the Fund). For the six months ended April 30, 2003, AIM
waived fees of $72,073.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2003, AIM
was paid $24,795 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 2003,
AFS retained $21,010 for such services.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and Class C shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B or Class C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. NASD
Rules also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the six months ended April 30, 2003, the Class A, Class B and Class C
shares paid $15,226, $45,345 and $8,837, respectively.
Front-end sales commissions and contingent deferred sales charges
(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. Contingent deferred
sales charges ("CDSCs") are deducted from redemption proceeds prior to
remittance to the shareholder. During the six months ended April 30, 2003, AIM
Distributors retained $9,120 in front-end sales commissions from the sale of
Class A shares and $0, $0 and $161 for Class A, Class B and Class C shares,
respectively, for CDSCs imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended April 30, 2003, the Fund paid legal fees of
$1,241 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $139 and reductions in
custodian fees of $10 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $149.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
AIM has established an interfund lending facility 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.
During the reporting period, the Fund was a participant in a committed line
of credit facility with a syndicate administered by Citibank, N.A. The Fund
could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the line of credit could borrow on a first come, first served basis.
The funds which were party to the line of credit were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed line of credit facility expired May 20, 2003.
During the six months ended April 30, 2003, the Fund did not borrow under
the interfund lending or the committed line of credit facility.
FS-336
NOTE 6--CALL OPTION CONTRACTS WRITTEN
Transactions in call options written during the six months ended April 30, 2003
are summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------
Beginning of period -- $ --
- -------------------------------------------------------------------------------
Written 92 7,576
- -------------------------------------------------------------------------------
Closed (92) (7,576)
===============================================================================
End of period -- $ --
_______________________________________________________________________________
===============================================================================
</Table>
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -------------------------------------------------------------------------------
October 31, 2010 $154,832
_______________________________________________________________________________
===============================================================================
</Table>
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $21,761,175 and $11,944,947, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of investment securities $ 772,332
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (511,761)
===============================================================================
Net unrealized appreciation of investment securities $ 260,571
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $25,049,490.
</Table>
NOTE 9--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with a CDSC. Under some
circumstances, Class A shares are subject to CDSCs. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase. Changes in shares outstanding during the six months
ended April 30, 2003 and the period December 31, 2001 (date operations
commenced) through October 31, 2002 were as follows:
<Table>
<Caption>
DECEMBER 31, 2001
(DATE OPERATIONS
SIX MONTHS ENDED COMMENCED) TO
APRIL 30, 2003 OCTOBER 31, 2002
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
Sold:
Class A 938,159 $ 8,060,299 1,167,599 $10,833,949
- -----------------------------------------------------------------------------------------------------------------
Class B 691,981 5,908,225 976,016 9,080,411
- -----------------------------------------------------------------------------------------------------------------
Class C 239,144 2,059,276 158,298 1,525,564
=================================================================================================================
Conversion of Class B shares to Class A shares:
Class A 12,970 112,778 2,855 25,596
- -----------------------------------------------------------------------------------------------------------------
Class B (13,069) (112,778) (2,981) (25,596)
=================================================================================================================
Reacquired:
Class A (558,877) (4,853,216) (269,847) (2,338,750)
- -----------------------------------------------------------------------------------------------------------------
Class B (230,609) (1,918,042) (152,415) (1,326,456)
- -----------------------------------------------------------------------------------------------------------------
Class C (103,448) (879,907) (29,308) (257,316)
=================================================================================================================
976,251 $ 8,376,635 1,850,217 $17,517,402
_________________________________________________________________________________________________________________
=================================================================================================================
</Table>
FS-337
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.70 $ 10.00
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) (0.03)(a)
- -------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.17 (1.27)
===========================================================================================
Total from investment operations 0.18 (1.30)
===========================================================================================
Net asset value, end of period $ 8.88 $ 8.70
___________________________________________________________________________________________
===========================================================================================
Total return(b) 2.07% (13.00)%
___________________________________________________________________________________________
===========================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $11,487 $ 7,834
___________________________________________________________________________________________
===========================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.74%(c) 1.75%(d)
- -------------------------------------------------------------------------------------------
Without fee waivers 2.48%(c) 4.26%(d)
===========================================================================================
Ratio of net investment income (loss) to average net
assets 0.23%(c) (0.34)%(d)
___________________________________________________________________________________________
===========================================================================================
Portfolio turnover rate(e) 69% 42%
___________________________________________________________________________________________
===========================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$8,772,887.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS B
----------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.65 $ 10.00
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.08)(a)
- -------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.18 (1.27)
===========================================================================================
Total from investment operations 0.16 (1.35)
===========================================================================================
Net asset value, end of period $ 8.81 $ 8.65
___________________________________________________________________________________________
===========================================================================================
Total return(b) 1.85% (13.50)%
___________________________________________________________________________________________
===========================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $11,179 $ 7,100
___________________________________________________________________________________________
===========================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.39%(c) 2.40%(d)
- -------------------------------------------------------------------------------------------
Without fee waivers 3.13%(c) 4.91%(d)
===========================================================================================
Ratio of net investment income (loss) to average net
assets (0.42)%(c) (0.99)%(d)
___________________________________________________________________________________________
===========================================================================================
Portfolio turnover rate(e) 69% 42%
___________________________________________________________________________________________
===========================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$9,144,215.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-338
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.65 $ 10.00
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.08)(a)
- -------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.17 (1.27)
===========================================================================================
Total from investment operations 0.15 (1.35)
===========================================================================================
Net asset value, end of period $ 8.80 $ 8.65
___________________________________________________________________________________________
===========================================================================================
Total return(b) 1.73% (13.50)%
___________________________________________________________________________________________
===========================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,329 $ 1,116
___________________________________________________________________________________________
===========================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.39%(c) 2.40%(d)
- -------------------------------------------------------------------------------------------
Without fee waivers 3.13%(c) 4.91%(d)
===========================================================================================
Ratio of net investment income (loss) to average net
assets (0.42)%(c) (0.99)%(d)
___________________________________________________________________________________________
===========================================================================================
Portfolio turnover rate(e) 69% 42%
___________________________________________________________________________________________
===========================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$1,781,975.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-339
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-95.65%
AEROSPACE & DEFENSE-0.63%
United Technologies Corp. 26,200 $ 1,619,422
=========================================================================
AIRLINES-0.66%
Ryanair Holdings PLC-ADR (Ireland)(a) 42,600 1,689,942
=========================================================================
APPAREL RETAIL-1.29%
Gap, Inc. (The) 99,000 1,646,370
- -------------------------------------------------------------------------
TJX Cos., Inc. (The) 86,500 1,665,125
=========================================================================
3,311,495
=========================================================================
APPLICATION SOFTWARE-0.86%
Electronic Arts Inc.(a) 37,300 2,210,771
=========================================================================
BANKS-5.04%
Bank of America Corp. 35,000 2,591,750
- -------------------------------------------------------------------------
Charter One Financial, Inc. 55,350 1,607,918
- -------------------------------------------------------------------------
First Tennessee National Corp. 50,400 2,207,520
- -------------------------------------------------------------------------
Southtrust Corp. 52,100 1,399,458
- -------------------------------------------------------------------------
U.S. Bancorp 69,900 1,548,285
- -------------------------------------------------------------------------
Washington Mutual, Inc. 51,700 2,042,150
- -------------------------------------------------------------------------
Wells Fargo & Co. 31,300 1,510,538
=========================================================================
12,907,619
=========================================================================
BIOTECHNOLOGY-2.85%
Amgen Inc.(a) 94,000 5,763,140
- -------------------------------------------------------------------------
Genentech, Inc.(a) 40,300 1,530,997
=========================================================================
7,294,137
=========================================================================
BREWERS-1.16%
Anheuser-Busch Cos., Inc. 59,500 2,967,860
=========================================================================
CASINOS & GAMBLING-1.06%
International Game Technology(a) 31,300 2,701,190
=========================================================================
CATALOG RETAIL-0.85%
USA Interactive(a) 72,500 2,171,375
=========================================================================
COMPUTER & ELECTRONICS RETAIL-0.77%
Best Buy Co., Inc.(a) 57,000 1,971,060
=========================================================================
COMPUTER HARDWARE-4.19%
Dell Computer Corp.(a) 263,900 7,629,349
- -------------------------------------------------------------------------
International Business Machines Corp. 36,500 3,098,850
=========================================================================
10,728,199
=========================================================================
COMPUTER STORAGE & PERIPHERALS-2.09%
EMC Corp.(a) 273,000 2,481,570
- -------------------------------------------------------------------------
Lexmark International, Inc.(a) 38,600 2,876,086
=========================================================================
5,357,656
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
DATA PROCESSING SERVICES-2.48%
First Data Corp. 106,600 $ 4,181,918
- -------------------------------------------------------------------------
Paychex, Inc. 69,600 2,167,344
=========================================================================
6,349,262
=========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.44%
Apollo Group, Inc.-Class A(a) 67,800 3,674,692
=========================================================================
DIVERSIFIED FINANCIAL SERVICES-5.10%
American Express Co. 57,800 2,188,308
- -------------------------------------------------------------------------
Citigroup Inc. 52,000 2,041,000
- -------------------------------------------------------------------------
Fannie Mae 28,100 2,034,159
- -------------------------------------------------------------------------
Moody's Corp. 32,000 1,545,280
- -------------------------------------------------------------------------
SLM Corp. 46,900 5,252,800
=========================================================================
13,061,547
=========================================================================
FOOTWEAR-0.80%
NIKE, Inc.-Class B 38,300 2,050,199
=========================================================================
GENERAL MERCHANDISE STORES-0.86%
Wal-Mart Stores, Inc. 39,100 2,202,112
=========================================================================
HEALTH CARE EQUIPMENT-7.79%
Becton, Dickinson & Co. 104,300 3,692,220
- -------------------------------------------------------------------------
Boston Scientific Corp.(a) 91,400 3,934,770
- -------------------------------------------------------------------------
Medtronic, Inc. 45,100 2,153,074
- -------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 60,200 3,158,092
- -------------------------------------------------------------------------
Stryker Corp. 39,600 2,653,596
- -------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 92,800 4,352,320
=========================================================================
19,944,072
=========================================================================
HEALTH CARE SUPPLIES-1.27%
Alcon, Inc. (Switzerland)(a) 73,700 3,246,485
=========================================================================
HOME IMPROVEMENT RETAIL-0.56%
Lowe's Cos., Inc. 32,700 1,435,203
=========================================================================
HOUSEHOLD PRODUCTS-4.76%
Clorox Co. (The) 66,800 3,020,696
- -------------------------------------------------------------------------
Colgate-Palmolive Co. 55,500 3,172,935
- -------------------------------------------------------------------------
Procter & Gamble Co. (The) 66,800 6,001,980
=========================================================================
12,195,611
=========================================================================
HOUSEWARES & SPECIALTIES-0.73%
Fortune Brands, Inc. 38,600 1,868,240
=========================================================================
INTERNET RETAIL-2.23%
Amazon.com, Inc.(a) 88,600 2,540,162
- -------------------------------------------------------------------------
eBay Inc.(a) 34,300 3,182,011
=========================================================================
5,722,173
=========================================================================
INTERNET SOFTWARE & SERVICES-0.93%
Yahoo! Inc.(a) 95,900 2,376,402
=========================================================================
</Table>
FS-340
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
LEISURE PRODUCTS-1.13%
Mattel, Inc. 132,800 $ 2,887,072
=========================================================================
LIFE & HEALTH INSURANCE-1.29%
AFLAC Inc. 100,700 3,293,897
=========================================================================
MANAGED HEALTH CARE-2.19%
Anthem, Inc.(a) 23,200 1,592,448
- -------------------------------------------------------------------------
UnitedHealth Group Inc. 43,600 4,016,868
=========================================================================
5,609,316
=========================================================================
MOVIES & ENTERTAINMENT-0.62%
Fox Entertainment Group, Inc.-Class A(a) 62,200 1,579,880
=========================================================================
NETWORKING EQUIPMENT-2.60%
Cisco Systems, Inc.(a) 442,200 6,650,688
=========================================================================
OFFICE ELECTRONICS-0.81%
Canon Inc. (Japan) 51,000 2,067,712
=========================================================================
PERSONAL PRODUCTS-1.26%
Avon Products, Inc. 55,300 3,216,801
=========================================================================
PHARMACEUTICALS-12.63%
Allergan, Inc. 49,000 3,442,250
- -------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 31,000 1,603,320
- -------------------------------------------------------------------------
Johnson & Johnson 167,900 9,462,844
- -------------------------------------------------------------------------
Mylan Laboratories Inc. 69,900 1,976,073
- -------------------------------------------------------------------------
Pfizer Inc. 299,300 9,203,475
- -------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 94,000 4,389,800
- -------------------------------------------------------------------------
Wyeth 52,000 2,263,560
=========================================================================
32,341,322
=========================================================================
PROPERTY & CASUALTY INSURANCE-1.51%
Ambac Financial Group, Inc. 32,400 1,890,540
- -------------------------------------------------------------------------
Progressive Corp. (The) 29,200 1,985,600
=========================================================================
3,876,140
=========================================================================
RESTAURANTS-0.55%
Starbucks Corp.(a) 59,500 1,397,655
=========================================================================
SEMICONDUCTOR EQUIPMENT-0.56%
Applied Materials, Inc.(a) 99,000 1,445,400
=========================================================================
SEMICONDUCTORS-5.39%
Altera Corp.(a) 135,800 2,146,998
- -------------------------------------------------------------------------
Analog Devices, Inc.(a) 58,400 1,934,208
- -------------------------------------------------------------------------
Intel Corp. 102,000 1,876,800
- -------------------------------------------------------------------------
Linear Technology Corp. 105,900 3,650,373
- -------------------------------------------------------------------------
Texas Instruments Inc. 53,100 981,819
- -------------------------------------------------------------------------
Xilinx, Inc.(a) 118,800 3,215,916
=========================================================================
13,806,114
=========================================================================
SOFT DRINKS-1.23%
PepsiCo, Inc. 73,000 3,159,440
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
SPECIALTY STORES-2.96%
AutoZone, Inc.(a) 30,300 $ 2,448,543
- -------------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 38,500 1,521,135
- -------------------------------------------------------------------------
Staples, Inc.(a) 189,800 3,613,792
=========================================================================
7,583,470
=========================================================================
SYSTEMS SOFTWARE-8.79%
Adobe Systems Inc. 57,500 1,987,200
- -------------------------------------------------------------------------
Microsoft Corp. 500,600 12,800,342
- -------------------------------------------------------------------------
Oracle Corp.(a) 355,600 4,224,528
- -------------------------------------------------------------------------
Symantec Corp.(a) 44,900 1,973,355
- -------------------------------------------------------------------------
VERITAS Software Corp.(a) 69,000 1,518,690
=========================================================================
22,504,115
=========================================================================
TELECOMMUNICATIONS EQUIPMENT-0.65%
Nokia Oyj-ADR (Finland) 100,000 1,657,000
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.08%
Nextel Communications, Inc.-Class A(a) 186,400 2,756,856
=========================================================================
Total Common Stocks & Other Equity Interests
(Cost $226,876,550) 244,889,602
=========================================================================
MONEY MARKET FUNDS-3.84%
STIC Liquid Assets Portfolio(b) 4,912,665 4,912,665
- -------------------------------------------------------------------------
STIC Prime Portfolio(b) 4,912,665 4,912,665
=========================================================================
Total Money Market Funds (Cost
$9,825,330) 9,825,330
=========================================================================
TOTAL INVESTMENTS-99.49% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $236,701,880) 254,714,932
=========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-4.84%
STIC Liquid Assets Portfolio (b)(c) 12,397,069 12,397,069
=========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $12,397,069) 12,397,069
=========================================================================
TOTAL INVESTMENTS-104.33% (Cost $249,098,949) 267,112,001
=========================================================================
OTHER ASSETS LESS LIABILITIES-(4.33%) (11,084,971)
=========================================================================
NET ASSETS-100.00% $256,027,030
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
(c) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned.
See Notes to Financial Statements.
FS-341
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$249,098,949)* $ 267,112,001
- ------------------------------------------------------------
Foreign currencies, at value (cost $74) 78
- ------------------------------------------------------------
Receivables for:
Investments sold 9,270,283
- ------------------------------------------------------------
Fund shares sold 885,394
- ------------------------------------------------------------
Dividends 114,490
- ------------------------------------------------------------
Investment for deferred compensation plan 20,227
- ------------------------------------------------------------
Other assets 27,047
============================================================
Total assets 277,429,520
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 7,951,836
- ------------------------------------------------------------
Fund shares reacquired 551,821
- ------------------------------------------------------------
Deferred compensation plan 20,227
- ------------------------------------------------------------
Collateral upon return of securities loaned 12,397,069
- ------------------------------------------------------------
Accrued distribution fees 207,508
- ------------------------------------------------------------
Accrued trustees' fees 848
- ------------------------------------------------------------
Accrued transfer agent fees 199,222
- ------------------------------------------------------------
Accrued operating expenses 73,959
============================================================
Total liabilities 21,402,490
============================================================
Net assets applicable to shares outstanding $ 256,027,030
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 646,940,668
- ------------------------------------------------------------
Undistributed net investment income (loss) (1,702,644)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (407,224,443)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 18,013,449
============================================================
$ 256,027,030
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 113,361,183
____________________________________________________________
============================================================
Class B $ 105,786,416
____________________________________________________________
============================================================
Class C $ 36,086,004
____________________________________________________________
============================================================
Class R $ 793,427
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 15,143,765
____________________________________________________________
============================================================
Class B 14,520,472
____________________________________________________________
============================================================
Class C 4,950,139
____________________________________________________________
============================================================
Class R 105,949
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 7.49
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $7.49 divided by
94.50%) $ 7.93
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 7.29
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 7.29
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 7.49
____________________________________________________________
============================================================
</Table>
* At April 30, 2003, securities with an aggregate market value of $11,793,927
were on loan to brokers.
See Notes to Financial Statements.
FS-342
STATEMENT OF OPERATIONS
For the six months ended April 30, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $6,703) $ 965,050
- --------------------------------------------------------------------------
Dividends from affiliated money market funds 50,960
- --------------------------------------------------------------------------
Interest 6,517
- --------------------------------------------------------------------------
Security lending income 2,496
==========================================================================
Total investment income 1,025,023
==========================================================================
EXPENSES:
Advisory fees 888,019
- --------------------------------------------------------------------------
Administrative services fees 24,795
- --------------------------------------------------------------------------
Custodian fees 26,968
- --------------------------------------------------------------------------
Distribution fees -- Class A 179,139
- --------------------------------------------------------------------------
Distribution fees -- Class B 497,663
- --------------------------------------------------------------------------
Distribution fees -- Class C 172,521
- --------------------------------------------------------------------------
Distribution fees -- Class R 1,008
- --------------------------------------------------------------------------
Transfer agent fees 784,492
- --------------------------------------------------------------------------
Trustees' fees 4,961
- --------------------------------------------------------------------------
Other 125,546
==========================================================================
Total expenses 2,705,112
==========================================================================
Less: Fees waived and expenses paid indirectly (2,852)
==========================================================================
Net expenses 2,702,260
==========================================================================
Net investment income (loss) (1,677,237)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (16,312,113)
- --------------------------------------------------------------------------
Foreign currencies (23,083)
- --------------------------------------------------------------------------
Futures contracts (254,779)
==========================================================================
(16,589,975)
==========================================================================
Change in net unrealized appreciation of:
Investment securities 21,458,304
- --------------------------------------------------------------------------
Foreign currencies 249
==========================================================================
21,458,553
==========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 4,868,578
==========================================================================
Net increase in net assets resulting from operations $ 3,191,341
__________________________________________________________________________
==========================================================================
</Table>
See Notes to Financial Statements.
FS-343
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2003 and the year ended October 31, 2002
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,677,237) $ (4,375,738)
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts (16,589,975) (87,652,595)
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, and foreign currencies 21,458,553 38,162,681
============================================================================================
Net increase (decrease) in net assets resulting from
operations 3,191,341 (53,865,652)
============================================================================================
Share transactions-net:
Class A 6,282,338 (10,042,539)
- --------------------------------------------------------------------------------------------
Class B 717,463 (18,237,379)
- --------------------------------------------------------------------------------------------
Class C (860,308) (12,801,049)
- --------------------------------------------------------------------------------------------
Class R 751,840 10,502
============================================================================================
Net increase (decrease) in net assets resulting from
share transactions 6,891,333 (41,070,465)
============================================================================================
Net increase (decrease) in net assets 10,082,674 (94,936,117)
============================================================================================
NET ASSETS:
Beginning of period 245,944,356 340,880,473
============================================================================================
End of period $ 256,027,030 $ 245,944,356
____________________________________________________________________________________________
============================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Large Cap Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers multiple classes of shares. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States unless
otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at
FS-344
amortized cost which approximates market value. For purposes of determining
net asset value per share, futures and option contracts generally will be
valued 15 minutes after the close of the customary trading session of the
New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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 are included with the
net realized and unrealized gain or loss from investments in the Statement
of Operations.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
H. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading.
FS-345
Variation margin payments are made or received depending upon whether
unrealized gains or losses are incurred. When the contracts are closed, the
Fund recognizes a realized gain or loss equal to the difference between the
proceeds from, or cost of, the closing transaction and the Fund's basis in
the contract. Risks also include to varying degrees, the risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities.
J. 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. Transfer agency fees and expenses
and other shareholder recordkeeping fees and expenses are charged to each
class pursuant to a transfer agency and service agreement adopted by the
Fund with respect to such class. All other expenses are allocated among the
classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $1 billion of the Fund's average daily net assets, plus 0.70% over $1
billion to and including $2 billion of the Fund's average daily net assets and
0.625% of the Fund's average daily net assets over $2 billion. AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market funds in which
the Fund has invested (excluding investments made in money market funds with
cash collateral from securities loaned by the Fund). For the six months ended
April 30, 2003, AIM waived fees of $1,042.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2003, AIM
was paid $24,795 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 2003,
AFS retained $399,842 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C and Class R 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 shares, Class B shares, Class C shares and Class R shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.35% of the Fund's average daily net assets of Class A
shares, 1.00% of the average daily net assets of Class B and Class C shares and
0.50% of the average daily net assets of Class R shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B, Class C or Class R shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the six months ended April 30,
2003, the Class A, Class B, Class C and Class R shares paid $179,139, $497,663,
$172,521 and $1,008, respectively.
Front-end sales commissions and contingent deferred sales charges
(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. Contingent deferred
sales charges ("CDSCs") are deducted from redemption proceeds prior to
remittance to the shareholder. During the six months ended April 30, 2003, AIM
Distributors retained $31,140 in front-end sales commissions from the sale of
Class A shares and $381, $69, $2,250 and $0 for Class A, Class B, Class C and
Class R shares, respectively, for CDSCs imposed upon redemptions by
shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended April 30, 2003, the Fund paid legal fees of
$1,448 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $1,810 under an expense
offset arrangement which resulted in a reduction of the Fund's total expenses of
$1,810.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
AIM has established an interfund lending facility 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.
During the reporting period, the Fund was a participant in a committed line
of credit facility with a syndicate administered by Citibank, N.A. The Fund
could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the line of credit could borrow on a first come, first served basis.
The funds which were party to the line of credit were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed line of credit facility expired May 20, 2003.
During the six months ended April 30, 2003, the Fund did not borrow under
the interfund lending or the committed line of credit facility.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such
FS-346
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral pursuant to these loans is
invested in short-term money market instruments or affiliated money market
funds. 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. 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 securities loaned. Therefore, the value of
the collateral may be temporarily less than the value of the securities on loan.
At April 30, 2003, securities with an aggregate value of $11,793,927 were on
loan to brokers. The loans were secured by cash collateral of $12,397,069
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended April 30, 2003, the Fund received fees of $2,496
for securities lending.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
October 31, 2007 $ 380,100
- ----------------------------------------------------------
October 31, 2008 27,182,658
- ----------------------------------------------------------
October 31, 2009 267,323,492
- ----------------------------------------------------------
October 31, 2010 94,116,910
==========================================================
Total capital loss carryforward $389,003,160
__________________________________________________________
==========================================================
</Table>
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $131,201,580 and $130,646,261, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $26,536,461
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (8,722,374)
===========================================================
Net unrealized appreciation of investment
securities $17,814,087
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $249,297,914.
</Table>
NOTE 9--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares,
Class B shares, Class C shares and Class R shares. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with a
CDSC. Under some circumstances, Class A shares and Class R shares are subject to
CDSCs. Class R shares are sold at net asset value. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase. Changes in shares outstanding during the six months
ended April 30, 2003 and the year ended October 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,725,939 $ 26,619,797 5,159,669 $ 44,948,977
- ----------------------------------------------------------------------------------------------------------------------
Class B 2,428,450 17,064,572 3,444,001 28,987,280
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,144,140 7,982,131 1,465,202 12,332,848
- ----------------------------------------------------------------------------------------------------------------------
Class R* 109,815 789,275 1,259 10,502
======================================================================================================================
Conversion of Class B shares to Class A shares:
Class A 70,696 504,974 136,498 1,177,906
- ----------------------------------------------------------------------------------------------------------------------
Class B (72,526) (504,974) (139,167) (1,177,906)
======================================================================================================================
Reacquired:
Class A (2,934,805) (20,842,433) (6,691,678) (56,169,422)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,284,123) (15,842,135) (5,553,485) (46,046,753)
- ----------------------------------------------------------------------------------------------------------------------
Class C (1,270,180) (8,842,439) (3,059,594) (25,133,897)
- ----------------------------------------------------------------------------------------------------------------------
Class R* (5,125) (37,435) -- --
======================================================================================================================
912,281 $ 6,891,333 (5,237,295) $(41,070,465)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
FS-347
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------------------------------------------
MARCH 1, 1999
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, -------------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.37 $ 8.82 $ 17.74 $ 11.29 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.09)(a) (0.08)(a) (0.15)(a) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.16 (1.36) (8.84) 6.60 1.33
=================================================================================================================================
Total from investment operations 0.12 (1.45) (8.92) 6.45 1.29
=================================================================================================================================
Net asset value, end of period $ 7.49 $ 7.37 $ 8.82 $ 17.74 $11.29
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.63% (16.44)% (50.28)% 57.13% 13.70%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $113,361 $105,320 $138,269 $225,255 $7,785
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.92%(c) 1.70% 1.57% 1.58% 1.53%(d)(e)
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (1.05)%(c) (1.01)% (0.72)% (0.82)% (0.59)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 57% 111% 124% 113% 21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$103,213,331.
(d) Annualized.
(e) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 3.63% (annualized).
(f) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------
APRIL 5, 1999
SIX MONTHS (DATE SALES
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, -------------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.20 $ 8.67 $ 17.54 $ 11.25 $11.02
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.14)(a) (0.16)(a) (0.27)(a) (0.08)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.15 (1.33) (8.71) 6.56 0.31
=================================================================================================================================
Total from investment operations 0.09 (1.47) (8.87) 6.29 0.23
=================================================================================================================================
Net asset value, end of period $ 7.29 $ 7.20 $ 8.67 $ 17.54 $11.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.25% (16.96)% (50.57)% 55.91% 2.09%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $105,786 $104,040 $144,747 $210,224 $5,183
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.57%(c) 2.35% 2.23% 2.24% 2.23%(d)(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.70)%(c) (1.66)% (1.39)% (1.48)% (1.29)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 57% 111% 124% 113% 21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$100,357,546.
(d) Annualized.
(e) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 4.33% (annualized).
(f) Not annualized for periods less than one year.
FS-348
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------------------
APRIL 5, 1999
SIX MONTHS (DATE SALES
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ----------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.21 $ 8.67 $ 17.55 $ 11.25 $11.02
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.14)(a) (0.16)(a) (0.27)(a) (0.08)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.14 (1.32) (8.72) 6.57 0.31
=================================================================================================================================
Total from investment operations 0.08 (1.46) (8.88) 6.30 0.23
=================================================================================================================================
Net asset value, end of period $ 7.29 $ 7.21 $ 8.67 $ 17.55 $11.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.11% (16.84)% (50.60)% 56.00% 2.09%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $36,086 $36,575 $57,865 $79,392 $ 901
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.57%(c) 2.35% 2.23% 2.24% 2.23%(d)(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.70)%(c) (1.66)% (1.39)% (1.48)% (1.29)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 57% 111% 124% 113% 21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$34,790,201.
(d) Annualized.
(e) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 4.33% (annualized).
(f) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.37 $ 8.40
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.04)(a)
- --------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.16 (0.99)
============================================================================================
Total from investment operations 0.12 (1.03)
============================================================================================
Net asset value, end of period $ 7.49 $ 7.37
____________________________________________________________________________________________
============================================================================================
Total return(b) 1.63% (12.26)%
____________________________________________________________________________________________
============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 793 $ 9
____________________________________________________________________________________________
============================================================================================
Ratio of expenses to average net assets 2.07%(c) 1.85%(d)
============================================================================================
Ratio of net investment income (loss) to average net assets (1.20)%(c) (1.16)%(d)
____________________________________________________________________________________________
============================================================================================
Portfolio turnover rate(e) 57% 111%
____________________________________________________________________________________________
============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $406,363.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-349
NOTE 11--SUBSEQUENT EVENT
The Board of Directors of INVESCO Stock Funds, Inc. ("Seller") unanimously
approved, on June 9, 2003, an Agreement and Plan of Reorganization (the "Plan")
pursuant to which INVESCO Growth Fund ("Selling Fund"), a series of Seller,
would transfer all of its assets to AIM Large Cap Growth Fund ("Buying Fund"), a
series of AIM Equity Funds ("the Reorganization"). As a result of the
Reorganization, shareholders of Selling Fund would receive shares of Buying Fund
in exchange for their shares of Selling Fund, and Selling Fund would cease
operations.
The Plan requires approval of Selling Fund shareholders and will be submitted
to the shareholders for their consideration at a meeting to be held on or around
September 25, 2003. If the Plan is approved by shareholders of Selling Fund and
certain conditions required by the Plan are satisfied, the transaction is
expected to become effective shortly thereafter.
Effective on or about October 1, 2003, it is anticipated that Selling Fund
will be closed to new investors.
FS-350
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-89.77%
ADVERTISING-2.42%
Lamar Advertising Co.(a) 65,000 $ 2,334,800
- -------------------------------------------------------------------------
Omnicom Group Inc. 20,000 1,238,000
=========================================================================
3,572,800
=========================================================================
AEROSPACE & DEFENSE-2.36%
Alliant Techsystems Inc.(a) 30,000 1,611,600
- -------------------------------------------------------------------------
L-3 Communications Holdings, Inc.(a) 42,000 1,864,800
=========================================================================
3,476,400
=========================================================================
AGRICULTURAL PRODUCTS-0.32%
Fresh Del Monte Produce Inc. (Cayman Islands) 24,000 467,520
=========================================================================
AIR FREIGHT & LOGISTICS-0.50%
Ryder System, Inc. 30,000 745,200
=========================================================================
AIRLINES-0.43%
Ryanair Holdings PLC-ADR (Ireland)(a) 8,000 317,360
- -------------------------------------------------------------------------
Southwest Airlines Co. 20,000 319,200
=========================================================================
636,560
=========================================================================
APPAREL RETAIL-3.22%
Abercrombie & Fitch Co.-Class A(a) 30,000 986,400
- -------------------------------------------------------------------------
AnnTaylor Stores Corp.(a) 50,000 1,183,000
- -------------------------------------------------------------------------
Limited Brands 85,000 1,235,900
- -------------------------------------------------------------------------
TJX Cos., Inc. (The) 70,000 1,347,500
=========================================================================
4,752,800
=========================================================================
APPLICATION SOFTWARE-1.05%
Intuit Inc.(a) 40,000 1,551,200
=========================================================================
AUTO PARTS & EQUIPMENT-0.72%
Gentex Corp.(a) 35,000 1,057,000
=========================================================================
BANKS-1.87%
Comerica Inc. 16,000 696,160
- -------------------------------------------------------------------------
Commerce Bancorp, Inc. 25,000 1,016,750
- -------------------------------------------------------------------------
New York Community Bancorp, Inc. 30,000 1,041,600
=========================================================================
2,754,510
=========================================================================
BREWERS-0.54%
Coors (Adolph) Co.-Class B 15,000 802,950
=========================================================================
BROADCASTING & CABLE TV-1.81%
Cox Radio, Inc.-Class A(a) 30,000 684,300
- -------------------------------------------------------------------------
Hispanic Broadcasting Corp.(a) 60,000 1,539,000
- -------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Univision Communications Inc.-Class A(a) 15,000 454,200
=========================================================================
2,677,500
=========================================================================
BUILDING PRODUCTS-0.57%
Masco Corp. 40,000 $ 842,800
=========================================================================
COMPUTER & ELECTRONICS RETAIL-2.67%
Best Buy Co., Inc.(a) 40,000 1,383,200
- -------------------------------------------------------------------------
CDW Computer Centers, Inc.(a) 60,000 2,558,400
=========================================================================
3,941,600
=========================================================================
COMPUTER HARDWARE-0.34%
Apple Computer, Inc.(a) 35,000 497,000
=========================================================================
CONSTRUCTION & ENGINEERING-0.42%
Jacobs Engineering Group Inc.(a) 15,000 617,250
=========================================================================
CONSTRUCTION, FARM MACHINERY & HEAVY
TRUCKS-0.74%
AGCO Corp.(a) 60,000 1,092,600
=========================================================================
DATA PROCESSING SERVICES-3.79%
BISYS Group, Inc. (The)(a) 125,000 2,110,000
- -------------------------------------------------------------------------
DST Systems, Inc.(a) 50,000 1,535,000
- -------------------------------------------------------------------------
Fiserv, Inc.(a) 40,000 1,177,600
- -------------------------------------------------------------------------
Paychex, Inc. 25,000 778,500
=========================================================================
5,601,100
=========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.98%
Cintas Corp. 25,000 897,500
- -------------------------------------------------------------------------
FTI Consulting, Inc.(a) 12,000 543,000
=========================================================================
1,440,500
=========================================================================
DIVERSIFIED FINANCIAL SERVICES-1.11%
Investors Financial Services Corp. 75,000 1,635,750
=========================================================================
DRUG RETAIL-0.90%
CVS Corp. 55,000 1,331,550
=========================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-1.71%
Celestica Inc. (Canada)(a) 50,000 578,000
- -------------------------------------------------------------------------
Vishay Intertechnology, Inc.(a) 60,000 750,000
- -------------------------------------------------------------------------
Waters Corp.(a) 50,000 1,200,500
=========================================================================
2,528,500
=========================================================================
</Table>
FS-351
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
EMPLOYMENT SERVICES-2.40%
Manpower Inc. 36,000 $ 1,183,680
- -------------------------------------------------------------------------
Robert Half International Inc.(a) 145,000 2,360,600
=========================================================================
3,544,280
=========================================================================
FOOD DISTRIBUTORS-0.39%
SUPERVALU INC. 35,000 576,450
=========================================================================
GENERAL MERCHANDISE STORES-1.21%
Dollar Tree Stores, Inc.(a) 70,000 1,781,500
=========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-8.80%
Accredo Health, Inc.(a) 35,000 516,950
- -------------------------------------------------------------------------
AmerisourceBergen Corp. 30,000 1,735,500
- -------------------------------------------------------------------------
AMN Healthcare Services, Inc.(a) 55,000 500,500
- -------------------------------------------------------------------------
Caremark Rx, Inc.(a) 60,000 1,194,600
- -------------------------------------------------------------------------
Express Scripts, Inc.(a) 50,000 2,948,000
- -------------------------------------------------------------------------
Henry Schein, Inc.(a) 13,000 560,950
- -------------------------------------------------------------------------
Laboratory Corp. of America Holdings(a) 35,000 1,031,100
- -------------------------------------------------------------------------
Lincare Holdings Inc.(a) 30,000 911,100
- -------------------------------------------------------------------------
McKesson Corp. 70,000 1,941,800
- -------------------------------------------------------------------------
Omnicare, Inc. 20,000 530,400
- -------------------------------------------------------------------------
Patterson Dental Co.(a) 10,000 401,700
- -------------------------------------------------------------------------
Quest Diagnostics Inc.(a) 12,000 717,000
=========================================================================
12,989,600
=========================================================================
HEALTH CARE EQUIPMENT-2.94%
Apogent Technologies Inc.(a) 80,000 1,374,400
- -------------------------------------------------------------------------
Baxter International Inc. 25,000 575,000
- -------------------------------------------------------------------------
Beckman Coulter, Inc. 12,000 466,440
- -------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 67,000 1,930,270
=========================================================================
4,346,110
=========================================================================
HEALTH CARE FACILITIES-3.10%
Community Health Systems Inc.(a) 110,000 2,090,000
- -------------------------------------------------------------------------
Health Management Associates, Inc.-Class A 42,900 731,874
- -------------------------------------------------------------------------
Triad Hospitals, Inc.(a) 80,000 1,760,800
=========================================================================
4,582,674
=========================================================================
HOTELS, RESORTS & CRUISE LINES-1.56%
Carnival Corp. (Panama) 35,000 965,650
- -------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 50,000 1,342,000
=========================================================================
2,307,650
=========================================================================
INDUSTRIAL MACHINERY-2.37%
Danaher Corp. 20,000 1,379,600
- -------------------------------------------------------------------------
Parker-Hannifin Corp. 25,000 1,017,000
- -------------------------------------------------------------------------
SPX Corp.(a) 32,500 1,098,500
=========================================================================
3,495,100
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
INSURANCE BROKERS-1.06%
Willis Group Holdings Ltd. (Bermuda) 50,000 $ 1,559,500
=========================================================================
IT CONSULTING & SERVICES-4.38%
Accenture Ltd.-Class A (Bermuda)(a) 65,000 1,041,300
- -------------------------------------------------------------------------
Affiliated Computer Services, Inc.-Class A(a) 40,000 1,908,000
- -------------------------------------------------------------------------
Cognizant Technology Solutions Corp.(a) 46,000 826,160
- -------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 125,000 2,687,500
=========================================================================
6,462,960
=========================================================================
MANAGED HEALTH CARE-4.57%
Aetna Inc. 15,000 747,000
- -------------------------------------------------------------------------
Anthem, Inc.(a) 41,000 2,814,240
- -------------------------------------------------------------------------
First Health Group Corp.(a) 40,000 1,002,000
- -------------------------------------------------------------------------
Humana Inc.(a) 75,000 828,750
- -------------------------------------------------------------------------
WellChoice Inc.(a) 28,000 596,400
- -------------------------------------------------------------------------
WellPoint Health Networks Inc.(a) 10,000 759,400
=========================================================================
6,747,790
=========================================================================
MOVIES & ENTERTAINMENT-0.27%
Regal Entertainment Group-Class A 20,000 392,000
=========================================================================
MULTI-LINE INSURANCE-0.75%
HCC Insurance Holdings, Inc. 40,000 1,100,000
=========================================================================
OIL & GAS DRILLING-4.24%
ENSCO International Inc. 70,000 1,778,000
- -------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 15,000 588,000
- -------------------------------------------------------------------------
National-Oilwell, Inc.(a) 75,000 1,574,250
- -------------------------------------------------------------------------
Precision Drilling Corp. (Canada)(a) 45,000 1,547,100
- -------------------------------------------------------------------------
Pride International, Inc.(a) 50,000 776,000
=========================================================================
6,263,350
=========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.32%
Cal Dive International, Inc.(a) 75,000 1,207,500
- -------------------------------------------------------------------------
Smith International, Inc.(a) 25,000 889,000
- -------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 33,000 1,327,590
=========================================================================
3,424,090
=========================================================================
PACKAGED FOODS & MEATS-1.37%
Hershey Foods Corp. 17,500 1,141,875
- -------------------------------------------------------------------------
Smithfield Foods, Inc.(a) 45,000 882,000
=========================================================================
2,023,875
=========================================================================
PERSONAL PRODUCTS-0.73%
Estee Lauder Cos. Inc. (The)-Class A 33,000 1,072,500
=========================================================================
</Table>
FS-352
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
PHARMACEUTICALS-1.12%
Medicis Pharmaceutical Corp.-Class A(a) 15,000 $ 864,600
- -------------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom)(a) 40,000 796,000
=========================================================================
1,660,600
=========================================================================
PROPERTY & CASUALTY INSURANCE-2.11%
ACE Ltd. (Cayman Islands) 40,000 1,323,200
- -------------------------------------------------------------------------
Radian Group Inc. 45,000 1,786,500
=========================================================================
3,109,700
=========================================================================
REINSURANCE-1.15%
Everest Re Group, Ltd. (Bermuda) 12,000 835,800
- -------------------------------------------------------------------------
PartnerRe Ltd. (Bermuda) 16,000 856,000
=========================================================================
1,691,800
=========================================================================
RESTAURANTS-1.80%
Darden Restaurants, Inc. 55,000 963,050
- -------------------------------------------------------------------------
Jack in the Box Inc.(a) 38,000 676,400
- -------------------------------------------------------------------------
Wendy's International, Inc. 35,000 1,016,400
=========================================================================
2,655,850
=========================================================================
SEMICONDUCTOR EQUIPMENT-1.98%
Cabot Microelectronics Corp.(a) 35,000 1,512,700
- -------------------------------------------------------------------------
Novellus Systems, Inc.(a) 40,000 1,121,600
- -------------------------------------------------------------------------
Teradyne, Inc.(a) 25,000 290,000
=========================================================================
2,924,300
=========================================================================
SEMICONDUCTORS-2.13%
Agere Systems Inc.-Class A(a) 450,000 805,500
- -------------------------------------------------------------------------
Altera Corp.(a) 30,000 474,300
- -------------------------------------------------------------------------
Microchip Technology Inc. 90,000 1,871,100
=========================================================================
3,150,900
=========================================================================
SOFT DRINKS-0.56%
Pepsi Bottling Group, Inc. (The) 40,000 821,600
=========================================================================
SPECIALTY STORES-3.33%
Advance Auto Parts, Inc.(a) 30,000 1,492,200
- -------------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 12,500 493,875
- -------------------------------------------------------------------------
Foot Locker, Inc. 100,000 $ 1,100,000
- -------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
SPECIALTY STORES-(CONTINUED)
Michaels Stores, Inc.(a) 13,000 406,120
- -------------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 55,000 1,423,400
=========================================================================
4,915,595
=========================================================================
SYSTEMS SOFTWARE-0.49%
Computer Associates International, Inc. 45,000 730,800
=========================================================================
TELECOMMUNICATIONS EQUIPMENT-2.21%
UTStarcom, Inc.(a) 150,000 3,265,650
=========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.59%
Fastenal Co. 25,000 864,750
=========================================================================
TRUCKING-1.37%
Swift Transportation Co., Inc.(a) 38,000 688,560
- -------------------------------------------------------------------------
Yellow Corp.(a) 50,000 1,335,000
=========================================================================
2,023,560
=========================================================================
Total Common Stocks & Other Equity
Interests (Cost $128,893,075) 132,507,624
=========================================================================
MONEY MARKET FUNDS-11.16%
STIC Liquid Assets Portfolio(b) 8,237,114 8,237,114
- -------------------------------------------------------------------------
STIC Prime Portfolio(b) 8,237,114 8,237,114
=========================================================================
Total Money Market Funds (Cost
$16,474,228) 16,474,228
=========================================================================
TOTAL INVESTMENTS-100.93% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $145,367,303) 148,981,852
=========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.01%
STIC Liquid Assets Portfolio(b)(c) 2,973,980 2,973,980
=========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $2,973,980) 2,973,980
=========================================================================
TOTAL INVESTMENTS-102.94% (Cost $148,341,283) 151,955,832
=========================================================================
OTHER ASSETS LESS LIABILITIES-(2.94%) (4,346,290)
=========================================================================
NET ASSETS-100.00% $147,609,542
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
(c) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned.
See Notes to Financial Statements.
FS-353
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$148,341,283)* $ 151,955,832
- ------------------------------------------------------------
Receivables for:
Investments sold 2,848,326
- ------------------------------------------------------------
Fund shares sold 421,408
- ------------------------------------------------------------
Dividends 29,278
- ------------------------------------------------------------
Investment for deferred compensation plan 15,448
- ------------------------------------------------------------
Other assets 31,237
============================================================
Total assets 155,301,529
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 4,062,586
- ------------------------------------------------------------
Fund shares reacquired 338,706
- ------------------------------------------------------------
Deferred compensation plan 15,448
- ------------------------------------------------------------
Collateral upon return of securities loaned 2,973,980
- ------------------------------------------------------------
Accrued distribution fees 113,649
- ------------------------------------------------------------
Accrued trustees' fees 817
- ------------------------------------------------------------
Accrued transfer agent fees 128,494
- ------------------------------------------------------------
Accrued operating expenses 58,307
============================================================
Total liabilities 7,691,987
============================================================
Net assets applicable to shares outstanding $ 147,609,542
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 314,994,106
- ------------------------------------------------------------
Undistributed net investment income (loss) (1,351,791)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (169,647,321)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 3,614,548
============================================================
$ 147,609,542
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 70,217,345
____________________________________________________________
============================================================
Class B $ 59,605,440
____________________________________________________________
============================================================
Class C $ 17,768,510
____________________________________________________________
============================================================
Class R $ 18,247
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 10,050,196
____________________________________________________________
============================================================
Class B 8,747,499
____________________________________________________________
============================================================
Class C 2,607,099
____________________________________________________________
============================================================
Class R 2,617
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 6.99
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $6.99 divided by
94.50%) $ 7.40
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 6.81
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 6.82
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 6.97
____________________________________________________________
============================================================
</Table>
* At April 30, 2003, securities with an aggregate market value of $2,779,498
were on loan to brokers.
See Notes to Financial Statements.
FS-354
STATEMENT OF OPERATIONS
For the six months ended April 30, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 243,331
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 77,912
- -------------------------------------------------------------------------
Interest 42
- -------------------------------------------------------------------------
Security lending income 7,304
=========================================================================
Total investment income 328,589
=========================================================================
EXPENSES:
Advisory fees 556,806
- -------------------------------------------------------------------------
Administrative services fees 24,795
- -------------------------------------------------------------------------
Custodian fees 21,474
- -------------------------------------------------------------------------
Distribution fees -- Class A 114,442
- -------------------------------------------------------------------------
Distribution fees -- Class B 286,158
- -------------------------------------------------------------------------
Distribution fees -- Class C 82,818
- -------------------------------------------------------------------------
Distribution fees -- Class R 28
- -------------------------------------------------------------------------
Transfer agent fees 487,065
- -------------------------------------------------------------------------
Trustees' fees 4,611
- -------------------------------------------------------------------------
Other 85,848
=========================================================================
Total expenses 1,664,045
=========================================================================
Less: Fees waived and expenses paid indirectly (2,234)
=========================================================================
Net expenses 1,661,811
=========================================================================
Net investment income (loss) (1,333,222)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain (loss) from investment securities (7,043,391)
- -------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 16,885,237
=========================================================================
Net gain from investment securities 9,841,846
=========================================================================
Net increase in net assets resulting from operations $ 8,508,624
_________________________________________________________________________
=========================================================================
</Table>
See Notes to Financial Statements.
FS-355
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2003 and the year ended October 31, 2002
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,333,222) $ (3,709,857)
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (7,043,391) (51,459,202)
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 16,885,237 6,176,897
============================================================================================
Net increase (decrease) in net assets resulting from
operations 8,508,624 (48,992,162)
============================================================================================
Share transactions-net:
Class A 2,748,553 (8,529,105)
- --------------------------------------------------------------------------------------------
Class B (2,513,292) (2,639,544)
- --------------------------------------------------------------------------------------------
Class C 326,878 (1,653,044)
- --------------------------------------------------------------------------------------------
Class R 9,835 10,003
============================================================================================
Net increase (decrease) in net assets resulting from
share transactions 571,974 (12,811,690)
============================================================================================
Net increase (decrease) in net assets 9,080,598 (61,803,852)
============================================================================================
NET ASSETS:
Beginning of period 138,528,944 200,332,796
============================================================================================
End of period $ 147,609,542 $ 138,528,944
____________________________________________________________________________________________
============================================================================================
</Table>
See Notes to Financial Statements.
FS-356
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Mid Cap Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers multiple classes of shares. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States unless
otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. Transfer agency fees and expenses
and other shareholder recordkeeping fees and expenses are charged to each
class pursuant to a transfer agency and service agreement adopted by the
Fund with respect to
FS-357
such class. All other expenses are allocated among the classes based on
relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.80% of
the first $1 billion of the Fund's average daily net assets plus 0.75% of the
Fund's average daily net assets over $1 billion. AIM has voluntarily agreed to
waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds in which the Fund has invested
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the Fund). For the six months ended April
30, 2003, AIM waived fees of $1,129.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2003, AIM
was paid $24,795 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 2003,
AFS retained $279,412 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C and Class R 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 shares, Class B shares, Class C shares and Class R shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.35% of the Fund's average daily net assets of Class A
shares, 1.00% of the average daily net assets of Class B and Class C shares and
0.50% of the average daily net assets of Class R shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B, Class C or Class R shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the six months ended April 30,
2003, the Class A, Class B, Class C and Class R shares paid $114,442, $286,158,
$82,818 and $28, respectively.
Front-end sales commissions and contingent deferred sales charges
(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. Contingent deferred
sales charges ("CDSCs") are deducted from redemption proceeds prior to
remittance to the shareholder. During the six months ended April 30, 2003, AIM
Distributors retained $21,214 in front-end sales commissions from the sale of
Class A shares and $272, $116, $1,325 and $0 for Class A, Class B, Class C and
Class R shares, respectively, for CDSCs imposed upon redemptions by
shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended April 30, 2003, the Fund paid legal fees of
$1,347 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $1,105 under an expense
offset arrangement which resulted in a reduction of the Fund's total expenses of
$1,105.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
AIM has established an interfund lending facility 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.
During the reporting period, the Fund was a participant in a committed line
of credit facility with a syndicate administered by Citibank, N.A. The Fund
could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the line of credit could borrow on a first come, first served basis.
The funds which were party to the line of credit were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed line of credit facility expired May 20, 2003.
During the six months ended April 30, 2003, the Fund did not borrow under
the interfund lending or the committed line of credit facility.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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
may be temporarily less than the value of the securities on loan.
FS-358
At April 30, 2003, securities with an aggregate value of $2,779,498 were on
loan to brokers. The loans were secured by cash collateral of $2,973,980
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended April 30, 2003, the Fund received fees of $7,304
for securities lending.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ------------------------------------------------------
October 31, 2008 $ 23,619,065
- ------------------------------------------------------
October 31, 2009 86,724,292
- ------------------------------------------------------
October 31, 2010 50,812,218
======================================================
Total capital loss carryforward $161,155,575
______________________________________________________
======================================================
</Table>
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $103,721,056 and $105,795,834, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $11,331,823
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (8,063,788)
===========================================================
Net unrealized appreciation of investment
securities $ 3,268,035
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $148,687,797.
</Table>
NOTE 9--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares,
Class B shares, Class C shares and Class R shares. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with a
CDSC. Class R shares are sold at net asset value. Under some circumstances,
Class A shares and Class R shares are subject to CDSCs. Generally, Class B
shares will automatically convert to Class A shares eight years after the end of
the calendar month of purchase. Changes in shares outstanding during the six
months ended April 30, 2003 and the year ended October 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,397,745 $ 16,172,712 8,063,853 $ 72,719,270
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,110,522 7,349,524 3,669,099 31,692,709
- ----------------------------------------------------------------------------------------------------------------------
Class C 467,601 3,063,261 1,168,577 10,169,033
- ----------------------------------------------------------------------------------------------------------------------
Class R* 1,674 11,219 1,146 10,003
======================================================================================================================
Conversion of Class B shares to Class A shares:
Class A 36,424 241,187 74,934 635,418
- ----------------------------------------------------------------------------------------------------------------------
Class B (37,308) (241,187) (76,507) (635,418)
======================================================================================================================
Reacquired:
Class A (2,084,656) (13,665,346) (9,446,798) (81,883,793)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,489,394) (9,621,629) (4,122,284) (33,696,835)
- ----------------------------------------------------------------------------------------------------------------------
Class C (422,503) (2,736,383) (1,442,681) (11,822,077)
- ----------------------------------------------------------------------------------------------------------------------
Class R* (203) (1,384) -- --
======================================================================================================================
(20,098) $ 571,974 (2,110,661) $(12,811,690)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
FS-359
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------------------
NOVEMBER 1, 1999
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, -------------------- OCTOBER 31,
2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.54 $ 8.58 $ 14.38 $ 10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.13)(a) (0.11)(a) (0.12)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.50 (1.91) (5.69) 4.50
=========================================================================================================================
Total from investment operations 0.45 (2.04) (5.80) 4.38
=========================================================================================================================
Net asset value, end of period $ 6.99 $ 6.54 $ 8.58 $ 14.38
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 6.88% (23.78)% (40.33)% 43.80%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $70,217 $63,463 $94,457 $114,913
=========================================================================================================================
Ratio of expenses to average net assets 2.04%(c) 1.83% 1.65% 1.63%(d)
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.57)%(c) (1.49)% (1.06)% (0.76)%(d)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(e) 80% 185% 173% 183%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$65,937,097.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS B
-----------------------------------------------------------
NOVEMBER 1, 1999
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, -------------------- OCTOBER 31,
2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.40 $ 8.45 $ 14.25 $ 10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.18)(a) (0.18)(a) (0.22)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.48 (1.87) (5.62) 4.47
=========================================================================================================================
Total from investment operations 0.41 (2.05) (5.80) 4.25
=========================================================================================================================
Net asset value, end of period $ 6.81 $ 6.40 $ 8.45 $ 14.25
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 6.41% (24.26)% (40.70)% 42.50%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $59,605 $58,654 $81,905 $103,893
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 2.69%(c) 2.48% 2.32% 2.32%(d)
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (2.22)%(c) (2.14)% (1.73)% (1.45)%(d)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(e) 80% 185% 173% 183%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$57,705,849.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-360
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------
NOVEMBER 1, 1999
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, -------------------- OCTOBER 31,
2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.40 $ 8.45 $ 14.26 $ 10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.18)(a) (0.18)(a) (0.22)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.49 (1.87) (5.63) 4.48
=========================================================================================================================
Total from investment operations 0.42 (2.05) (5.81) 4.26
=========================================================================================================================
Net asset value, end of period $ 6.82 $ 6.40 $ 8.45 $ 14.26
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 6.56% (24.26)% (40.74)% 42.60%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $17,769 $16,404 $23,971 $29,969
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 2.69%(c) 2.48% 2.32% 2.32%(d)
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (2.22)%(c) (2.14)% (1.73)% (1.45)%(d)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(e) 80% 185% 173% 183%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$16,700,904.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.54 $ 8.73
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.05)(a)
- --------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.49 (2.14)
============================================================================================
Total from investment operations 0.43 (2.19)
============================================================================================
Net asset value, end of period $ 6.97 $ 6.54
____________________________________________________________________________________________
============================================================================================
Total return(b) 6.57% (25.09)%
____________________________________________________________________________________________
============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 18 $ 7
============================================================================================
Ratio of expenses to average net assets 2.19%(c) 1.98%(d)
============================================================================================
Ratio of net investment income (loss) to average net assets (1.72)%(c) (1.64)%(d)
____________________________________________________________________________________________
============================================================================================
Portfolio turnover rate(e) 80% 185%
____________________________________________________________________________________________
============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $11,278.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-361
AIM U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCKS--97.17%
AEROSPACE & DEFENSE--2.30%
Lockheed Martin Corp. 240 $ 12,012
- ---------------------------------------------------------------------------------------------------------------
Northrop Grumman Corp. 120 10,554
===============================================================================================================
22,566
===============================================================================================================
AIR FREIGHT & LOGISTICS--0.98%
FedEx Corp. 160 9,581
===============================================================================================================
AIRLINES--1.12%
Southwest Airlines Co. 690 11,012
===============================================================================================================
APPAREL RETAIL--0.49%
TJX Cos., Inc. (The) 250 4,812
===============================================================================================================
APPLICATION SOFTWARE--0.48%
Electronic Arts Inc. (a) 80 4,742
===============================================================================================================
BANKS--5.87%
Bank of America Corp. 110 8,145
- ---------------------------------------------------------------------------------------------------------------
Fifth Third Bancorp 300 14,787
- ---------------------------------------------------------------------------------------------------------------
Synovus Financial Corp. 1,060 20,638
- ---------------------------------------------------------------------------------------------------------------
Wells Fargo & Co. 290 13,995
===============================================================================================================
57,565
===============================================================================================================
BIOTECHNOLOGY--1.06%
Amgen Inc. (a) 170 10,423
===============================================================================================================
BROADCASTING & CABLE TV--0.60%
Clear Channel Communications, Inc. (a) 150 5,866
===============================================================================================================
CASINOS & GAMBLING--0.64%
Harrah's Entertainment, Inc. (a) 160 6,302
===============================================================================================================
COMPUTER & ELECTRONICS RETAIL--2.09%
CDW Computer Centers, Inc. (a) 480 20,467
===============================================================================================================
COMPUTER HARDWARE--2.21%
Dell Computer Corp. (a) 750 21,682
===============================================================================================================
CONSUMER FINANCE--2.10%
MBNA Corp. 1,090 20,601
===============================================================================================================
DATA PROCESSING SERVICES--2.45%
Concord EFS, Inc. (a) 480 6,638
- ---------------------------------------------------------------------------------------------------------------
Fiserv, Inc. (a) 370 10,893
- ---------------------------------------------------------------------------------------------------------------
Paychex, Inc. 210 6,539
===============================================================================================================
24,070
===============================================================================================================
</Table>
FS-362
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
DEPARTMENT STORES--0.70%
Kohl's Corp. (a) 121 $ 6,873
===============================================================================================================
DIVERSIFIED FINANCIAL SERVICES--5.68%
Citigroup Inc. 830 32,577
- ---------------------------------------------------------------------------------------------------------------
Fannie Mae 320 23,165
===============================================================================================================
55,742
===============================================================================================================
DRUG RETAIL--1.64%
Walgreen Co. 520 16,047
===============================================================================================================
ELECTRIC UTILITIES--1.12%
FPL Group, Inc. 180 10,957
===============================================================================================================
FOOD DISTRIBUTORS--0.50%
SYSCO Corp. 170 4,884
===============================================================================================================
GENERAL MERCHANDISE STORES--3.84%
Family Dollar Stores, Inc. 180 6,154
- ---------------------------------------------------------------------------------------------------------------
Target Corp. 150 5,016
- ---------------------------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 470 26,470
===============================================================================================================
37,640
===============================================================================================================
HEALTH CARE DISTRIBUTORS & SERVICES--1.49%
Cardinal Health, Inc. 265 14,649
===============================================================================================================
HEALTH CARE EQUIPMENT--2.09%
Biomet, Inc. 280 8,529
- ---------------------------------------------------------------------------------------------------------------
Medtronic, Inc. 250 11,935
===============================================================================================================
20,464
===============================================================================================================
HEALTH CARE FACILITIES--0.52%
HCA Inc. 160 5,136
===============================================================================================================
HOME IMPROVEMENT RETAIL--0.81%
Lowe's Cos., Inc. 180 7,900
===============================================================================================================
HOUSEHOLD PRODUCTS--2.14%
Colgate-Palmolive Co. 100 5,717
- ---------------------------------------------------------------------------------------------------------------
Procter & Gamble Co. (The) 170 15,275
===============================================================================================================
20,992
===============================================================================================================
HOUSEWARES & SPECIALTIES--0.47%
Newell Rubbermaid Inc. 150 4,572
===============================================================================================================
INDUSTRIAL CONGLOMERATES--4.49%
3M Co. 60 7,562
- ---------------------------------------------------------------------------------------------------------------
General Electric Co. 1,240 36,518
===============================================================================================================
44,080
===============================================================================================================
INDUSTRIAL GASES--0.66%
Air Products & Chemicals, Inc. 150 6,461
===============================================================================================================
</Table>
FS-363
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
INDUSTRIAL MACHINERY--0.56%
Danaher Corp. 80 $ 5,518
===============================================================================================================
INSURANCE BROKERS--1.51%
Marsh & McLennan Cos., Inc. 310 14,781
===============================================================================================================
INTEGRATED OIL & GAS--3.88%
ChevronTexaco Corp. 130 8,165
- ---------------------------------------------------------------------------------------------------------------
Exxon Mobil Corp. 850 29,920
===============================================================================================================
38,085
===============================================================================================================
INTEGRATED TELECOMMUNICATION SERVICES--3.12%
AT&T Corp. 300 5,115
- ---------------------------------------------------------------------------------------------------------------
SBC Communications Inc. 580 13,549
- ---------------------------------------------------------------------------------------------------------------
Verizon Communications Inc. 320 11,962
===============================================================================================================
30,626
===============================================================================================================
IT CONSULTING & SERVICES--0.88%
SunGard Data Systems Inc. (a) 400 8,600
===============================================================================================================
LIFE & HEALTH INSURANCE--0.47%
AFLAC Inc. 140 4,579
===============================================================================================================
MANAGED HEALTH CARE--0.85%
UnitedHealth Group Inc. 90 8,292
===============================================================================================================
MOTORCYCLE MANUFACTURERS--1.36%
Harley-Davidson, Inc. 300 13,332
===============================================================================================================
MOVIES & ENTERTAINMENT--2.63%
Viacom Inc.-Class B (a) 190 8,248
- ---------------------------------------------------------------------------------------------------------------
Walt Disney Co. (The) 940 17,540
===============================================================================================================
25,788
===============================================================================================================
MULTI-LINE INSURANCE--2.84%
American International Group, Inc. 480 27,816
===============================================================================================================
NETWORKING EQUIPMENT--1.62%
Cisco Systems, Inc. (a) 1,060 15,942
===============================================================================================================
OIL & GAS EQUIPMENT & SERVICES--0.49%
Weatherford International Ltd. (Bermuda) (a) 120 4,828
===============================================================================================================
PERSONAL PRODUCTS--0.99%
Gillette Co. (The) 320 9,744
===============================================================================================================
PHARMACEUTICALS--9.64%
Bristol-Myers Squibb Co. 290 7,407
- ---------------------------------------------------------------------------------------------------------------
Forest Laboratories, Inc. (a) 170 8,792
- ---------------------------------------------------------------------------------------------------------------
Johnson & Johnson 460 25,926
- ---------------------------------------------------------------------------------------------------------------
Lilly (Eli) & Co. 130 8,297
- ---------------------------------------------------------------------------------------------------------------
Merck & Co. Inc. 150 8,727
- ---------------------------------------------------------------------------------------------------------------
Pfizer Inc. 910 27,983
- ---------------------------------------------------------------------------------------------------------------
Wyeth 170 7,400
===============================================================================================================
94,532
===============================================================================================================
</Table>
FS-364
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE--3.03%
Ambac Financial Group, Inc. 350 $ 20,423
- ---------------------------------------------------------------------------------------------------------------
Berkshire Hathaway Inc.-Class B (a) 4 9,328
===============================================================================================================
29,751
===============================================================================================================
RESTAURANTS--2.84%
Brinker International, Inc. (a) 260 8,255
- ---------------------------------------------------------------------------------------------------------------
Starbucks Corp. (a) 240 5,638
- ---------------------------------------------------------------------------------------------------------------
Wendy's International, Inc. 480 13,939
===============================================================================================================
27,832
===============================================================================================================
SEMICONDUCTORS--2.99%
Intel Corp. 730 13,432
- ---------------------------------------------------------------------------------------------------------------
Linear Technology Corp. 190 6,549
- ---------------------------------------------------------------------------------------------------------------
Microchip Technology Inc. 450 9,356
===============================================================================================================
29,337
===============================================================================================================
SOFT DRINKS--1.65%
Coca-Cola Co. (The) 400 16,160
===============================================================================================================
SPECIALTY STORES--0.60%
Bed Bath & Beyond Inc. (a) 150 5,927
===============================================================================================================
SYSTEMS SOFTWARE--4.12%
Microsoft Corp. 1,580 40,401
===============================================================================================================
TOBACCO--2.07%
Altria Group, Inc. 660 20,302
===============================================================================================================
TRADING COMPANIES & DISTRIBUTORS--0.49%
Fastenal Co. 140 4,843
===============================================================================================================
Total Common Stocks (Cost $966,528) 953,102
- ---------------------------------------------------------------------------------------------------------------
===============================================================================================================
TOTAL INVESTMENTS--97.17% (Cost $966,528) 953,102
- ---------------------------------------------------------------------------------------------------------------
===============================================================================================================
OTHER ASSETS LESS LIABILITIES--2.83% 27,712
- ---------------------------------------------------------------------------------------------------------------
===============================================================================================================
NET ASSETS--100.00% $980,814
- ---------------------------------------------------------------------------------------------------------------
===============================================================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
See Notes to Financial Statements.
FS-365
US GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2003
(UNAUDITED)
<Table>
ASSETS:
Investments, at market value (cost $966,528) $ 953,102
- ---------------------------------------------------------------------------------------------
Cash 28,197
- ---------------------------------------------------------------------------------------------
Receivables for:
Amount due from advisor 12,950
- ---------------------------------------------------------------------------------------------
Dividends 884
- ---------------------------------------------------------------------------------------------
Investment for deferred compensation plan 1,802
- ---------------------------------------------------------------------------------------------
Other assets 1,291
=============================================================================================
Total assets 998,226
- ---------------------------------------------------------------------------------------------
=============================================================================================
LIABILITIES:
Payable for deferred compensation plan 1,802
- ---------------------------------------------------------------------------------------------
Accrued trustees' fees 880
- ---------------------------------------------------------------------------------------------
Accrued transfer agent fees 8
- ---------------------------------------------------------------------------------------------
Accrued operating expenses 14,722
=============================================================================================
Total liabilities 17,412
=============================================================================================
Net assets applicable to shares outstanding $ 980,814
- ---------------------------------------------------------------------------------------------
=============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 1,000,105
- ---------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (1,774)
- ---------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities (4,091)
- ---------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment securities (13,426)
=============================================================================================
$ 980,814
- ---------------------------------------------------------------------------------------------
=============================================================================================
NET ASSETS:
Class A $ 392,324
- ---------------------------------------------------------------------------------------------
=============================================================================================
Class B $ 294,245
- ---------------------------------------------------------------------------------------------
=============================================================================================
Class C $ 294,245
- ---------------------------------------------------------------------------------------------
=============================================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 40,295
- ---------------------------------------------------------------------------------------------
=============================================================================================
Class B 30,222
- ---------------------------------------------------------------------------------------------
=============================================================================================
Class C 30,222
- ---------------------------------------------------------------------------------------------
=============================================================================================
Class A :
Net asset value per share $ 9.74
- ---------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $9.74 / 94.50%) $ 10.31
- ---------------------------------------------------------------------------------------------
=============================================================================================
Class B :
Net asset value and offering price per share $ 9.74
- ---------------------------------------------------------------------------------------------
=============================================================================================
Class C :
Net asset value and offering price per share $ 9.74
- ---------------------------------------------------------------------------------------------
=============================================================================================
</Table>
See Notes to Financial Statements.
FS-366
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2003
(UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends $ 6,900
=============================================================================================
EXPENSES:
Advisory fees 3,530
- ---------------------------------------------------------------------------------------------
Administrative services fees 24,795
- ---------------------------------------------------------------------------------------------
Distribution fees--Class A 659
- ---------------------------------------------------------------------------------------------
Distribution fees--Class B 1,412
- ---------------------------------------------------------------------------------------------
Distribution fees--Class C 1,412
- ---------------------------------------------------------------------------------------------
Printing fees 6,281
- ---------------------------------------------------------------------------------------------
Professional fees 16,435
- ---------------------------------------------------------------------------------------------
Transfer agent fees 44
- ---------------------------------------------------------------------------------------------
Trustees' fees 4,388
- ---------------------------------------------------------------------------------------------
Other 804
=============================================================================================
Total expenses 59,760
=============================================================================================
Less: Fees waived and expenses paid indirectly (51,525)
- ---------------------------------------------------------------------------------------------
Net expenses 8,235
=============================================================================================
Net investment income (loss) (1,335)
=============================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES:
Net realized gain from investment securities 7,216
- ---------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities (1,402)
=============================================================================================
Net gain from investment securities 5,814
=============================================================================================
Net increase in net assets resulting from operations $ 4,479
- ---------------------------------------------------------------------------------------------
=============================================================================================
</Table>
See Notes to Financial Statements.
FS-367
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 2003 AND THE PERIOD AUGUST 30, 2002
(DATE OPERATIONS COMMENCED) THROUGH OCTOBER 31, 2002
(UNAUDITED)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
----------------- ------------------
OPERATIONS:
Net investment income (loss) $ (1,335) $ (364)
- ------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 7,216 (11,307)
- ------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities (1,402) (12,024)
==================================================================================================================
Net increase (decrease) in net assets resulting from operations 4,479 (23,695)
==================================================================================================================
Distributions to shareholders from net investment income:
Class A (2,800) --
- ------------------------------------------------------------------------------------------------------------------
Class B (2,100) --
- ------------------------------------------------------------------------------------------------------------------
Class C (2,100) --
==================================================================================================================
Total distributions from net investment income (7,000) --
==================================================================================================================
Net increase (decrease) in net assets resulting from distributions (7,000) --
==================================================================================================================
Share transactions-net:
Class A 2,800 400,010
- ------------------------------------------------------------------------------------------------------------------
Class B 2,100 300,010
- ------------------------------------------------------------------------------------------------------------------
Class C 2,100 300,010
==================================================================================================================
Net increase in net assets resulting from share transactions 7,000 1,000,030
==================================================================================================================
Net increase in net assets 4,479 976,335
==================================================================================================================
NET ASSETS:
Beginning of period 976,335 --
==================================================================================================================
End of period $ 980,814 $ 976,335
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
</Table>
See Notes to Financial Statements.
FS-368
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM U.S. Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
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 to provide long-term growth of
capital. Each company listed in the Schedule of Investments is organized in the
United States unless otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS - Securities, including restricted securities, are valued
according to the following policy. A security listed or traded on an exchange
(except convertible bonds) is valued at its last sales price as of the close of
the customary trading session on the exchange where the security is principally
traded, or lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System) is
valued at the basis of prices furnished by independent pricing services or
market makers. Each security reported on the NASDAQ National Market System is
valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the
customary trading session on the valuation date or absent a NOCP, at the closing
bid price. Debt obligations (including convertible bonds) are valued on the
basis of prices provided by an independent pricing service. Prices 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 special securities,
dividend rate, yield, quality, type of issue, coupon rate, maturity, individual
trading characteristics and other market data. Securities for which market
prices are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in the
case of equity securities and in the case of debt obligations, the mean between
the last bid and asked prices. Securities for which market quotations are not
readily available or are questionable are valued at fair value as determined in
good faith by or under the supervision of the Trust's officers in a manner
specifically authorized by the Board of Trustees. Short-term obligations having
60 days or less to maturity and commercial paper are valued at amortized cost
which approximates market value. For purposes of determining net asset value per
share, futures and option contracts generally will be valued 15 minutes after
the close of the customary trading session of the New York Stock Exchange
("NYSE").
Foreign securities are converted into U.S. dollar amounts using
exchange rates as of the close of the NYSE. Generally, trading in foreign
securities is substantially completed each day at various times prior to the
close of the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the close of
the customary trading session of the NYSE which would not be reflected in the
computation of the Fund's net asset value. If a development/event is so
significant that there is a reasonably high degree of certainty as to both the
effect and the degree of effect that the development/event has actually caused
that closing price to no longer reflect actual value, the closing prices, as
determined at the close of the applicable foreign market, may be adjusted to
reflect the fair value of the affected foreign securities as of the close of the
NYSE as determined in good faith by or under the supervision of the Board of
Trustees.
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. Premiums and discounts are amortized
and/or accreted for financial reporting purposes.
FS-369
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS - Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions for
federal income tax purposes.
D. FEDERAL INCOME TAXES - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise taxable
income (including net realized capital gain) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements.
E. EXPENSES - Fees provided for under the Rule 12b-1 plan of a particular class
of the Fund and which are directly attributable to that class are charged to the
operations of such class. Transfer agency fees and expenses and other
shareholder recordkeeping fees and expenses are charged to each class pursuant
to a transfer agency and service agreement adopted by the Fund with respect to
such class. All other expenses are allocated among the classes based on relative
net assets.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $1
billion of the Fund's average daily net assets, plus 0.70% of the Fund's next $1
billion of average daily net assets, plus 0.65% of the Fund's average daily net
assets in excess of $2 billion. AIM has voluntarily agreed to waive fees and/or
reimburse expenses (excluding interest, taxes, dividends on short sales,
extraordinary items and increases in expenses due to expense offset
arrangements, if any) for Class A, Class B and Class C shares to the extent
necessary to limit the total annual fund operating expenses of Class A shares to
1.75%. Voluntary fee waivers or reimbursements may be rescinded, terminated or
modified at any time without further notice to investors. During periods of
voluntary waivers or reimbursements to the extent the annualized expense ratio
does not exceed the voluntary limit for the period committed, AIM will retain
its ability to be reimbursed for such fee waivers or reimbursements prior to the
end of each fiscal year. Further, AIM has voluntarily agreed to waive advisory
fees of the Fund in the amount of 25% of the advisory fee AIM receives from the
affiliated money market funds in which the Fund has invested. For the six months
ended April 30, 2003, AIM waived fees of $3,530 and reimbursed expenses of
$40,060.
The Fund, pursuant to a master administrative services agreement with
AIM, has agreed to pay AIM for certain administrative costs incurred in
providing accounting services to the Fund. For the six months ended April 30,
2003, AIM was paid $24,795 for such services.
The Fund, pursuant to a transfer agency and service agreement, has
agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer
agency and shareholder services to the Fund. During the six months ended April
30, 2003, AFS retained $23 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and Class C shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B or Class C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. NASD
Rules also impose a cap on the total amount of sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
AIM Distributors has voluntarily agreed to waive all fees during the time the
shares are not available for sale. This waiver may be rescinded, terminated or
modified at any time. For the six months ended April 30, 2003, the Class A,
Class B and Class C shares paid $0, $0 and $0, respectively, after AIM
Distributors waived fees of $3,483.
Certain officers and trustees of the Trust are officers and directors
of AIM, AFS and/or AIM Distributors.
During the six months ended April 30, 2003, the Fund paid legal fees of
$1,241 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
FS-370
NOTE 3 - INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $6 and reductions in
custodian fees of $611 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $617.
NOTE 4 - TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5 - BORROWINGS
AIM has established an interfund lending facility 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. The Fund did not borrow or lend under the
facility during the six months ended April 30, 2003.
NOTE 6 - TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL
EXPIRATION LOSS CARRYFORWARD
- --------------------------------- ---------------------
October 31, 2010 $ 11,307
</Table>
NOTE 7 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $128,659 and $140,487, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of investment securities $ 47,602
- ---------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (61,028)
=============================================================================================
Net unrealized appreciation (depreciation) of investment securities $ (13,426)
- ---------------------------------------------------------------------------------------------
=============================================================================================
Investments have the same costs for tax and financial statement purposes.
</Table>
NOTE 8 - SHARE INFORMATION
The Fund commenced operations August 30, 2002 and consists of three different
classes of shares that are not currently available for sale: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with a CDSC. Under some
circumstances, Class A shares are subject to CDSCs. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase. Changes in capital stock outstanding during the six
months ended April 30, 2003 and the period August 30, 2002 (date operations
commenced) through October 31, 2002 were as follows:
FS-371
<Table>
<Caption>
AUGUST 30, 2002
SIX MONTHS ENDED (DATE OPERATIONS COMMENCED)
APRIL 30, TO OCTOBER 31,
2003 2002
---------------------------------- ---------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------ ------------- ------------------
Sold:
Class A * -- $ -- 40,001 $ 400,010
- ---------------------------------------------------------------------------------------------------------------
Class B * -- -- 30,001 300,010
- ---------------------------------------------------------------------------------------------------------------
Class C * -- -- 30,001 300,010
===============================================================================================================
Issued as reinvestment of dividends:
Class A * 294 2,800 -- --
- ---------------------------------------------------------------------------------------------------------------
Class B * 221 2,100 -- --
- ---------------------------------------------------------------------------------------------------------------
Class C * 221 2,100 -- --
===============================================================================================================
736 $ 7,000 100,003 $ 1,000,030
- ---------------------------------------------------------------------------------------------------------------
===============================================================================================================
</Table>
* Currently, all shares are owned by AIM.
FS-372
NOTE 9 - FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding during the six months ended April 30, 2003 and the period August 30,
2002 (date operations commenced) through October 31, 2002.
<Table>
<Caption>
CLASS A
------------------------------------------
AUGUST 30, 2002
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
---------------- -------------------
Net asset value, beginning of period $ 9.76 $ 10.00
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) 0.00
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.06 (0.24)
==================================================================================================================
Total from investment operations 0.05 (0.24)
==================================================================================================================
Less distributions from net investment income (0.07) --
==================================================================================================================
Net asset value, end of period $ 9.74 $ 9.76
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
Total return (a) 0.53% (2.40)%
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 392 $ 391
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.88%(b) 1.76% (c)
- ------------------------------------------------------------------------------------------------------------------
Without fee waivers 11.49%(b) 22.45% (c)
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
Ratio of net investment income (loss) to average net assets (0.28)(b) (0.22)(c)
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
Portfolio turnover rate (d) 14% 1%
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales
charges and is not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$379,600.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-373
NOTE 9 - FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------
AUGUST 30, 2002
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
---------------- -------------------
Net asset value, beginning of period $ 9.76 $ 10.00
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) 0.00
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.06 (0.24)
===================================================================================================================
Total from investment operations 0.05 (0.24)
===================================================================================================================
Less distributions from net investment income (0.07) --
===================================================================================================================
Net asset value, end of period $ 9.74 $ 9.76
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
Total return (a) 0.53% (2.40)%
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 294 $ 293
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.88%(b) 1.76%(c)
- -------------------------------------------------------------------------------------------------------------------
Without fee waivers 12.14%(b) 23.10%(c)
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
Ratio of net investment income (loss) to average net assets (0.28)(b) (0.22)(c)
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
Portfolio turnover rate (d) 14% 1%
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales
charges and is not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$284,702.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-374
NOTE 9 - FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------
AUGUST 30, 2002
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
---------------- -------------------
Net asset value, beginning of period $ 9.76 $ 10.00
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) 0.00
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.06 (0.24)
===================================================================================================================
Total from investment operations 0.05 (0.24)
===================================================================================================================
Less distributions from net investment income (0.07) --
===================================================================================================================
Net asset value, end of period $ 9.74 $ 9.76
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
Total return (a) 0.53% (2.40)%
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 294 $ 293
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.88%(b) 1.76%(c)
- -------------------------------------------------------------------------------------------------------------------
Without fee waivers 12.14%(b) 23.10%(c)
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
Ratio of net investment income (loss) to average net assets (0.28)(b) (0.22)(c)
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
Portfolio turnover rate (d) 14% 1%
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales
charges and is not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$284,702.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-375
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-99.97%
ADVERTISING-1.22%
Omnicom Group Inc. 500,000 $ 30,950,000
==========================================================================
AEROSPACE & DEFENSE-1.70%
Lockheed Martin Corp. 600,000 30,030,000
- --------------------------------------------------------------------------
Northrop Grumman Corp. 150,000 13,192,500
==========================================================================
43,222,500
==========================================================================
AIRLINES-1.35%
Ryanair Holdings PLC-ADR (Ireland)(a) 500,000 19,835,000
- --------------------------------------------------------------------------
Southwest Airlines Co. 900,000 14,364,000
==========================================================================
34,199,000
==========================================================================
APPAREL RETAIL-2.54%
Gap, Inc. (The) 3,000,000 49,890,000
- --------------------------------------------------------------------------
TJX Cos., Inc. (The) 750,000 14,437,500
==========================================================================
64,327,500
==========================================================================
APPLICATION SOFTWARE-2.00%
Electronic Arts Inc.(a)(b) 400,000 23,708,000
- --------------------------------------------------------------------------
Intuit Inc.(a) 350,000 13,573,000
- --------------------------------------------------------------------------
Mercury Interactive Corp.(a) 400,000 13,576,000
==========================================================================
50,857,000
==========================================================================
BANKS-1.79%
Bank of America Corp. 450,000 33,322,500
- --------------------------------------------------------------------------
Wells Fargo & Co. 250,000 12,065,000
==========================================================================
45,387,500
==========================================================================
BIOTECHNOLOGY-3.63%
Amgen Inc.(a)(b) 900,000 55,179,000
- --------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 800,000 36,912,000
==========================================================================
92,091,000
==========================================================================
BREWERS-0.98%
Anheuser-Busch Cos., Inc. 500,000 24,940,000
==========================================================================
BROADCASTING & CABLE TV-1.58%
Clear Channel Communications, Inc.(a) 600,000 23,466,000
- --------------------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 500,000 16,550,000
==========================================================================
40,016,000
==========================================================================
BUILDING PRODUCTS-0.33%
Masco Corp. 400,000 8,428,000
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMPUTER & ELECTRONICS RETAIL-1.41%
Best Buy Co., Inc.(a) 600,000 $ 20,748,000
- --------------------------------------------------------------------------
CDW Computer Centers, Inc.(a) 350,000 14,924,000
==========================================================================
35,672,000
==========================================================================
COMPUTER HARDWARE-3.81%
Dell Computer Corp.(a) 1,750,000 50,592,500
- --------------------------------------------------------------------------
Hewlett-Packard Co. 1,000,000 16,300,000
- --------------------------------------------------------------------------
International Business Machines Corp. 350,000 29,715,000
==========================================================================
96,607,500
==========================================================================
COMPUTER STORAGE & PERIPHERALS-0.72%
EMC Corp.(a) 2,000,000 18,180,000
==========================================================================
CONSUMER FINANCE-0.37%
MBNA Corp. 500,000 9,450,000
==========================================================================
DATA PROCESSING SERVICES-1.94%
First Data Corp. 400,000 15,692,000
- --------------------------------------------------------------------------
Fiserv, Inc.(a) 400,000 11,776,000
- --------------------------------------------------------------------------
Paychex, Inc. 700,000 21,798,000
==========================================================================
49,266,000
==========================================================================
DEPARTMENT STORES-1.12%
Kohl's Corp.(a) 500,000 28,400,000
==========================================================================
DIVERSIFIED FINANCIAL SERVICES-7.59%
American Express Co. 450,000 17,037,000
- --------------------------------------------------------------------------
Citigroup Inc. 1,150,000 45,137,500
- --------------------------------------------------------------------------
Fannie Mae 350,000 25,336,500
- --------------------------------------------------------------------------
Freddie Mac 250,000 14,475,000
- --------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 550,000 41,745,000
- --------------------------------------------------------------------------
J.P. Morgan Chase & Co. 900,000 26,415,000
- --------------------------------------------------------------------------
SLM Corp. 200,000 22,400,000
==========================================================================
192,546,000
==========================================================================
DRUG RETAIL-0.97%
Walgreen Co. 800,000 24,688,000
==========================================================================
EMPLOYMENT SERVICES-0.58%
Robert Half International Inc.(a) 900,000 14,652,000
==========================================================================
FOOD DISTRIBUTORS-0.79%
SYSCO Corp.(b) 700,000 20,111,000
==========================================================================
FOOD RETAIL-0.94%
Whole Foods Market, Inc.(a)(b) 400,000 23,744,000
==========================================================================
</Table>
FS-376
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
GENERAL MERCHANDISE STORES-1.89%
Family Dollar Stores, Inc. 400,000 $ 13,676,000
- --------------------------------------------------------------------------
Target Corp. 600,000 20,064,000
- --------------------------------------------------------------------------
Wal-Mart Stores, Inc. 250,000 14,080,000
==========================================================================
47,820,000
==========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-1.06%
Cardinal Health, Inc. 250,000 13,820,000
- --------------------------------------------------------------------------
Caremark Rx, Inc.(a) 650,000 12,941,500
==========================================================================
26,761,500
==========================================================================
HEALTH CARE EQUIPMENT-4.21%
Becton, Dickinson & Co. 750,000 26,550,000
- --------------------------------------------------------------------------
Boston Scientific Corp.(a) 900,000 38,745,000
- --------------------------------------------------------------------------
Medtronic, Inc. 450,000 21,483,000
- --------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 425,000 19,932,500
==========================================================================
106,710,500
==========================================================================
HEALTH CARE SUPPLIES-1.04%
Alcon, Inc. (Switzerland)(a) 600,000 26,430,000
==========================================================================
HOUSEHOLD PRODUCTS-2.29%
Colgate-Palmolive Co. 350,000 20,009,500
- --------------------------------------------------------------------------
Procter & Gamble Co. (The) 425,000 38,186,250
==========================================================================
58,195,750
==========================================================================
HOUSEWARES & SPECIALTIES-1.08%
Newell Rubbermaid Inc. 900,000 27,432,000
==========================================================================
INDUSTRIAL CONGLOMERATES-2.77%
3M Co. 125,000 15,755,000
- --------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 3,500,000 54,600,000
==========================================================================
70,355,000
==========================================================================
INDUSTRIAL GASES-0.57%
Praxair, Inc. 250,000 14,520,000
==========================================================================
INDUSTRIAL MACHINERY-1.05%
Danaher Corp. 200,000 13,796,000
- --------------------------------------------------------------------------
Illinois Tool Works Inc. 200,000 12,796,000
==========================================================================
26,592,000
==========================================================================
INSURANCE BROKERS-0.34%
Willis Group Holdings Ltd. (Bermuda) 274,900 8,574,131
==========================================================================
INTERNET RETAIL-2.44%
Amazon.com, Inc.(a) 1,350,000 38,704,500
- --------------------------------------------------------------------------
eBay Inc.(a) 250,000 23,192,500
==========================================================================
61,897,000
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-1.32%
Yahoo! Inc.(a) 1,350,000 $ 33,453,000
==========================================================================
IT CONSULTING & SERVICES-1.32%
Accenture Ltd.-Class A (Bermuda)(a) 900,000 14,418,000
- --------------------------------------------------------------------------
Affiliated Computer Services, Inc.-Class A(a) 400,000 19,080,000
==========================================================================
33,498,000
==========================================================================
MANAGED HEALTH CARE-2.86%
Aetna Inc. 900,000 44,820,000
- --------------------------------------------------------------------------
UnitedHealth Group Inc. 300,000 27,639,000
==========================================================================
72,459,000
==========================================================================
MOTORCYCLE MANUFACTURERS-0.61%
Harley-Davidson, Inc. 350,000 15,554,000
==========================================================================
MOVIES & ENTERTAINMENT-0.51%
Walt Disney Co. (The) 700,000 13,062,000
==========================================================================
MULTI-LINE INSURANCE-0.91%
American International Group, Inc. 400,000 23,180,000
==========================================================================
NETWORKING EQUIPMENT-2.44%
Cisco Systems, Inc.(a) 3,500,000 52,640,000
- --------------------------------------------------------------------------
Juniper Networks, Inc.(a) 900,000 9,198,000
==========================================================================
61,838,000
==========================================================================
OIL & GAS DRILLING-1.04%
ENSCO International Inc. 500,000 12,700,000
- --------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 350,000 13,720,000
==========================================================================
26,420,000
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.74%
Schlumberger Ltd. (Netherlands) 450,000 18,868,500
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.56%
Devon Energy Corp. 300,000 14,175,000
==========================================================================
PERSONAL PRODUCTS-0.48%
Gillette Co. (The) 400,000 12,180,000
==========================================================================
PHARMACEUTICALS-8.18%
Allergan, Inc. 100,000 7,025,000
- --------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 400,000 20,688,000
- --------------------------------------------------------------------------
Johnson & Johnson 500,000 28,180,000
- --------------------------------------------------------------------------
Lilly (Eli) & Co. 450,000 28,719,000
- --------------------------------------------------------------------------
Pfizer Inc. 2,650,000 81,487,500
- --------------------------------------------------------------------------
Wyeth 950,000 41,353,500
==========================================================================
207,453,000
==========================================================================
RESTAURANTS-0.37%
Starbucks Corp.(a) 400,000 9,396,000
==========================================================================
</Table>
FS-377
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-2.94%
Applied Materials, Inc.(a) 2,700,000 $ 39,420,000
- --------------------------------------------------------------------------
Novellus Systems, Inc.(a) 1,250,000 35,050,000
==========================================================================
74,470,000
==========================================================================
SEMICONDUCTORS-6.78%
Analog Devices, Inc.(a) 1,350,000 44,712,000
- --------------------------------------------------------------------------
Broadcom Corp.-Class A(a) 500,000 8,945,000
- --------------------------------------------------------------------------
Intel Corp. 1,000,000 18,400,000
- --------------------------------------------------------------------------
Linear Technology Corp. 900,000 31,023,000
- --------------------------------------------------------------------------
Maxim Integrated Products, Inc. 350,000 13,751,500
- --------------------------------------------------------------------------
Microchip Technology Inc. 600,000 12,474,000
- --------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan)(a) 2,500,000 20,925,000
- --------------------------------------------------------------------------
Xilinx, Inc.(a) 800,000 21,656,000
==========================================================================
171,886,500
==========================================================================
SOFT DRINKS-0.77%
PepsiCo, Inc. 450,000 19,476,000
==========================================================================
SPECIALTY CHEMICALS-0.60%
Ecolab Inc. 300,000 15,327,000
==========================================================================
SPECIALTY STORES-1.65%
AutoZone, Inc.(a) 175,000 14,141,750
- --------------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 700,000 27,657,000
==========================================================================
41,798,750
==========================================================================
SYSTEMS SOFTWARE-6.74%
Microsoft Corp. 3,500,000 89,495,000
- --------------------------------------------------------------------------
Oracle Corp.(a) 3,350,000 39,798,000
- --------------------------------------------------------------------------
Symantec Corp.(a) 450,000 19,777,500
- --------------------------------------------------------------------------
VERITAS Software Corp.(a) 1,000,000 22,010,000
==========================================================================
171,080,500
==========================================================================
TELECOMMUNICATIONS EQUIPMENT-1.39%
Nortel Networks Corp. (Canada)(a) 7,500,000 19,350,000
- --------------------------------------------------------------------------
QUALCOMM Inc. 500,000 15,945,000
==========================================================================
35,295,000
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES-1.66%
AT&T Wireless Services Inc.(a) 4,000,000 $ 25,840,000
- --------------------------------------------------------------------------
Vodafone Group PLC-ADR (United Kingdom) 825,000 16,302,000
==========================================================================
42,142,000
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $2,323,042,855) 2,536,035,131
__________________________________________________________________________
==========================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
OPTIONS PURCHASED-0.01%
PUTS-0.01%
Tyco International Ltd. (Bermuda) (Industrial
Conglomerates) (Cost $201,000) 3,000 $ 15 Jun-03 217,500
_________________________________________________________________________________________________
=================================================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-0.90%
STIC Liquid Assets Portfolio(c) 11,407,567 11,407,567
- --------------------------------------------------------------------------
STIC Prime Portfolio(c) 11,407,567 11,407,567
==========================================================================
Total Money Market Funds (Cost $22,815,134) 22,815,134
==========================================================================
TOTAL INVESTMENTS-100.88% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$2,346,058,989) 2,559,067,765
__________________________________________________________________________
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.95%
STIC Liquid Assets Portfolio(c)(d) 74,815,700 74,815,700
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $74,815,700) 74,815,700
__________________________________________________________________________
==========================================================================
TOTAL INVESTMENTS-103.83% (Cost
$2,420,874,689) 2,633,883,465
==========================================================================
OTHER ASSETS LESS LIABILITIES-(3.83%) (97,215,936)
==========================================================================
NET ASSETS-100.00% $2,536,667,529
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 1
section G and Note 7.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor.
(d) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned.
See Notes to Financial Statements.
FS-378
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$2,420,874,689)* $ 2,633,883,465
- ------------------------------------------------------------
Receivables for:
Investments sold 16,683,417
- ------------------------------------------------------------
Fund shares sold 926,984
- ------------------------------------------------------------
Dividends 931,062
- ------------------------------------------------------------
Investment for deferred compensation plan 172,951
- ------------------------------------------------------------
Other assets 122,054
============================================================
Total assets 2,652,719,933
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 26,462,190
- ------------------------------------------------------------
Fund shares reacquired 4,474,610
- ------------------------------------------------------------
Options written (premiums received
$3,974,726) 6,035,000
- ------------------------------------------------------------
Deferred compensation plan 172,951
- ------------------------------------------------------------
Collateral upon return of securities
loaned 74,815,700
- ------------------------------------------------------------
Accrued distribution fees 1,458,953
- ------------------------------------------------------------
Accrued trustees' fees 3,034
- ------------------------------------------------------------
Accrued transfer agent fees 2,101,646
- ------------------------------------------------------------
Accrued operating expenses 528,320
============================================================
Total liabilities 116,052,404
============================================================
Net assets applicable to shares outstanding $ 2,536,667,529
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 6,007,229,783
- ------------------------------------------------------------
Undistributed net investment income (loss) (11,565,238)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (3,669,945,583)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 210,948,567
============================================================
$ 2,536,667,529
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 1,950,008,669
____________________________________________________________
============================================================
Class B $ 502,344,229
____________________________________________________________
============================================================
Class C $ 82,305,326
____________________________________________________________
============================================================
Class R $ 184,406
____________________________________________________________
============================================================
Institutional Class $ 1,824,899
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 199,732,253
____________________________________________________________
============================================================
Class B 55,468,750
____________________________________________________________
============================================================
Class C 9,079,099
____________________________________________________________
============================================================
Class R 18,910
____________________________________________________________
============================================================
Institutional Class 178,102
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.76
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.76 divided by
94.50%) $ 10.33
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 9.06
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.07
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.75
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 10.25
____________________________________________________________
============================================================
</Table>
* At April 30, 2003, securities with an aggregate market value of $69,990,662
were on loan to brokers.
See Notes to Financial Statements.
FS-379
STATEMENT OF OPERATIONS
For the six months ended April 30, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 9,932,650
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds 237,319
- ---------------------------------------------------------------------------
Interest 3,106
- ---------------------------------------------------------------------------
Security lending income 46,824
===========================================================================
Total investment income 10,219,899
===========================================================================
EXPENSES:
Advisory fees 8,207,425
- ---------------------------------------------------------------------------
Administrative services fees 246,017
- ---------------------------------------------------------------------------
Custodian fees 81,963
- ---------------------------------------------------------------------------
Distribution fees -- Class A 2,935,429
- ---------------------------------------------------------------------------
Distribution fees -- Class B 2,522,191
- ---------------------------------------------------------------------------
Distribution fees -- Class C 409,011
- ---------------------------------------------------------------------------
Distribution fees -- Class R 289
- ---------------------------------------------------------------------------
Transfer agent fees 6,464,671
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 871
- ---------------------------------------------------------------------------
Trustees' fees 12,595
- ---------------------------------------------------------------------------
Other 492,623
===========================================================================
Total expenses 21,373,085
===========================================================================
Less: Fees waived and expenses paid indirectly (25,101)
===========================================================================
Net expenses 21,347,984
===========================================================================
Net investment income (loss) (11,128,085)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (247,060,918)
- ---------------------------------------------------------------------------
Foreign currencies 115,356
- ---------------------------------------------------------------------------
Option contracts written (271,201)
===========================================================================
(247,216,763)
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 330,260,280
- ---------------------------------------------------------------------------
Foreign currencies 39
- ---------------------------------------------------------------------------
Option contracts written (2,104,891)
===========================================================================
328,155,428
===========================================================================
Net gain from investment securities, foreign currencies and
option contracts 80,938,665
===========================================================================
Net increase in net assets resulting from operations $ 69,810,580
___________________________________________________________________________
===========================================================================
</Table>
See Notes to Financial Statements.
FS-380
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2003 and the year ended October 31, 2002
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2003 2002
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (11,128,085) $ (32,392,421)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts (247,216,763) (796,583,815)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, futures
contracts and option contracts 328,155,428 (246,187,556)
================================================================================================
Net increase (decrease) in net assets resulting from
operations 69,810,580 (1,075,163,792)
================================================================================================
Share transactions-net:
Class A (210,607,658) (1,064,806,254)
- ------------------------------------------------------------------------------------------------
Class B (42,618,894) (180,109,268)
- ------------------------------------------------------------------------------------------------
Class C (6,196,189) (30,575,415)
- ------------------------------------------------------------------------------------------------
Class R 102,906 72,385
- ------------------------------------------------------------------------------------------------
Institutional Class (120,098) (5,419,461)
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (259,439,933) (1,280,838,013)
================================================================================================
Net increase (decrease) in net assets (189,629,353) (2,356,001,805)
================================================================================================
NET ASSETS:
Beginning of period 2,726,296,882 5,082,298,687
================================================================================================
End of period $ 2,536,667,529 $ 2,726,296,882
________________________________________________________________________________________________
================================================================================================
</Table>
See Notes to Financial Statements.
FS-381
NOTES TO FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Weingarten Fund (the "Fund") is a series portfolio of AIM Equity Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers multiple classes of shares. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund.
The Fund's investment objective is to provide growth of capital. Each
company listed in the Schedule of Investments is organized in the United States
unless otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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
FS-382
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 are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks also include to
varying degrees, the risk of loss in excess of the variation margin
disclosed in the Statement of Assets and Liabilities.
I. 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. Transfer agency fees and expenses
and other shareholder recordkeeping fees and expenses are charged to each
class pursuant to a transfer agency and service agreement adopted by the
Fund with respect to such class. All other expenses are allocated among the
classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 1.00% of
the first $30 million of the Fund's average daily net assets, plus 0.75% of the
Fund's average daily net assets in excess of $30 million to and including $350
million, plus 0.625% of the Fund's average daily net assets in excess of $350
million. AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds in which the Fund has invested (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the Fund). For
the six months ended April 30, 2003, AIM waived fees of $4,646. Under the terms
of a master sub-advisory agreement between AIM and A I M Capital Management,
Inc. ("AIM Capital"), AIM pays AIM Capital 50% of the amount paid by the Fund to
AIM.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2003, AIM
was paid $246,017 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 2003,
AFS retained $3,249,635 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and the 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 shares, Class B shares, Class C shares and Class R
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.30% of the Fund's average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B and Class C shares and 0.50% of the average daily net assets of Class R
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own the appropriate class of shares
of the Fund. Any amounts not paid as a service fee under the Plans would
constitute an asset-based sales charge. NASD Rules also impose a cap on the
total sales charges, including asset-based sales charges that may be paid by any
class of shares of the Fund. Pursuant to the Plans, for the six months ended
April 30, 2003, the Class A, Class B, Class C and Class R shares paid
$2,935,429, $2,522,191, $409,011 and $289, respectively.
Front-end sales commissions and contingent deferred sales charges
(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. Contingent deferred
sales charges ("CDSCs") are deducted from
FS-383
redemption proceeds prior to remittance to the shareholder. During six months
ended April 30, 2003, AIM Distributors retained $148,910 in front-end sales
commissions from the sale of Class A shares and $1,480, $0, $3,965 and $0 for
Class A, Class B, Class C and Class R shares, respectively, for CDSCs imposed
upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended April 30, 2003, the Fund paid legal fees of
$3,698 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended April 30, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $18,920 and reductions in
custodian fees of $1,535 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $20,455.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
AIM has established an interfund lending facility 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.
During the reporting period, the Fund was a participant in a committed line
of credit facility with a syndicate administered by Citibank, N.A. The Fund
could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the line of credit could borrow on a first come, first served basis.
The funds which were party to the line of credit were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed line of credit facility expired May 20, 2003.
During the six months ended April 30, 2003, the Fund did not borrow under
the interfund lending or the committed line of credit facility.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At April 30, 2003, securities with an aggregate value of $69,990,662 were on
loan to brokers. The loans were secured by cash collateral of $74,815,700
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended April 30, 2003, the Fund received fees of $46,824
for securities lending.
NOTE 7--CALL OPTION CONTRACTS
Transactions in call options written during the six months ended April 30, 2003
are summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------
Beginning of period 2,500 $ 585,867
- ------------------------------------------------------------
Written 85,660 14,384,503
- ------------------------------------------------------------
Closed (56,850) (8,990,856)
- ------------------------------------------------------------
Exercised (12,307) (1,640,983)
- ------------------------------------------------------------
Expired (1,503) (363,805)
============================================================
End of period 17,500 $ 3,974,726
____________________________________________________________
============================================================
</Table>
Open call option contracts written at April 30, 2003 were as follows:
<Table>
<Caption>
APRIL 30,
2003 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------------------------
Amgen Inc. Jul-03 60 2,500 $ 767,477 $1,125,000 $ (357,523)
- -------------------------------------------------------------------------------------------------
Electronic Arts Inc. Jun-03 65 2,000 333,990 175,000 158,990
- -------------------------------------------------------------------------------------------------
Electronic Arts Inc. Sep-03 70 2,000 403,827 270,000 133,827
- -------------------------------------------------------------------------------------------------
SYSCO Corp. May-03 25 7,000 1,081,467 2,625,000 (1,543,533)
- -------------------------------------------------------------------------------------------------
Whole Foods Market,
Inc. Nov-03 60 4,000 1,387,965 1,840,000 (452,035)
=================================================================================================
17,500 $3,974,726 $6,035,000 $(2,060,274)
_________________________________________________________________________________________________
=================================================================================================
</Table>
FS-384
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ------------------------------------------------------------
October 31, 2009 $2,559,101,338
- ------------------------------------------------------------
October 31, 2010 763,027,747
============================================================
Total capital loss carryforward $3,322,129,085
____________________________________________________________
============================================================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2003 was $1,614,076,870 and $1,829,779,536, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of April 30, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 271,893,440
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (112,914,802)
============================================================
Net unrealized appreciation of investment
securities $ 158,978,638
____________________________________________________________
============================================================
Cost of investments for tax purposes is $2,474,904,827.
</Table>
NOTE 10--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with a CDSC. Under some circumstances, Class A shares and
Class R shares are subject to CDSCs. Class R shares and Institutional Class
shares are sold at net asset value. Generally, Class B shares will automatically
convert to Class A shares eight years after the end of the calendar month of
purchase. Changes in shares outstanding during the six months ended April 30,
2003 and the year ended October 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
---------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,151,560 $ 58,141,087 16,597,940 $ 199,251,597
- -----------------------------------------------------------------------------------------------------------------------------
Class B 2,983,121 26,356,988 5,995,984 66,787,479
- -----------------------------------------------------------------------------------------------------------------------------
Class C 978,774 8,573,034 1,919,777 21,362,371
- -----------------------------------------------------------------------------------------------------------------------------
Class R* 10,990 103,421 7,975 72,385
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class 7,472 73,633 45,598 504,589
=============================================================================================================================
Conversion of Class B shares to Class A shares:
Class A 141,573 1,329,862 368,013 4,307,233
- -----------------------------------------------------------------------------------------------------------------------------
Class B (152,420) (1,329,862) (393,806) (4,307,233)
=============================================================================================================================
Reacquired:
Class A (28,727,592) (270,078,607) (111,225,206) (1,268,365,084)
- -----------------------------------------------------------------------------------------------------------------------------
Class B (7,830,666) (67,646,020) (22,942,810) (242,589,514)
- -----------------------------------------------------------------------------------------------------------------------------
Class C (1,693,948) (14,769,223) (4,815,984) (51,937,786)
- -----------------------------------------------------------------------------------------------------------------------------
Class R* (55) (515) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class (19,408) (193,731) (438,298) (5,924,050)
=============================================================================================================================
(28,150,599) $(259,439,933) (114,880,817) $(1,280,838,013)
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
FS-385
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 9.47 $ 12.65 $ 28.16 $ 28.31 $ 21.72 $ 22.72
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.07)(a) (0.10) (0.14)(a) (0.10) 0.02
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.32 (3.11) (11.87) 3.18 8.16 2.38
===============================================================================================================================
Total from investment
operations 0.29 (3.18) (11.97) 3.04 8.06 2.40
===============================================================================================================================
Less distributions:
Dividends from net investment
income -- -- -- -- (0.01) --
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gains -- -- (3.54) (3.19) (1.46) (3.40)
===============================================================================================================================
Total distributions -- -- (3.54) (3.19) (1.47) (3.40)
===============================================================================================================================
Net asset value, end of period $ 9.76 $ 9.47 $ 12.65 $ 28.16 $ 28.31 $ 21.72
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 3.06% (25.14)% (47.38)% 10.61% 38.62% 12.34%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,950,009 $2,104,660 $4,001,552 $8,948,781 $8,089,739 $6,094,178
===============================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers 1.52%(c) 1.33% 1.21% 1.03% 1.03% 1.04%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.52%(c) 1.33% 1.22% 1.07% 1.08% 1.09%
===============================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.71)%(c) (0.64)% (0.56)% (0.45)% (0.38)% 0.07%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(d) 63% 217% 240% 145% 124% 125%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$1,973,170,268.
(d) Not annualized for periods less than one year.
FS-386
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ---------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.82 $ 11.86 $ 26.82 $ 27.29 $ 21.12 $ 22.34
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.15)(a) (0.21) (0.36)(a) (0.30)(a) (0.15)(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.30 (2.89) (11.21) 3.08 7.93 2.33
================================================================================================================================
Total from investment operations 0.24 (3.04) (11.42) 2.72 7.63 2.18
================================================================================================================================
Less distributions from net realized
gains -- -- (3.54) (3.19) (1.46) (3.40)
================================================================================================================================
Net asset value, end of period $ 9.06 $ 8.82 $ 11.86 $ 26.82 $ 27.29 $ 21.12
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 2.72% (25.63)% (47.75)% 9.76% 37.59% 11.45%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $502,344 $533,224 $922,476 $1,927,514 $1,291,456 $705,750
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.22%(c) 2.04% 1.92% 1.78% 1.82% 1.83%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.22%(c) 2.04% 1.93% 1.82% 1.87% 1.87%
================================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.41)%(c) (1.34)% (1.27)% (1.20)% (1.17)% (0.72)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(d) 63% 217% 240% 145% 124% 125%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$508,618,685.
(d) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ---------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.83 $ 11.87 $ 26.85 $ 27.30 $ 21.14 $ 22.34
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.15)(a) (0.21) (0.36)(a) (0.30)(a) (0.15)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.30 (2.89) (11.23) 3.10 7.92 2.35
==========================================================================================================================
Total from investment operations 0.24 (3.04) (11.44) 2.74 7.62 2.20
==========================================================================================================================
Less distributions from net realized
gains -- -- (3.54) (3.19) (1.46) (3.40)
==========================================================================================================================
Net asset value, end of period $ 9.07 $ 8.83 $ 11.87 $ 26.85 $ 27.30 $ 21.14
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 2.72% (25.61)% (47.77)% 9.83% 37.50% 11.54%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $82,305 $86,455 $150,604 $301,590 $105,420 $23,107
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.22%(c) 2.04% 1.92% 1.78% 1.82% 1.83%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.22%(c) 2.04% 1.93% 1.82% 1.87% 1.87%
==========================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.41)%(c) (1.34)% (1.27)% (1.20)% (1.17)% (0.72)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(d) 63% 217% 240% 145% 124% 125%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$82,480,138.
(d) Not annualized for periods less than one year.
FS-387
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2003 2002
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.47 $ 11.36
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.03)(a)
- --------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.32 (1.86)
============================================================================================
Total from investment operations 0.28 (1.89)
============================================================================================
Net asset value, end of period $ 9.75 $ 9.47
____________________________________________________________________________________________
============================================================================================
Total return(b) 2.96% (16.64)%
____________________________________________________________________________________________
============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 184 $ 76
____________________________________________________________________________________________
============================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.72%(c) 1.53%(d)
- --------------------------------------------------------------------------------------------
Without fee waivers 1.72%(c) 1.53%(d)
============================================================================================
Ratio of net investment income (loss) to average net assets (0.91)%(c) (0.84)%(d)
____________________________________________________________________________________________
============================================================================================
Portfolio turnover rate(e) 63% 217%
____________________________________________________________________________________________
============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $116,548.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-388
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ----------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.91 $ 13.16 $ 29.00 $ 28.96 $ 22.18 $ 23.05
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)(a) (0.01)(a) (0.01) (0.06)(a) 0.02 0.10
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.34 (3.24) (12.29) 3.29 8.32 2.43
=================================================================================================================================
Total from investment operations 0.34 (3.25) (12.30) 3.23 8.34 2.53
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.10) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (3.54) (3.19) (1.46) (3.40)
=================================================================================================================================
Total distributions -- -- (3.54) (3.19) (1.56) (3.40)
=================================================================================================================================
Net asset value, end of period $10.25 $ 9.91 $ 13.16 $ 29.00 $ 28.96 $ 22.18
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 3.43% (24.70)% (47.11)% 11.07% 39.20% 12.79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,825 $ 1,883 $ 7,667 $18,634 $114,076 $72,884
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 0.81%(c) 0.82% 0.69% 0.64% 0.63% 0.62%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 0.81%(c) 0.82% 0.70% 0.68% 0.68% 0.67%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.01)%(c) (0.12)% (0.04)% (0.04)% 0.02% 0.49%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 63% 217% 240% 145% 124% 125%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$1,755,994.
(d) Not annualized for periods less than one year.
FS-389
APPENDIX II
JULY 31, 2002
ANNUAL REPORT
INVESCO STOCK FUNDS, INC.
DYNAMICS FUND
GROWTH FUND
GROWTH & INCOME FUND
INVESCO ENDEAVOR FUND
S&P 500 INDEX FUND
SMALL COMPANY GROWTH FUND
VALUE EQUITY FUND
"WE BELIEVE THE PAST 30 MONTHS OR SO HAVE REPRESENTED A ONCE-IN-A-GENERATION
BEAR MARKET."
SEE PAGE 19
[INVESCO ICON] INVESCO(R)
[PHOTOGRAPH OF MARK H. WILLIAMSON OMITTED]
MAINTAINING A PRUDENT APPROACH IN A DIFFICULT MARKET
FELLOW SHAREHOLDER:
Author and productivity consultant Denis Waitley wrote that success in life
comes not from holding a good hand, but in playing a poor hand well. The markets
have certainly dealt us a miserable hand in the past few years. Given today's
volatility, how can investors respond prudently and still enjoy long-term
success?
The key, we believe, is to maintain YOUR LONG-TERM FOCUS. Bear markets come and
go, but historically, markets have always eventually rebounded, moving higher
than before. There's no reason to think this won't happen again. Consider the
powerful influence of time when investing. Financial writer Charles D. Ellis
wrote that TIME is Archimedes' lever in investing. History has shown that the
more time you have in the markets, the greater the chances of positive returns.
And with the power of compounding over time, small investments can grow to
substantial sums.
Markets have historically rewarded investors who did not panic and stayed
invested. A hasty response can wreak havoc on a carefully thought out investment
plan -- turning temporary paper losses into real ones, and resulting in missing
the best performance days of an eventual market recovery. History has proven
time and time again that investors who are willing to wait out the downturns
have been rewarded over the long term.
Moreover, the market's unpredictability underscores the importance of staying
diversified by maintaining an asset mix that's suitable for your risk tolerance
and time horizon. So if you're feeling extremely optimistic, or if you're
feeling extremely pessimistic, we would encourage you to look beyond those
emotions, stay invested, and rationally assess which asset classes may help you
realize your objectives.
If you would like assistance formulating an appropriate financial strategy, I
encourage you to contact your financial advisor, who can advise you and create a
financial plan specifically tailored to your individual needs. Or feel free to
call us at 1-800-525-8085.
Sincerely,
/s/ Mark H. Williamson
Mark H. Williamson
Chairman and CEO, INVESCO Funds Group, Inc.
INVESCO STOCK FUNDS, INC.
TOTAL RETURN PERIODS ENDED 7/31/02*
Manager's
Cumulative 10 years or Report
Fund (Inception) 6 months 1 year 5 years+ Since Inception^ Page #
- -------------------------------------------------------------------------------------------------------------------------------
DYNAMICS FUND - CLASS A (4/02) WITH SALES LOAD N/A N/A N/A (33.11%)^ 3
- -------------------------------------------------------------------------------------------------------------------------------
DYNAMICS FUND - CLASS B (4/02) WITH CDSC N/A N/A N/A (34.54%)^ 3
- -------------------------------------------------------------------------------------------------------------------------------
DYNAMICS FUND - CLASS C (2/00) WITH CDSC (32.10%) (38.76%) N/A (32.75%)^+ 3
- -------------------------------------------------------------------------------------------------------------------------------
DYNAMICS FUND - CLASS K (12/00) (30.89%) (37.32%) N/A (35.72%)^+ 3
- -------------------------------------------------------------------------------------------------------------------------------
DYNAMICS FUND - INVESTOR CLASS (9/67) (30.75%) (37.17%) (1.44%) 9.35% 3
- -------------------------------------------------------------------------------------------------------------------------------
DYNAMICS FUND - INSTITUTIONAL CLASS (5/00) (30.61%) (36.95%) N/A (30.53%)^+ 3
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH FUND - CLASS A (4/02) WITH SALES LOAD N/A N/A N/A (33.87%)^ 6
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH FUND - CLASS B (4/02) WITH CDSC N/A N/A N/A (35.34%)^ 6
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH FUND - CLASS C (2/00) WITH CDSC (35.96%) (48.07%) N/A (44.55%)^+ 6
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH FUND - CLASS K (12/00) (34.78%) (50.02%) N/A (53.44%)^+ 6
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH FUND - INVESTOR CLASS (11/35) (34.66%) (46.28%) (13.42%) 0.88% 6
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND - CLASS A (4/02) WITH SALES LOAD N/A N/A N/A (31.19%)^ 9
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND - CLASS B (4/02) WITH CDSC N/A N/A N/A (32.40%)^ 9
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND - CLASS C (2/00) WITH CDSC (29.65%) (39.83%) N/A (34.20%)^+ 9
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND - CLASS K (12/00) (28.49%) (38.75%) N/A (41.27%)^+ 9
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND - INVESTOR CLASS (7/98) (28.34%) (38.37%) N/A (7.10%)^+ 9
- -------------------------------------------------------------------------------------------------------------------------------
INVESCO ENDEAVOR FUND - CLASS A (4/02) WITH SALES LOAD N/A N/A N/A (38.66%)^ 11
- -------------------------------------------------------------------------------------------------------------------------------
INVESCO ENDEAVOR FUND - CLASS B (4/02) WITH CDSC N/A N/A N/A (44.77%)^ 11
- -------------------------------------------------------------------------------------------------------------------------------
INVESCO ENDEAVOR FUND - CLASS C (2/00) WITH CDSC (43.40%) (51.89%) N/A (47.25%)^+ 11
- -------------------------------------------------------------------------------------------------------------------------------
INVESCO ENDEAVOR FUND - CLASS K (12/00) (42.21%) (50.61%) N/A (51.03%)^+ 11
- -------------------------------------------------------------------------------------------------------------------------------
INVESCO ENDEAVOR FUND - INVESTOR CLASS (10/98) (42.17%) (50.56%) N/A (13.58%)^+ 11
- -------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX FUND - INSTITUTIONAL CLASS (12/97) (19.35%) (24.50%) N/A 0.27%^+ 13
- -------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX FUND - INVESTOR CLASS (12/97) (19.27%) (24.33%) N/A 0.45%^+ 13
- -------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND - CLASS A (4/02) WITH SALES LOAD N/A N/A N/A (29.33%)^ 14
- -------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND - CLASS B (4/02) WITH CDSC N/A N/A N/A (30.24%)^ 14
- -------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND - CLASS C (2/00) WITH CDSC (29.68%) (36.75%) N/A (29.96%)^+ 14
- -------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND - CLASS K (12/01) (27.39%) N/A N/A (28.32%)^ 14
- -------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND - INVESTOR CLASS (12/91) (27.56%) (34.09%) 0.55% 10.18% 14
- -------------------------------------------------------------------------------------------------------------------------------
VALUE EQUITY FUND - CLASS A (4/02) WITH SALES LOAD N/A N/A N/A (23.91%)^ 16
- -------------------------------------------------------------------------------------------------------------------------------
VALUE EQUITY FUND - CLASS B (4/02) WITH CDSC N/A N/A N/A (24.21%)^ 16
- -------------------------------------------------------------------------------------------------------------------------------
VALUE EQUITY FUND - CLASS C (2/00) WITH CDSC (17.81%) (21.98%) N/A (8.76%)^+ 16
- -------------------------------------------------------------------------------------------------------------------------------
VALUE EQUITY FUND - INVESTOR CLASS (5/86) (16.46%) (20.28%) (2.39%) 7.30% 16
- -------------------------------------------------------------------------------------------------------------------------------
*PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL VARY SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY BE
WORTH MORE OR LESS THAN WHEN PURCHASED. THE FUNDS' CLASS A PERFORMANCE REFLECTS
THE MAXIMUM SALES CHARGE OF 5.50%. THE FUNDS' CLASS B AND CLASS C PERFORMANCE
REFLECTS THE DEDUCTION OF THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE (CDSC)
FOR THE PERIODS SHOWN. THE CDSC ON CLASS B SHARES DECLINES FROM 5% BEGINNING AT
THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE SEVENTH YEAR. THE CDSC OF
CLASS C SHARES IS 1% FOR THE FIRST 13 MONTHS AFTER PURCHASE. THE PERFORMANCE OF
THE FUND'S INVESTOR CLASS, INSTITUTIONAL CLASS, CLASS A, CLASS B, CLASS C AND
CLASS K SHARES WILL DIFFER DUE TO THE DIFFERENT SALES CHARGE STRUCTURES AND
EXPENSES. INVESTOR CLASS SHARES ARE CLOSED TO NEW INVESTORS.
+AVERAGE ANNUALIZED
^FOR FUNDS OR SHARE CLASSES INTRODUCED MORE RECENTLY PERFORMANCE INFORMATION
PROVIDED IN THIS REPORT DOES NOT REFLECT THE DEDUCTION OF TAXES SHAREHOLDERS PAY
ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
TABLE OF CONTENTS
LETTER FROM THE CHAIRMAN...................... 1
FUND REPORTS.................................. 3
AN INTERVIEW WITH TIM MILLER..................18
MARKET HEADLINES..............................20
INVESTMENT HOLDINGS...........................21
FINANCIAL STATEMENTS..........................60
NOTES TO FINANCIAL STATEMENTS.................79
FINANCIAL HIGHLIGHTS..........................89
OTHER INFORMATION............................115
YOUR FUND'S REPORT
DYNAMICS FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
The past year presented a remarkably challenging backdrop for equity investors;
for growth investors, the environment was particularly difficult. Throughout the
period, investors were forced to contend with one unnerving event after another,
which combined to intensify risk-averse sentiment.
The market's growing risk intolerance encouraged investors to rotate out of
investments deemed more aggressive and into assets believed to be more stable.
Many of the fund's holdings were adversely affected by this rotation, and for
the 12-month period ended July 31, 2002, the value of Dynamics Fund-Investor
Class shares declined by 37.17%, underperforming the Russell Midcap Growth
Index, which declined 28.68%. (Of course, past performance is not a guarantee of
future results.)(1),(2) For performance of other share classes, please see page
2.
TECH AND TELECOM DECLINED SHARPLY
Primarily accounting for the fund's relative performance shortfall was its
technology exposure. At the beginning of the period, we were growing
increasingly confident in the progress of the economic recovery. In particular,
we took an aggressive posture toward semiconductor and software companies -- two
areas that have historically performed well during the early stages of economic
improvement. This overweighting hindered performance when investors' preference
for "safe-haven" investments spiked higher after September 11. Performance
continued to suffer as it became clear that tech companies were not benefiting
from the gradual economic improvement seen thus far in 2002. Instead, repeated
earnings warnings and a poor overall outlook for the sector hurt the group.
- --------------------------------------------------------------------------------
DYNAMICS FUND--
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 7/31/02
- --------------------------------------------------------------------------------
Forest Laboratories...................................................3.25%
Smith International...................................................1.77%
Teva Pharmaceutical Industries Ltd
Sponsored ADR Representing Ord Shares.................................1.72%
eBay Inc..............................................................1.71%
USA Interactive.......................................................1.71%
CDW Computer Centers..................................................1.64%
Harrah's Entertainment................................................1.60%
AmerisourceBergen Corp................................................1.54%
Symantec Corp.........................................................1.45%
Lamar Advertising Class A Shrs........................................1.30%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
Telecommunications services was another area of relative weakness, as the group
saw several companies file for bankruptcy after the slowing economy, muted
demand, inhospitable capital markets, and excessive capacity kept the group's
fundamentals under intense pressure. Although telecom stocks represented a
fairly small percentage of the portfolio's assets, declines in the sector were
so severe that our exposure dealt a significant blow to overall portfolio
results.
BEAR MARKET HURT MOST SECTORS
While these two areas accounted for our poor relative performance, the fund's
poor absolute performance was generally the result of an exceptionally difficult
market. Consider that, of the 10 economic sectors represented by the Russell
Midcap Growth Index, only two logged positive absolute returns -- and even those
were in the low single digits. The fund's holdings did not fare much better in
absolute terms. But we held our own relatively. Our energy stocks made positive
absolute contributions to performance, while the rest of the energy sector
slipped lower. Standouts in this area included our oil services stocks, led by
BJ Services and Nabors Industries Ltd, as well as in oil exploration and
production firms Apache Corp and Murphy Oil. These companies benefited from
steady increases in the price of oil, caused by expectations of improving
demand.
Our decision to underweight biotechnology also helped support performance. In
early 2002, our health care team recognized that the risk/reward profile of many
biotech companies was askew. They recognized that many companies offer only one
product, the success of which would determine their near-term fate. Considering
that the Food and Drug Administration has not been as accommodating in the drug
approval process, we believed we should avoid the entire sub-sector -- a
decision that paid off when many high-profile compounds failed clinical trials,
resulting in intense selling throughout the group.
LINE GRAPH: INVESCO DYNAMICS FUND - INVESTOR CLASS GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Dynamics
Fund - Investor Class to the value of a $10,000 investment in the Russell Midcap
Growth Index(2), assuming in each case reinvestment of all dividends and capital
gain distributions, for the ten year period ended 7/31/02.
INVESCO DYNAMICS FUND - INVESTOR CLASS RUSSELL MIDCAP GROWTH INDEX(2)
7/92 $10,000 $10,000
7/93 $12,530 $11,324
7/94 $13,436 $11,917
7/95 $17,551 $15,583
7/96 $19,244 $16,713
7/97 $26,298 $23,346
7/98 $31,135 $25,291
7/99 $41,715 $30,777
7/00 $62,714 $44,245
7/01 $38,920 $30,170
7/02 $24,453 $21,518
RETAILERS AND LODGING STOCKS BUOYED BY STRONG CONSUMER DEMAND
Another area that contributed positively to absolute performance was the fund's
consumer discretionary stocks. Our move to overweight these stocks was
consistent with our belief that the economy was on the mend. This posture paid
off as consumer spending remained surprisingly resilient in the face of the
year's unnerving developments. Consequently, the fund's retailers, including
Kohl's Corp and CDW Computer Centers, supported our showing. The fund's exposure
to hotel and lodging stocks also helped, as the industry's business rebounded
after the terrorist attacks.
LINE GRAPH: INVESCO DYNAMICS FUND - CLASS A & B GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Dynamics
Fund - Class A and the value of a $10,000 investment in INVESCO Dynamics Fund -
Class B to the value of a $10,000 investment in the Russell Midcap Growth
Index(2), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the cases of INVESCO Dynamics Fund - Class A and Class B
inclusion of front-end sales charge and contingent deferred sales charge,
respectively, for the period since inception (4/02) through 7/31/02.
INVESCO DYNAMICS FUND - CLASS A INVESCO DYNAMICS FUND - CLASS B RUSSELL MIDCAP GROWTH INDEX(2)
4/02 $10,000 $10,000 $10,000
7/02 $ 6,689 $ 6,546 $ 7,380
LINE GRAPH: INVESCO DYNAMICS FUND - CLASS C GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Dynamics
Fund - Class C to the value of a $10,000 investment in the Russell Midcap Growth
Index(2), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the case of INVESCO Dynamics Fund - Class C inclusion of
contingent deferred sales charge, for the period since inception (2/00) through
7/31/02.
INVESCO DYNAMICS FUND - CLASS C RUSSELL MIDCAP GROWTH INDEX(2)
2/00 $10,000 $10,000
7/00 $ 9,834 $ 8,682
7/01 $ 6,053 $ 5,920
7/02 $ 3,767 $ 4,222
(1)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC FEES. THE
CHARTS AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING
EXPENSES, BUT THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS
PERFORMANCE.
(2)THE RUSSELL MIDCAP GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL
MIDCAP COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH
VALUES. THE INDEX IS NOT MANAGED; THEREFORE, ITS PERFORMANCE DOES NOT REFLECT
MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND INCLUDING FRONT-END
SALES CHARGES AND CDSC FEES. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET
INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
FUND MANAGEMENT
[PHOTOGRAPH OF TIMOTHY J. MILLER OMITTED]
TIMOTHY J. MILLER, CFA
CHIEF INVESTMENT OFFICER TIM MILLER IS MANAGER OF INVESCO DYNAMICS FUND. HE ALSO
LEADS INVESCO'S GROWTH INVESTMENT MANAGEMENT TEAM. PRIOR TO JOINING INVESCO
FUNDS GROUP, TIM WAS ASSOCIATED WITH MISSISSIPPI VALLEY ADVISORS FOR 13 YEARS,
WHERE HE WAS AN ANALYST AND PORTFOLIO MANAGER. HE HOLDS AN MBA FROM THE
UNIVERSITY OF MISSOURI (ST. LOUIS), A BSBA FROM ST. LOUIS UNIVERSITY, AND IS A
CHARTERED FINANCIAL ANALYST CHARTERHOLDER. TIM HAS MORE THAN 20 YEARS OF
INVESTMENT EXPERIENCE.
Looking ahead, we remain encouraged by the economy's progress, and believe the
second half of the year will see corporate profits reflect the improving
business climate. We are also encouraged by the portfolio's behavior near period
end -- a time that was characterized by several strong rallies. We believe that
the fund's strong relative performance during these rallies suggests that we
have emphasized the right areas and will likely participate in the market's
recovery, when uncertainty dissipates.
LINE GRAPH: INVESCO DYNAMICS FUND - CLASS K GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Dynamics
Fund - Class K to the value of a $10,000 investment in the Russell Midcap Growth
Index(2), assuming in each case reinvestment of all dividends and capital gain
distributions, for the period since inception (12/00) through 7/31/02.
INVESCO DYNAMICS FUND - CLASS K RUSSELL MIDCAP GROWTH INDEX(2)
12/00 $10,000 $10,000
7/01 $ 7,640 $ 8,544
7/02 $ 4,789 $ 6,094
PIE CHART: DYNAMICS FUND
INDUSTRY BREAKDOWN
AS OF 7/31/02
[PIE CHART]
% OF TOTAL NET ASSETS
Pharmaceuticals........................7.04%
Semiconductors.........................6.56%
Application Software...................5.67%
Health Care Equipment .................4.45%
Oil & Gas Equipment & Services.........4.18%
Systems Software.......................4.04%
Investment Advisor/
Broker Dealer Services.................3.95%
IT Consulting & Services...............3.80%
Industrial Machinery...................3.55%
Banks..................................3.11%
Other Industries......................52.20%
Net Cash & Cash Equivalents............1.45%
LINE GRAPH: INVESCO DYNAMICS FUND - INSTITUTIONAL CLASS GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Dynamics
Fund - Institutional Class to the value of a $10,000 investment in the Russell
Midcap Growth Index(2), assuming in each case reinvestment of all dividends and
capital gain distributions, for the period since inception (5/00) through
7/31/02.
INVESCO DYNAMICS FUND - INSTITUTIONAL CLASS RUSSELL MIDCAP GROWTH INDEX(2)
5/00 $10,000 $10,000
7/00 $11,474 $10,361
7/01 $ 7,139 $ 7,065
7/02 $ 4,501 $ 5,039
YOUR FUND'S REPORT
GROWTH FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
Few stocks were able to avoid the myriad obstacles that arose during the
one-year period ended July 31, 2002. Signs of economic improvement in August
2001 were soon overshadowed by the terrorist attacks in September, which sent
financial markets significantly lower in subsequent weeks. And, although the
United States' success in Afghanistan paved the way for a fourth quarter rally,
negative headlines began cropping up again with the New Year. The threat of more
terrorist attacks, a standoff between nuclear rivals Pakistan and India,
financial turmoil in Latin America, and ongoing bouts of violence in the Middle
East all weighed on market performance. Furthermore, the unethical accounting
practices of Enron Corp (not a fund holding) -- first unveiled in December 2001
- --- were soon joined by admissions of wrongdoing by a number of other
high-profile companies, causing a breakdown in investor confidence.
By the end of the period, conditions had deteriorated to a point where lows in
the major market indexes fell past those set immediately following 9/11. In this
environment, Growth Fund-Investor Class shares posted a sharp loss of 46.28%
during the 12-month period ended July 31, 2002. The fund's benchmark, the
Russell 1000 Growth Index, also retreated, but by a smaller percentage of
28.75%. (Of course, past performance is not a guarantee of future
results.)(3),(4) For performance of other share classes, please see page 2.
TECHNOLOGY HOLDINGS DISAPPOINT
Throughout most of the fiscal year, the fund held an overweight position in the
technology sector relative to the Russell 1000 Growth Index. Unfortunately, this
strategy took a toll on the fund -- except during the fourth quarter of 2001,
when growth stocks briefly rebounded -- as a sustained economic recovery failed
to materialize. Weak corporate spending and investors' continued punishment of
higher growth stocks combined to create an unforgiving climate for technology
companies in a variety of industries. Although we subsequently sold a number of
the names that suffered the most under these conditions, the fund did incur
losses from stocks such as Vitesse Semiconductor and Applied Micro Circuits.
Another holding that detracted from the fund's performance was AOL Time Warner.
AOL was subject to the negative effects of a poor advertising climate throughout
the period. In addition, questions surrounding the company's management deterred
investors, with AOL and Time Warner still working to smooth the merger
transition. Finally, the company's accounting practices fell under scrutiny in
the latter part of the period, causing its stock price to decline precipitously.
Given these developments and the lack of visibility for its future growth, we
opted to sell all of our shares in AOL to avoid any additional losses.
- --------------------------------------------------------------------------------
GROWTH FUND--
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 7/31/02
- --------------------------------------------------------------------------------
General Electric...................................................4.64%
Pfizer Inc.........................................................4.10%
Microsoft Corp.....................................................3.59%
Wells Fargo & Co...................................................3.50%
Exxon Mobil........................................................3.30%
Cisco Systems......................................................3.12%
United Technologies................................................2.88%
Bank of America....................................................2.54%
American International Group.......................................2.53%
Viacom Inc Class B Shrs............................................2.52%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
There were some exceptions to these sector trends, however. Most notably, online
auction house eBay Inc was the strongest performer for the fund. Resilient
consumer spending as well as a unique market position helped the company weather
the period's volatility.
NEW MANAGEMENT DIVERSIFIES THE PORTFOLIO
In March 2002, a new management team took the helm of the fund, with INVESCO
Chief Investment Officer Timothy Miller serving in an oversight capacity, and
veteran large-cap growth managers Peter Lovell and Fritz Meyer in charge of
stock selection. The team repositioned the portfolio in an effort to better
navigate volatility -- without sacrificing the fund's aggressive growth-oriented
approach. To meet this end, the team more broadly diversified the fund by
increasing the number of holdings and reducing individual positions in an
attempt to mitigate risk.
LINE GRAPH: INVESCO GROWTH FUND - INVESTOR CLASS GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Growth
Fund - Investor Class to the value of a $10,000 investment in the Russell 1000
Growth Index(4), assuming in each case reinvestment of all dividends and capital
gain distributions, for the ten year period ended 7/31/02.
INVESCO GROWTH FUND - INVESTOR CLASS RUSSELL 1000 GROWTH INDEX(4)
7/92 $10,000 $10,000
7/93 $11,417 $10,244
7/94 $11,659 $10,755
7/95 $13,437 $14,134
7/96 $15,643 $16,328
7/97 $22,443 $24,794
7/98 $27,445 $29,733
7/99 $33,710 $36,881
7/00 $46,660 $45,872
7/01 $20,328 $29,790
7/02 $10,919 $21,225
LINE GRAPH: INVESCO GROWTH FUND - CLASS A & B GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Growth
Fund - Class A and the value of a $10,000 investment in INVESCO Growth Fund -
Class B to the value of a $10,000 investment in the Russell 1000 Growth
Index(4), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the cases of INVESCO Growth Fund - Class A and Class B
inclusion of front-end sales charge and contingent deferred sales charge,
respectively, for the period since inception (4/02) through 7/31/02.
INVESCO GROWTH FUND - CLASS A INVESCO GROWTH FUND - CLASS B RUSSELL 1000 GROWTH INDEX(4)
4/02 $10,000 $10,000 $10,000
7/02 $ 6,613 $ 6,466 $ 7,686
These actions were most noticeable with regard to the technology sector, which,
as of July 31, 2002, comprised approximately 23% of the fund's total assets
compared to more than 50% of the fund's assets before the management change.
More volatile companies within areas such as the struggling optical space were
eliminated, while positions in other, non-tech growth sectors were initiated.
Specifically, the fund's health care weighting was increased to include a
cross-section of the strongest pharmaceutical, health care services, and
biotechnology companies in the market.
Meanwhile, retail names with strong growth potential were added, such as Target
Corp and Wal-Mart Stores, and a handful of carefully selected industrials and
consumer staples leaders were introduced to the fund. For example, the fund
gained exposure to General Electric, Procter & Gamble, and Gillette Co -- all
firms that have fared relatively well through the market downturn and also
possess the ability to grow their earnings going forward.
(3)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC FEES. THE
CHARTS AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING
EXPENSES, BUT THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS
PERFORMANCE.
(4)THE RUSSELL 1000 GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000
COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES.
THE INDEX IS NOT MANAGED; THEREFORE, ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT
FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND INCLUDING FRONT-END SALES
CHARGES AND CDSC FEES. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
FUND MANAGEMENT TEAM MANAGED
[PHOTOGRAPH OF TIMOTHY J. MILLER OMITTED]
TIMOTHY J. MILLER, CFA
CHIEF INVESTMENT OFFICER TIM MILLER LEADS INVESCO'S GROWTH INVESTMENT MANAGEMENT
TEAM. PRIOR TO JOINING INVESCO FUNDS GROUP, TIM WAS ASSOCIATED WITH MISSISSIPPI
VALLEY ADVISORS FOR 13 YEARS, WHERE HE WAS AN ANALYST AND PORTFOLIO MANAGER. HE
HOLDS AN MBA FROM THE UNIVERSITY OF MISSOURI (ST. LOUIS), A BSBA FROM ST. LOUIS
UNIVERSITY, AND IS A CHARTERED FINANCIAL ANALYST CHARTERHOLDER. TIM HAS MORE
THAN 20 YEARS OF INVESTMENT EXPERIENCE.
[PHOTOGRAPH OF FRITZ MEYER OMITTED]
[PHOTOGRAPH OF PETER M. LOVELL OMITTED]
FRITZ MEYER
VICE PRESIDENT FRITZ MEYER IS A MEMBER OF THE INVESCO GROWTH INVESTMENT
MANAGEMENT TEAM. FRITZ RECEIVED HIS AB FROM DARTMOUTH COLLEGE WITH A DISTINCTION
IN ECONOMICS, AND HIS MBA FROM AMOS TUCK SCHOOL-DARTMOUTH COLLEGE. HE BEGAN HIS
INVESTMENT CAREER IN 1976 AND JOINED INVESCO FUNDS GROUP IN 1996.
PETER M. LOVELL
VICE PRESIDENT PETER M. LOVELL IS A MEMBER OF THE INVESCO GROWTH INVESTMENT
MANAGEMENT TEAM. PETE EARNED HIS BA AT COLORADO STATE UNIVERSITY AND HIS MBA
FROM REGIS UNIVERSITY. HE BEGAN HIS INVESTMENT CAREER IN 1992 AND JOINED INVESCO
IN 1994.
MANAGING RISK WHILE SEEKING GROWTH
The market continues to face its share of unsettling questions surrounding
issues like corporate accounting and the U.S.'s intentions regarding Iraq. We
are also watching investors closely to ascertain whether all the talk of a
possible weakening in consumer spending could become a self-fulfilling prophecy.
Regardless of which direction the market turns next, we will continue to apply
the same basic, rigorous strategy we've been using in recent months. In short,
we will maintain our growth-oriented approach while emphasizing diversification
and targeting only the most fundamentally sound companies within our investment
universe. We feel that this strategy will allow us to manage risk without
sacrificing the fund's potential for future growth.
LINE GRAPH: INVESCO GROWTH FUND - CLASS C GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Growth
Fund - Class C to the value of a $10,000 investment in the Russell 1000 Growth
Index(4), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the case of INVESCO Growth Fund - Class C inclusion of
contingent deferred sales charge, for the period since inception (2/00) through
7/31/02.
INVESCO GROWTH FUND - CLASS C RUSSELL 1000 GROWTH INDEX(4)
2/00 $10,000 $10,000
7/00 $10,218 $ 9,992
7/01 $ 4,428 $ 6,489
7/02 $ 2,344 $ 4,623
PIE CHART: GROWTH FUND
INDUSTRY BREAKDOWN
AS OF 7/31/02
[PIE CHART]
% OF TOTAL NET ASSETS
Banks......................................8.66%
Systems Software...........................7.90%
Pharmaceuticals............................7.42%
Industrial Conglomerates...................6.61%
Semiconductors.............................6.03%
Aerospace & Defense........................4.50%
General Merchandise Stores.................3.54%
Integrated Oil & Gas.......................3.30%
Networking Equipment.......................3.12%
Data Processing Services...................2.74%
Other Industries..........................37.85%
Net Cash & Cash Equivalents................8.33%
LINE GRAPH: INVESCO GROWTH FUND - CLASS K GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Growth
Fund - Class K to the value of a $10,000 investment in the Russell 1000 Growth
Index(4), assuming in each case reinvestment of all dividends and capital gain
distributions, for the period since inception (12/00) through 7/31/02.
INVESCO GROWTH FUND - CLASS K RUSSELL 1000 GROWTH INDEX(4)
12/00 $10,000 $10,000
7/01 $ 5,601 $ 8,097
7/02 $ 2,799 $ 5,769
YOUR FUND'S REPORT
GROWTH & INCOME FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
LINE GRAPH: INVESCO GROWTH & INCOME FUND - INVESTOR CLASS GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Growth &
Income Fund - Investor Class to the value of a $10,000 investment in the Russell
1000 Growth Index(6), assuming in each case reinvestment of all dividends and
capital gain distributions, for the period since inception (7/98) through
7/31/02.
INVESCO GROWTH & INCOME FUND - INVESTOR CLASS RUSSELL 1000 GROWTH INDEX(6)
7/98 $10,000 $10,000
7/99 $16,180 $12,322
7/00 $21,163 $15,326
7/01 $12,009 $ 9,953
7/02 $ 7,401 $ 7,091
LINE GRAPH: INVESCO GROWTH & INCOME FUND - CLASS A & B GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Growth &
Income Fund - Class A and the value of a $10,000 investment in INVESCO Growth &
Income Fund - Class B to the value of a $10,000 investment in the Russell 1000
Growth Index(6), assuming in each case reinvestment of all dividends and capital
gain distributions, and in the cases of INVESCO Growth & Income Fund - Class A
and Class B inclusion of front-end sales charge and contingent deferred sales
charge, respectively, for the period since inception (4/02) through 7/31/02.
INVESCO GROWTH & INCOME FUND - CLASS A INVESCO GROWTH & INCOME FUND - CLASS B RUSSELL 1000 GROWTH INDEX(6)
4/02 $10,000 $10,000 $10,000
7/02 $ 6,881 $ 6,760 $ 7,686
During the 12-month period ended July 31, 2002, volatility and uncertainty
prevailed as investors attempted to gauge the direction of the economy against a
rapidly changing backdrop. The first major events to shake financial markets
were, of course, the tragic attacks of September 11, which understandably sent
stocks lower. However, with the United States' quick response and success in
Afghanistan, the fourth quarter of 2001 proved to be stronger than many had
expected. All signs were pointing toward an economic recovery in 2002.
However, at the end of 2001, revelations of accounting fraud at Enron Corp (not
a fund holding) shook investor confidence. As more high-profile scandals
unfolded in 2002, sentiment continued to deteriorate. Matters were not helped by
unrest in the Middle East, declines in the U.S. dollar, and generally lackluster
corporate earnings.
Given the poor investor sentiment during the period, all of the major measures
of stock performance moved sharply lower. Yet economic data showed improvement
toward the end of 2001 and during the first half of 2002, as evidenced by
positive gross domestic product (GDP) growth, healthy productivity, and
expansion in the manufacturing and non-manufacturing sectors (as reported by the
Institute for Supply Management). Indeed, it appeared that, throughout much of
the fiscal year, sentiment -- rather than economic fundamentals -- drove stock
prices.
Nevertheless, growth stocks were severely punished in this environment, and
Growth & Income Fund-Investor Class shares fell 38.37% over the course of the
12-month period ended July 31, 2002. In comparison, the Russell 1000 Growth
Index lost 28.75% during the same time span. (Of course, performance is not a
guarantee of future results.)(5),(6) For performance of other share classes,
please see page 2.
TECHNOLOGY COMPANIES HAMPER PERFORMANCE
The fund's overweight position in technology stocks relative to the Russell 1000
Growth Index took a toll on performance, as many tech companies were among the
year's worst performers. Corporate spending on new technology failed to revive
during the period, causing several industries -- including software,
semiconductors, and communications equipment -- to retreat. Furthermore, while
the technology sector may possess tremendous long-term growth potential, it is
also known as a high-growth area, which did not suit investors' bearish mood.
Even market leaders that have been longtime fund holdings, such as Cisco Systems
and Intel Corp, could not shrug off the unfavorable conditions.
It's important to note, however, that as the technology sector's troubles
deepened and its short-term future became hazy, we trimmed the fund's exposure
to this area, finishing the period with a tech weighting in line with the
Russell 1000 Growth Index. We believe that this positioning allowed us to
mitigate risk somewhat without sacrificing the fund's pursuit of long-term
growth.
LINE GRAPH: INVESCO GROWTH & INCOME FUND - CLASS C GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Growth &
Income Fund - Class C to the value of a $10,000 investment in the Russell 1000
Growth Index(6), assuming in each case reinvestment of all dividends and capital
gain distributions, and in the case of INVESCO Growth & Income Fund - Class C
inclusion of contingent deferred sales charge, for the period since inception
(2/00) through 7/31/02.
INVESCO GROWTH & INCOME FUND - CLASS C RUSSELL 1000 GROWTH INDEX(6)
2/00 $10,000 $10,000
7/00 $10,374 $ 9,992
7/01 $ 5,838 $ 6,489
7/02 $ 3,571 $ 4,623
Meanwhile, several of the fund's holdings within the consumer discretionary
sector also weighed on performance. Our media stocks, for example, struggled in
the face of a weak advertising market. We were also disappointed by the
industrial companies in the portfolio, which underperformed their counterparts
in the index.
HEALTH SERVICES, BANKS OUTPERFORM
On a positive note, the second-largest weighting in the fund after technology
during the year was health care, and strong stock selection within this area
benefited the fund. While pharmaceuticals and biotechnology companies endured
their share of patent expirations, scientific disappointments, and manufacturing
problems, the fund's diversification across the sector afforded it exposure to
several better-performing health services stocks. For example, drug distributor
AmerisourceBergen Corp posted solid gain, as did hospital companies Tenet
Healthcare and UnitedHealth Group.
Another pocket of strength for the fund was its investment in high-quality
banks, which were able to avoid steep losses thanks to their insulation from the
swooning capital markets, strong deposit trends, and a favorable yield curve.
Bank of America, Bank One, and Wells Fargo & Co all performed well during the
period.
ECONOMY CONTINUES TO IMPROVE
Although fear over the possibility of more terrorist attacks and accounting
scandals is currently holding the market back, it appears that a bottom may be
in sight. An increasing number of analysts and economists are saying that the
market is now undervalued, and the economy's fundamentals -- low inflation,
strong productivity, and low interest rates -- remain in place. In addition,
we've seen progress in the government's attempts to protect against future
corporate malfeasance, which should reassure investors going forward.
Overall, we believe that it takes higher profits -- which we've finally
witnessed in most second-quarter results reported in July -- to boost stock
prices; and, in turn, it takes an expanding economy to drive higher corporate
profits. Once investors regain confidence in corporate managements and the
markets, a solid market turnaround could ensue.
- --------------------------------------------------------------------------------
GROWTH & INCOME FUND--
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 7/31/02
- --------------------------------------------------------------------------------
General Electric....................................................5.84%
Microsoft Corp......................................................4.95%
Cisco Systems.......................................................4.32%
Johnson & Johnson...................................................3.70%
Intel Corp..........................................................3.53%
Tenet Healthcare....................................................3.01%
Wal-Mart Stores.....................................................2.95%
Forest Laboratories.................................................2.82%
Procter & Gamble....................................................2.69%
Pfizer Inc..........................................................2.47%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
LINE GRAPH: INVESCO GROWTH & INCOME FUND - CLASS K GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Growth &
Income Fund - Class K to the value of a $10,000 investment in the Russell 1000
Growth Index(6), assuming in each case reinvestment of all dividends and capital
gain distributions, for the period since inception (12/00) through 7/31/02.
INVESCO GROWTH & INCOME FUND - CLASS K RUSSELL 1000 GROWTH INDEX(6)
12/00 $10,000 $10,000
7/01 $ 6,708 $ 8,097
7/02 $ 4,121 $ 5,769
PIE CHART: GROWTH & INCOME FUND
INDUSTRY BREAKDOWN
AS OF 7/31/02
[PIE CHART]
% OF TOTAL NET ASSETS
Pharmaceuticals......................11.39%
Industrial Conglomerates..............7.37%
Systems Software......................5.75%
Networking Equipment..................4.98%
Banks.................................4.91%
Semiconductors .......................4.63%
Health Care Facilities................4.28%
Health Care Equipment.................4.25%
Soft Drinks...........................3.88%
General Merchandise Stores............3.54%
Other Industries.....................44.39%
Net Cash & Cash Equivalents...........0.63%
(5)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC FEES. THE
CHARTS AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING
EXPENSES, BUT THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS
PERFORMANCE.
(6)THE RUSSELL 1000 GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000
COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES.
THE INDEX IS NOT MANAGED; THEREFORE, ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT
FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND INCLUDING FRONT-END SALES
CHARGES AND CDSC FEES. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
FUND MANAGEMENT
[PHOTOGRAPH OF FRITZ MEYER OMITTED]
FRITZ MEYER
VICE PRESIDENT FRITZ MEYER IS MANAGER OF INVESCO GROWTH & INCOME FUND. FRITZ
RECEIVED HIS AB FROM DARTMOUTH COLLEGE WITH A DISTINCTION IN ECONOMICS, AND HIS
MBA FROM AMOS TUCK SCHOOL-DARTMOUTH COLLEGE. HE BEGAN HIS INVESTMENT CAREER IN
1976 AND JOINED INVESCO FUNDS GROUP IN 1996. PRIOR TO JOINING INVESCO, FRITZ WAS
AN EXECUTIVE VICE PRESIDENT AND PORTFOLIO MANAGER WITH NELSON, BENSON & ZELLMER,
INC. IN DENVER, COLORADO.
YOUR FUND'S REPORT
INVESCO ENDEAVOR FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
This annual reporting period covered a tumultuous year for the stock market,
which suffered a sharp downturn. Chief among the negative events that shaped the
dismal macroeconomic landscape were the September 11 terrorist attacks and the
stream of corporate accounting scandals beginning with the admission of fraud by
Enron Corp (not a fund holding) at the end of December. In between, we
experienced a brief fourth-quarter rally -- fueled by the U.S.'s successful
actions in Afghanistan and talk of an economic recovery -- but this rebound came
to an end as investor confidence waned during the first half of 2002.
In this volatile environment, INVESCO Endeavor Fund-Investor Class shares
dropped 50.56% during the 12-month period ended July 31, 2002. In comparison,
the Russell 3000 Growth Index declined 28.86%. (Past performance is not a
guarantee of future results.)(7),(8) For performance of other share classes,
please see page 2.
- --------------------------------------------------------------------------------
INVESCO ENDEAVOR FUND--
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 7/31/02
- --------------------------------------------------------------------------------
Forest Laboratories................................................4.05%
Microsoft Corp.....................................................3.92%
eBay Inc...........................................................3.19%
Pfizer Inc.........................................................3.11%
General Electric...................................................2.89%
Univision Communications Class A Shrs..............................2.64%
Expedia Inc........................................................2.27%
Fox Entertainment Group Class A Shrs...............................2.24%
Cisco Systems......................................................2.14%
Teva Pharmaceutical Industries Ltd
Sponsored ADR Representing Ord Shrs................................2.09%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
BIAS TOWARD RECOVERY PROVES PREMATURE
The fund's underperformance can be largely attributed to our expectation of a
faster recovery during the year. We began positioning the fund for an economic
expansion and concurrent market advance prior to the unexpected and devastating
events of September 11, and this negatively affected the fund when stock prices
sank on the heels of the terrorist attacks. While the fund recouped some losses
in the more bullish fourth quarter, we were disappointed when these conditions
failed to extend into 2002. Unfortunately, the depth and breadth of corporate
America's woes were greater than we anticipated, and the fund's emphasis on
cyclical growth companies became an impediment.
Specifically, our substantial weighting in the technology sector hampered the
fund's performance, as corporate spending and business fundamentals weakened in
this area against an increasingly bearish backdrop. Our investments in a number
of higher-growth software, semiconductor, and integrated circuit companies were
particularly hard-hit, with names like Applied Micro Circuits and Brocade
Communications Systems (no longer fund holdings) falling sharply.
Meanwhile, holdings from other cyclical sectors of the market compounded the
fund's losses. For example, within the consumer discretionary sector, media
companies faltered in the face of decreased in advertising spending post-9/11.
And our emphasis throughout much of the year on market-sensitive financial
services firms that we had expected to rebound proved premature. At the same
time, the fund maintained underweight positions relative to the Russell 3000
Growth Index in areas that were more successful. Most notably, consumer staples
stocks managed, as a group, to post a gain. Unfortunately, we had little
exposure to staples companies during the year.
On a positive note, strong stock selection within the energy sector provided a
lift during the year. One of the fund's more solid performers was Murphy Oil,
which benefited from generally higher commodity prices and, at the period's end,
a major well discovery off the shore of Malaysia. The find is expected to
significantly increase Murphy's earnings and asset value going forward.
LINE GRAPH: INVESCO ENDEAVOR FUND - CLASS A & B GROWTH OF $10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO Endeavor
Fund - Class A and the value of a $10,000 investment in INVESCO Endeavor Fund -
Class B to the value of a $10,000 investment in the Russell 3000 Growth
Index(8), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the cases of INVESCO Endeavor Fund - Class A and Class B
inclusion of front-end sales charge and contingent deferred sales charge,
respectively, for the period since inception (4/02) through 7/31/02.
INVESCO ENDEAVOR FUND - CLASS A INVESCO ENDEAVOR FUND - CLASS B RUSSELL 3000 GROWTH INDEX(8)
4/02 $10,000 $10,000 $10,000
7/02 $ 6,134 $ 5,523 $ 7,649
LINE GRAPH: INVESCO ENDEAVOR FUND - INVESTOR CLASS GROWTH OF $10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO Endeavor
Fund - Investor Class to the value of a $10,000 investment in Russell 3000
Growth Index(8), assuming in each case reinvestment of all dividends and capital
gain distributions, for the period since inception (10/98) through 7/31/02.
INVESCO ENDEAVOR FUND - INVESTOR CLASS RUSSELL 3000 GROWTH INDEX(8)
10/98 $10,000 $10,000
7/99 $16,610 $12,567
7/00 $25,885 $15,604
7/01 $11,686 $10,260
7/02 $ 5,778 $ 7,299
SHIFT IN STRATEGY
The fund's new management team recently repositioned the fund with an eye toward
reducing risk. The biggest change has been a reduction in the fund's technology
weighting, which currently comprises just over 20% of the portfolio.
Specifically, we have been eliminating higher-risk companies in the integrated
circuits industry, as many names in this space are simply surviving on cash and
waiting for resurgence in demand to boost their earnings. At the same time,
we've been focusing on technology firms with strongerfundamentals, such as
Expedia Inc, a new fund holding representing the online travel industry. Expedia
has grown rapidly over the past three quarters in spite of the market downturn,
and since online travel is not yet a highly penetrated market, we believe there
is plenty of room for additional growth.
While reducing the fund's technology weighting, we have simultaneously been
increasing holdings in the consumer discretionary, consumer staples, and energy
sectors. Overall, our strategy is to diversify the fund more fully, and we are
excited about the opportunities we've uncovered in these other areas. For
example, within consumer staples, we have added companies like Whole Foods
Market and Dean Foods, both leaders in the natural foods group which have been
growing steadily and also bring greater stability to the fund, given their lower
valuations. Overall, it is the potential for growth with less risk that we are
currently finding attractive in today's uncertain market climate.
LINE GRAPH: INVESCO ENDEAVOR FUND - CLASS C GROWTH OF $10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO Endeavor
Fund - Class C to the value of a $10,000 investment in the Russell 3000 Growth
Index(8), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the case of INVESCO Endeavor Fund - Class C inclusion of
contingent deferred sales charge, for the period since inception (2/00) through
7/31/02.
INVESCO ENDEAVOR FUND - CLASS C RUSSELL 3000 GROWTH INDEX(8)
2/00 $10,000 $10,000
7/00 $ 9,429 $ 9,786
7/01 $ 4,222 $ 6,434
7/02 $ 2,073 $ 4,577
LINE GRAPH: INVESCO ENDEAVOR FUND - CLASS K GROWTH OF $10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO Endeavor
Fund - Class K to the value of a $10,000 investment in the Russell 3000 Growth
Index(8), assuming in each case reinvestment of all dividends and capital gain
distributions, for the period since inception (12/00) through 7/31/02.
INVESCO ENDEAVOR FUND - CLASS K RUSSELL 3000 GROWTH INDEX(8)
12/00 $10,000 $10,000
7/01 $ 6,164 $ 8,206
7/02 $ 3,044 $ 5,838
PIE CHART: INVESCO ENDEAVOR FUND
INDUSTRY BREAKDOWN
AS OF 7/31/02
[PIE CHART]
% OF TOTAL NET ASSETS
Pharmaceuticals........................10.61%
Broadcasting - Radio/TV.................6.28%
Systems Software........................6.03%
Semiconductors..........................4.71%
Restaurants.............................4.29%
Banks...................................3.59%
Food Retail.............................3.56%
Internet Retail.........................3.19%
Industrial Conglomerates................2.89%
Movies & Entertainment..................2.77%
Other Industries.......................46.29%
Net Cash & Cash Equivalents.............5.79%
(7)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC FEES. THE
CHARTS AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING
EXPENSES, BUT THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS
PERFORMANCE.
(8)THE RUSSELL 3000 GROWTH INDEX IS AN UNMANAGED INDEX THAT MEASURES THE
PERFORMANCE OF THOSE RUSSELL 3000 COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND
HIGHER FORECASTED GROWTH VALUES. THE INDEX IS NOT MANAGED; THEREFORE, ITS
PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH
THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC FEES. INVESTORS CANNOT
INVEST DIRECTLY IN ANY MARKET INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
TEAM MANAGED
INVESCO ENDEAVOR FUND IS MANAGED BY A GROUP OF SEASONED INVESCO PORTFOLIO
MANAGERS WHO SPECIALIZE IN GROWTH STOCK INVESTING. THE IDEAS AND RESEARCH THE
TEAM GENERATES ARE SHARED AND COMBINED IN THE MANAGEMENT OF THE FUND.
YOUR FUND'S REPORT
S&P 500 INDEX FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
PIE CHART: S&P 500 INDEX FUND
INDUSTRY BREAKDOWN
AS OF 7/31/02
[PIE CHART]
% OF TOTAL NET ASSETS
Pharmaceuticals........................9.87%
Banks..................................7.35%
Industrial Conglomerates...............4.60%
Integrated Oil & Gas...................4.45%
Systems Software.......................3.87%
Diversified Financial Services.........3.83%
Integrated Telecommunication
Services...............................3.32%
General Merchandise Stores. ...........3.19%
Computer Hardware......................2.87%
Semiconductors.........................2.76%
Other Industries......................50.45%
Net Cash & Cash Equivalents............3.44%
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND--
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 7/31/02
- --------------------------------------------------------------------------------
General Electric....................................................3.68%
Microsoft Corp......................................................2.99%
Exxon Mobil.........................................................2.86%
Wal-Mart Stores.....................................................2.51%
Pfizer Inc..........................................................2.32%
Citigroup Inc.......................................................1.98%
American International Group........................................1.92%
Johnson & Johnson...................................................1.83%
Intel Corp..........................................................1.44%
Coca-Cola Co........................................................1.42%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
A NOTE ABOUT INDEX FUNDS AT INVESCO
INVESCO's S&P 500 Index Fund is designed to track the performance of the S&P 500
Index, an index comprised of common stocks of U.S. companies that is weighted to
companies with large market capitalizations. The fund seeks to attain its
objective by investing in the common stocks that comprise the index in
approximately the same proportions as they are represented in the S&P 500.
For the 12-month period ended July 31, 2002, the value of Institutional Class
shares fell 24.50%, while the value of Investor Class shares fell 24.33%. These
returns tracked those of the S&P 500 Index over the same period, which fell
23.62%. (Of course, past performance is not a guarantee of future
results.)(9),(10)
LINE GRAPH: INVESCO S&P 500 INDEX FUND - INSTITUTIONAL CLASS & INVESTOR CLASS
GROWTH OF $10,000(9)
This line graph compares the value of a $10,000 investment in INVESCO S&P 500
Index Fund - Institutional Class and the value of a $10,000 investment in
INVESCO S&P 500 Index Fund - Investor Class to the value of a $10,000 investment
in the S&P 500 Index(10), assuming in each case reinvestment of all dividends
and capital gain distributions, for the period since inception (12/97) through
7/31/02.
INVESCO S&P 500 INDEX FUND - INVESTOR CLASS INVESCO S&P 500 INDEX FUND - INSTITUTIONAL CLASS S&P 500 INDEX(10)
12/97 $10,000 $10,000 $10,000
7/98 $12,211 $12,093 $11,648
7/99 $14,664 $14,560 $14,001
7/00 $15,886 $15,792 $15,257
7/01 $13,492 $13,410 $13,072
7/02 $10,209 $10,125 $ 9,984
(9)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS. THE CHARTS AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE
FUND'S OPERATING EXPENSES, BUT THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD
HAVE LOWERED ITS PERFORMANCE.
(10)THE S&P 500 INDEX IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS (IN
TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET. THE INDEX IS NOT MANAGED; THEREFORE,
ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED
WITH THE FUND. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET INDEX.
YOUR FUND'S REPORT
SMALL COMPANY GROWTH FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
The past fiscal year gave investors a multitude of reasons to sell stocks, with
few reasons to buy. With investor confidence in the economy, corporate America
and financial markets slipping by the month, assets believed to be more
defensive were the only areas of relative strength. Indeed, the further out on
the risk spectrum you looked, the worse performance was.
This negative investor sentiment did not bode well for small-cap growth
investors such as ourselves, and this challenging environment was reflected in
the fund's performance. For the 12-month period ended July 31, 2002, Small
Company Growth Fund-Investor Class shares declined 34.09%, which lagged the
30.61% decline recorded by the fund's benchmark, the Russell 2000 Growth Index,
over the same period. (Of course, past performance is not a guarantee of future
results.)(11),(12) For performance of other share classes, please see page 2.
MARKET'S RISK AVERSION HURT GROWTH STOCKS
Although the securities markets, and the small-cap growth universe in
particular, offered few places of refuge during the year, some areas hurt our
performance more than others. The fund's biggest setback was its overweight
exposure to technology stocks, an area that was victimized by the market's
spiking intolerance for risk. The group's poor fundamentals compounded the
negative market tone: Many tech companies were not benefiting from the gradual
economic improvement, but, instead, offered discouraging outlooks. During the
second half of the period, we began to trim our exposure to this group, but not
before our results had been adversely affected.
Other areas that hindered the fund's relative performance were
telecommunications, health care and materials. Our exposure to telecom and
materials was small; nonetheless, abysmal performance from a handful of
companies was enough to hurt the fund's overall showing. In health care, our
stock selection and sub-sector allocations were on the mark, as we underweighted
biotechnology and overweighted services, but the sector's overall performance
was so poor that our exposure detracted from performance anyway.
ENERGY AND INDUSTRIAL STOCKS
RESISTED THE MARKET'S DOWNTURN
In a market like the one seen during the past year, it's difficult to be
enthusiastic about any area. But some sectors demonstrated noteworthy positive
relative performance. For example, the fund's energy holdings, an area in which
the fund was overweight, generally advanced during the period. In particular,
the fund's oil services stocks, such as Patterson-UTI Energy, performed well,
gaining ground as the price of oil rose. Smith International, which provides
technology and other support products and services to the drilling companies,
also outperformed.
We were on target in the industrial sector, where the fund's aerospace and
defense stocks benefited from the prospect of increased government spending on
security. Elsewhere, the fund's education stocks, including Corinthian College
and Career Education, advanced strongly, supported by rising unemployment and
corporations' increased attention to employee training and development.
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND--
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 7/31/02
- --------------------------------------------------------------------------------
Investors Financial Services.........................................2.02%
Province Healthcare..................................................1.67%
City National........................................................1.54%
Patterson-UTI Energy.................................................1.47%
Waste Connections....................................................1.47%
Career Education.....................................................1.46%
Smith International..................................................1.37%
American Italian Pasta Class A Shrs..................................1.34%
Commerce Bancorp.....................................................1.34%
Corinthian Colleges..................................................1.29%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
SEVERAL SECTOR WEIGHTINGS ON TARGET
Meanwhile, surprisingly strong consumer spending helped the fund's consumer
discretionary stocks make positive contributions to relative performance.
Although many of the fund's holdings in the sector gave ground, they declined
less than the broader market. Notable performers in this area included specialty
retailers such as Circuit City Stores, and Coach Inc, the high-end leather goods
designer. Another area that made positive contributions to performance were the
fund's hotel and leisure stocks, highlighted by restaurant chain Panera Bread
and casino operator Harrah's Entertainment.
LINE GRAPH: INVESCO SMALL COMPANY GROWTH FUND - INVESTOR CLASS GROWTH OF
$10,000(11)
This line graph compares the value of a $10,000 investment in INVESCO Small
Company Growth Fund - Investor Class to the value of a $10,000 investment in the
Russell 2000 Growth Index(12), assuming in each case reinvestment of all
dividends and capital gain distributions, for the ten year period ended 7/31/02.
INVESCO SMALL COMPANY GROWTH FUND - INVESTOR CLASS RUSSELL 2000 GROWTH INDEX(12)
7/92 $10,000 $10,000
7/93 $13,605 $11,796
7/94 $15,200 $11,947
7/95 $18,175 $15,981
7/96 $20,506 $16,464
7/97 $25,643 $20,621
7/98 $26,788 $20,349
7/99 $35,447 $23,302
7/00 $54,430 $28,225
7/01 $39,989 $21,646
7/02 $26,356 $15,020
Finally, our decision to overweight financial services and consumer staples
stocks also supported our performance, as those sectors declined less than the
broader market. Likewise, our decision to avoid the utilities sector also helped
when that sector declined sharply.
Going forward, our overall strategy has not changed. We continue to believe that
the economy will recover this year, and will position the portfolio in a manner
that we believe will allow us to fully participate in a potential upswing. As
such, we continue to emphasize energy, industrial, and consumer discretionary
stocks, as, in our estimation, there are several select companies in these
sectors poised to receive a fundamental boost when the recovery gains traction.
PIE CHART: SMALL COMPANY GROWTH FUND
INDUSTRY BREAKDOWN
AS OF 7/31/02
[PIE CHART]
% OF TOTAL NET ASSETS
Banks..................................8.61%
Semiconductors.........................4.59%
Semiconductor Equipment................4.04%
Health Care Distributors
& Services............................3.87%
Oil & Gas Drilling.....................3.77%
Education Services.....................3.26%
Oil & Gas Equipment & Services.........3.20%
Investment Adviser/Broker
Dealer Services........................3.18%
Apparel Retail.........................3.17%
Broadcasting - Radio/TV................3.11%
Other Industries......................50.34%
Net Cash & Cash Equivalents ...........8.86%
LINE GRAPH: INVESCO SMALL COMPANY GROWTH FUND - CLASS A & B GROWTH OF
$10,000(11)
This line graph compares the value of a $10,000 investment in INVESCO Small
Company Growth Fund - Class A and the value of a $10,000 investment in INVESCO
Small Company Growth Fund - Class B to the value of a $10,000 investment in the
Russell 2000 Growth Index(12), assuming in each case reinvestment of all
dividends and capital gain distributions, and in the cases of INVESCO Small
Company Growth Fund - Class A and Class B inclusion of front-end sales charge
and contingent deferred sales charge, respectively, for the period since
inception (4/02) through 7/31/02.
INVESCO SMALL COMPANY GROWTH FUND - CLASS A INVESCO SMALL COMPANY GROWTH FUND - CLASS B RUSSELL 2000 GROWTH INDEX(12)
4/02 $10,000 $10,000 $10,000
7/02 $ 7,067 $ 6,976 $ 7,135
LINE GRAPH: INVESCO SMALL COMPANY GROWTH FUND - CLASS C GROWTH OF $10,000(11)
This line graph compares the value of a $10,000 investment in INVESCO Small
Company Growth Fund - Class C to the value of a $10,000 investment in Russell
2000 Growth Index(12), assuming in each case reinvestment of all dividends and
capital gain distributions, and in the case of INVESCO Small Company Growth Fund
- - Class C inclusion of contingent deferred sales charge, for the period since
inception (2/00) thru 7/31/02.
INVESCO SMALL COMPANY GROWTH FUND - CLASS C RUSSELL 2000 GROWTH INDEX(12)
2/00 $10,000 $10,000
7/00 $ 8,883 $ 7,579
7/01 $ 6,463 $ 5,812
7/02 $ 4,165 $ 4,033
LINE GRAPH: INVESCO SMALL COMPANY GROWTH FUND - CLASS K GROWTH OF $10,000(11)
This line graph compares the value of a $10,000 investment in INVESCO Small
Company Growth Fund - Class K to the value of a $10,000 investment in Russell
2000 Growth Index(12), assuming in each case reinvestment of all dividends and
capital gain distributions, for the period since inception (12/01) through
7/31/02.
INVESCO SMALL COMPANY GROWTH FUND - CLASS K RUSSELL 2000 GROWTH INDEX(12)
12/01 $10,000 $10,000
7/02 $ 7,168 $ 6,995
(11)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC FEES. THE
CHARTS AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING
EXPENSES, BUT THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS
PERFORMANCE.
(12)THE RUSSELL 2000 GROWTH INDEX COMPRISES SECURITIES IN THE RUSSELL 2000 INDEX
WITH A GREATER-THAN-AVERAGE GROWTH ORIENTATION. COMPANIES IN THIS INDEX TEND TO
EXHIBIT HIGHER PRICE-TO-BOOK AND PRICE-TO-EARNINGS RATIOS. THE INDEX IS NOT
MANAGED; THEREFORE, ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER
EXPENSES ASSOCIATED WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC
FEES. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
FUND MANAGEMENT
[PHOTOGRAPH OF STACIE L. COWELL OMITTED]
STACIE L. COWELL, CFA
SMALL COMPANY GROWTH FUND
SENIOR VICE PRESIDENT STACIE COWELL IS THE LEAD MANAGER OF INVESCO SMALL COMPANY
GROWTH FUND. STACIE RECEIVED HER BA FROM COLGATE UNIVERSITY, AND HER MS IN
FINANCE FROM THE UNIVERSITY OF COLORADO AT DENVER. STACIE BEGAN HER INVESTMENT
CAREER IN 1989, AND SHE HAS MANAGED THIS FUND SINCE 1996. SHE IS A CHARTERED
FINANCIAL ANALYST CHARTERHOLDER.
[PHOTOGRAPH OF CAMERON COOKE OMITTED]
CAMERON COOKE
CAMERON COOKE IS CO-PORTFOLIO MANAGER OF INVESCO SMALL COMPANY GROWTH FUND. HE
RECEIVED HIS BACHELOR'S DEGREE IN ECONOMICS FROM THE UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL, AND BEGAN HIS INVESTMENT CAREER IN 1996. HE JOINED
INVESCO IN 2000.
YOUR FUND'S REPORT
VALUE EQUITY FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
It has been a challenging year for the stock market, which was first derailed by
the September 11 tragedy and then -- just as the economy seemed poised for a
recovery -- by a crisis in corporate accounting practices. Indeed, the only
period of strength was the fourth quarter of 2001, when investors responded
favorably to U.S. success in Afghanistan. Unfortunately, however, the collapse
in December of Enron Corp (not a fund holding) proved to be only the first phase
of a problem that grew in scope as 2002 progressed, sending investor confidence
and the stock market lower with each passing month and each new accounting
scandal. Weakness in the U.S. dollar, strife in the Middle East, and fears of
additional terrorist attacks only exacerbated weak investor sentiment during the
period.
In positive news, the economy picked up noticeably, especially in the first
quarter of 2002 which saw gross domestic product (GDP) growth of more than 5%.
Additionally, housing and consumer spending remained surprisingly strong
throughout the period, and the Federal Reserve worked to keep interest rates
low, implementing five rate cuts between August and December 2001.
Interestingly, after the economy heated up in the first quarter of 2002,
investors began to speculate that rates might be raised. However, the Fed
maintained a neutral stance, apparently deterred by the faltering stock market
from implementing any rate increases.
VALUE STOCKS MODESTLY OUTPERFORM
In such a challenging year, there were few pockets of strength -- and both
value- and growth-oriented stocks generally declined. However, our strong stock
selection driven by our disciplined investment process benefited the fund. As a
result, Value Equity Fund-Investor Class shares dropped 20.28% for the 12-month
period ended July 31, 2002, while the fund's benchmark, the S&P 500 Index, fell
23.62% during the same period. (Of course, past performance is not a guarantee
of future results.)(13),(14) For performance of other share classes, please see
page 2.
The strongest sector over the course of the year -- and, in fact, the only
sector in the S&P 500 to post a gain -- was consumer staples. Though slightly
underweight relative to the index in this area, the fund's staples holdings
outpaced their counterparts in the index. For example, Procter & Gamble enjoyed
a substantial gain as the company executed its restructuring plan, bringing in
new management and increasing its marketing budget to boost sales and earnings.
We were also pleased with performance from Philip Morris. A more defensive
company with excellent cash flow, it managed to thrive despite the year's
unfavorable conditions.
LINE GRAPH: INVESCO VALUE EQUITY FUND - INVESTOR CLASS GROWTH OF $10,000(13)
This line graph compares the value of a $10,000 investment in INVESCO Value
Equity Fund - Investor Class to the value of a $10,000 investment in the S&P 500
Index(14), assuming in each case reinvestment of all dividends and capital gain
distributions, for the ten-year period ended 7/31/02.
INVESCO VALUE EQUITY FUND - INVESTOR CLASS S&P 500 Index(14)
7/92 $10,000 $10,000
7/93 $10,436 $10,871
7/94 $11,457 $11,431
7/95 $14,111 $14,411
7/96 $16,150 $16,796
7/97 $22,828 $25,548
7/98 $25,070 $30,482
7/99 $27,088 $36,639
7/00 $25,323 $39,925
7/01 $25,374 $34,208
7/02 $20,227 $26,128
LINE GRAPH: INVESCO VALUE EQUITY FUND - CLASS A & B GROWTH OF $10,000(13)
This line graph compares the value of a $10,000 investment in INVESCO Value
Equity Fund - Class A and the value of a $10,000 investment in INVESCO Value
Equity Fund - Class B to the value of a $10,000 investment in the S&P 500
Index(14), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the cases of INVESCO Value Equity Fund - Class A and Class
B inclusion of front-end sales charge and contingent deferred sales charge,
respectively, for the period since inception (4/02) through 7/31/02.
INVESCO VALUE EQUITY FUND - CLASS A INVESCO VALUE EQUITY FUND - CLASS B S&P 500 Index(14)
4/02 $10,000 $10,000 $10,000
7/02 $ 7,609 $ 7,579 $ 7,986
LINE GRAPH: INVESCO VALUE EQUITY FUND - CLASS C GROWTH OF $10,000(13)
This line graph compares the value of a $10,000 investment in INVESCO Value
Equity Fund - Class C to the value of a $10,000 investment in the S&P 500
Index(14), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the case of INVESCO Value Equity Fund - Class C inclusion
of contingent deferred sales charge, for period since inception (2/00) through
7/31/02.
INVESCO VALUE EQUITY FUND - CLASS C S&P 500 Index(14)
2/00 $10,000 $10,000
7/00 $10,152 $10,519
7/01 $10,102 $ 9,013
7/02 $ 7,982 $ 6,884
A number of the fund's industrials stocks also fared relatively well,
particularly those with exposure to the defense industry. Given the U.S.
government's emphasis on -- and increased spending in -- defense since 9/11,
holdings like Lockheed Martin proved to be well positioned for the year.
Meanwhile, the fund's financial holdings turned in mixed results. On the
positive side, domestic banks such as Wells Fargo & Co and Bank of America
outperformed. These firms were aided by the steeper yield curve (which
positively affected lending conditions) as well as their lack of exposure to the
weak capital markets. Conversely, more market-sensitive firms in the portfolio,
including Stilwell Financial and JP Morgan Chase & Co, declined.
The fund's slightly overweight position in telecommunications relative to the
index hampered performance during the year. Specifically, Verizon
Communications, SBC Communications, and other such holdings were dragged down in
the telecom meltdown, a collapse fueled by overcapacity and weakening demand.
STOCK SELECTION KEY
Looking ahead, the macroeconomic picture is hazy. We are watching consumer
behavior closely for any signs of weakness, since a drop-off in spending could
signal more turmoil for the economy. And it will be interesting to see whether
the recent legislation passed requiring financial statement certification by
company CEOs will help restore investors' confidence in corporate America.
Finally, investors have their eyes on the Federal Reserve. Will the Fed cut
interest rates? If so, this could boost the stock market. On the other hand,
another rate reduction could be perceived as a sign of economic weakness.
With so many uncertainties ahead of us, we continue to rely on fundamental,
bottom-up research as our guide, focusing on analyzing basics like cash flow,
earnings, balance sheets, and quality of management. Individual stock selection
is always key, but in today's volatile market it has taken center stage.
- --------------------------------------------------------------------------------
VALUE EQUITY FUND--
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 7/31/02
- --------------------------------------------------------------------------------
Exxon Mobil..........................................................3.74%
Citigroup Inc........................................................3.19%
Bank of America......................................................3.15%
General Electric.....................................................3.03%
Wells Fargo & Co.....................................................2.70%
Marsh & McLennan.....................................................2.65%
Philip Morris........................................................2.47%
Merrill Lynch & Co...................................................2.36%
BP PLC Sponsored ADR Representing 6 Ord Shrs.........................2.19%
Bank One ...........................................................2.12%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
PIE CHART: VALUE EQUITY FUND
INDUSTRY BREAKDOWN
AS OF 7/31/02
[PIE CHART]
% OF TOTAL NET ASSETS
Banks.................................10.47%
Integrated Oil & Gas...................8.16%
Investment Adviser/Broker
Dealer Services........................6.64%
Diversified Financial Services.........4.34%
Integrated Telecommunication
Services.............................3.82%
Aerospace & Defense....................3.54%
Industrial Machinery...................3.49%
Pharmaceuticals........................3.24%
Electric Utilities.....................3.17%
Industrial Conglomerates...............3.03%
Other Industries......................40.36%
Net Cash & Cash Equivalents............9.74%
(13)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC FEES. THE
CHARTS AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING
EXPENSES, BUT THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS
PERFORMANCE.
(14)THE S&P 500 INDEX IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS (IN
TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET. THE INDEX IS NOT MANAGED; THEREFORE,
ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED
WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC FEES. INVESTORS CANNOT
INVEST DIRECTLY IN ANY MARKET INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
FUND MANAGEMENT
[PHOTOGRAPH OF CHARLES p. MAYER OMITTED]
CHARLES P. MAYER
VALUE EQUITY FUND
SENIOR VICE PRESIDENT AND DIRECTOR OF VALUE AND FIXED-INCOME INVESTMENTS CHARLES
P. MAYER IS LEAD PORTFOLIO MANAGER FOR INVESCO VALUE EQUITY FUND. CHARLIE HAS
MORE THAN 30 YEARS OF EXPERIENCE MANAGING DIVERSIFIED EQUITY PORTFOLIOS. CHARLIE
EARNED HIS BA FROM ST. PETER'S COLLEGE AND AN MBA FROM ST. JOHN'S UNIVERSITY. HE
BEGAN HIS INVESTMENT CAREER IN 1969 AND JOINED INVESCO FUNDS GROUP IN 1993.
QUESTIONS & ANSWERS
AN INTERVIEW WITH TIM MILLER, CHIEF INVESTMENT OFFICER
[PHOTGRAPH OF TIM MILLER OMITTED]
TIM MILLER IS CHIEF INVESTMENT OFFICER FOR INVESCO AND LEADS INVESCO'S GROWTH
INVESTMENT MANAGEMENT TEAM.
NAVIGATING A TUMULTUOUS YEAR
TIM, STOCKS ENDURED ANOTHER CHALLENGING YEAR. AND THE PERFORMANCE RECORDED BY
MANY OF INVESCO'S FUNDS WAS DISAPPOINTING COMPARED TO THEIR LONG-TERM TRACK
RECORDS. WHAT LED TO THESE RESULTS?
TIM MILLER: The stock market offered few areas of refuge during the past year,
and of the few sub-sectors that held up, most could not be considered growth
areas by any stretch of the definition. As the market's anxieties intensified,
money rotated out of investments with more aggressive risk/reward profiles. That
rotation hurt stocks on the whole, but growth stocks were hit particularly hard.
So our growth funds were handicapped from the get-go because of their style
mandates. But we also made some tactical errors that hurt our performance
compared to growth-biased indexes.
WOULD YOU GIVE US AN EXAMPLE?
TIM MILLER: Early in the period, we recognized that the cumulative effects of
the Federal Reserve's unprecedented stimulative campaign were beginning to gain
traction. Even manufacturing activity was starting to show signs of life.
Remember, this economic downturn was caused by a decline in corporate capital
expenditures, and the manufacturing sector was one of the first areas to be
affected. While many economists debated whether the overall economy had fallen
into a recession, those same economists agreed the manufacturing sector had
certainly slipped into recession. So in August 2001, with manufacturing activity
picking up, all signs indicated the economy was on the verge of resuming its
expansion.
When we saw burgeoning signs of an economic recovery, we focused on several
semiconductor and software companies, as well as consumer discretionary and
industrial firms. These areas have historically received the biggest fundamental
boosts during the early stages of economic recovery.
WHAT WENT WRONG?
TIM MILLER: The nascent economic recovery was squelched by the tragedies of
September 11. Business activity was non-existent during the days immediately
following the terrorist attacks, and consumer confidence plummeted. The U.S.
economy fell into recession, which completely undermined our investment thesis,
and our performance reflected that. Although it does not make our showing any
less disappointing, in retrospect, the terrorist attacks were one variable that
no one predicted. Like the rest of the American public, we were shocked by those
horrific events.
WERE THERE ANY OTHER TACTICAL ERRORS?
TIM MILLER: As stocks swooned in the days following the terrorist attacks, we
decided to take advantage of the volatility by improving the quality of our
portfolios, particularly in technology and telecommunications. We sold or
trimmed our stakes in companies with financial prospects that we deemed
questionable, investing the proceeds in companies that we believed would emerge
from the difficult period with more market share. This repositioning worked
during the fourth quarter, when tech stocks rallied sharply. As the first
quarter of 2002 progressed, it became clear that tech and telecom companies were
not benefiting from the economic recovery to the same degree that many other
industries were. On the contrary, corporations remained extremely frugal when it
came to investing in their technology and communications infrastructures. The
fundamental weakness in those two groups persisted through the end of the funds'
fiscal year.
"...WE THINK THE ECONOMY AND THE MARKET WILL SEE BRIGHTER DAYS IN THE COMING SIX
MONTHS, AND WE BELIEVE OUR FUNDS WILL CAPITALIZE ON THAT IMPROVEMENT."
WHICH TACTICS WORKED WELL DURING THE PERIOD?
TIM MILLER: With the exception of late September, consumer spending has been
remarkably resilient throughout this downturn. And the consumer discretionary
sector has benefited, particularly several of our favorite retailers and casino
stocks.
We were also on target with our biotechnology strategy. Our health care team
recognized that many biotech companies were tying their success to one product.
We felt that if those products failed to receive regulatory approval, they would
have a hard time recovering. Yet companies in the industry were trading at
levels that we deemed unjustified given the associated risks. The Growth Team
elected to significantly underweight biotech, a move that paid off as the group
declined after several high-profile compounds did not pass clinical trials.
WHAT PERSPECTIVE CAN BE GAINED FROM THIS DIFFICULT YEAR?
TIM MILLER: We believe the past 30 months or so have represented a
once-in-a-generation bear market. And it might not be over. These difficulties
have only reinforced the time-tested principals of prudent investing: Stay
diversified and maintain a balance of risk and reward that is appropriate for
your investing time horizon.
Our equity funds are managed for long-term investors, and, over the long-term,
we believe our process of identifying the best individual opportunities within
the appropriate capitalization range and style objective has worked. We continue
to be confident in our process. Even though our investment thesis was hurt by
the terrorist attacks and their subsequent, far-reaching effect on the economy,
we continue to believe we're well positioned for the next three years.
In fact, we think the economy and the market will see brighter days in the
coming six months, and we believe our funds will capitalize on that improvement.
That optimism is strengthened by the strong performance exhibited by many of our
funds during market rallies. Our showing on those positive market days has us
convinced we're in the right companies for the next stage.
MARKET HEADLINES
MARKET OVERVIEW
AUGUST 2001 TO JULY 2002
Equity markets began the fiscal year on a negative note, as investors became
increasingly concerned about the economy and the outlook for corporate earnings.
With investors feeling quite risk averse, bonds ranked among the best-performing
asset classes, and value stocks, which are often considered relatively
defensive, outperformed their growth counterparts. But by the end of summer, the
Federal Reserve's stimulative easing campaign appeared to be working, and
investors' tolerance for risk gradually improved.
Then came the horrific events of September 11, 2001. The stock market's
unfavorable reaction to an uncertain environment is well known, and the attacks
understandably heightened investors' wariness. Mean-while, many businesses took
an unexpected blow -- most notably airlines, insurers, and growth companies hurt
by the sudden rotation into more defensive investments. As the country and its
financial markets attempted to digest the unprecedented tragic events, the third
calendar quarter concluded as the worst three-month period for stocks since the
fall of 1987.
Bonds, on the other hand, were aided by investors' anxiety over the struggling
stock market -- which spurred a flight to investments believed to be "safe
havens." Some stocks in more defensive areas, such as health care and consumer
staples, also managed to weather the downturn admirably.
Market tone improved dramatically in October, as the successful U.S. military
action in Afghanistan and another Fed rate cut offset the concern accompanying a
rash of anthrax scares. Confidence in our financial system and government
seemingly grew by the day, and stocks -- particularly growth and technology
stocks -- rallied throughout the fourth quarter. Also encouraging were positive
statements from a number of companies suggesting they had started to see
business activity pick up.
After cutting rates again in November, the Fed implemented its final rate cut of
the cycle in December, bringing the federal funds rate to a low of 1.75%. But
there was also negative news. Energy trading giant Enron Corp came under intense
scrutiny, as questionable accounting practices undermined its business and
investor support. The aftermath of the Enron scandal rippled through the market
in January, which fell prey to growing concerns over accounting methods in
general. Although the market rebounded quickly from the seed of doubt planted by
the Enron meltdown, the recovery was short-lived, as spring saw that seed
germinate as additional corporate malfeasance surfaced.
Following the Enron crisis, the first half of 2002 was peppered with repeated
reports of corporate accounting scandals. The period saw such corporate giants
as WorldCom Inc and Qwest Communications International come under fire for
questionable accounting that, in some instances, crossed the line into outright
fraud. Combined, these announcements led to a crisis in confidence on the part
of investors.
Meanwhile, the stream of positive economic data continued, but investors instead
chose to focus on the preponderance of negative news. Fundamentally, corporate
profits had yet to benefit from the improving business climate. Also capturing
investor attention were rising geopolitical tensions, including frequent suicide
bombings along the West Bank, and hostile posturing between nuclear rivals India
and Pakistan. By summer, the Bush administration appeared to be seeking support
for an attack on Iraq, which only added to the market's anxieties.
During July, the market appeared to respond by opting out of stocks altogether.
At times, the selling was so widespread and indiscriminate that some observers
wondered if the bear market had finally found its bottom. Indeed, during the
period's final week, stocks enjoyed a sharp (albeit choppy) rally, prompting
speculation that the worst was finally behind us.
There were reasons for optimism. For one thing, the second calendar quarter's
corporate earnings reports generally exceeded depressed expectations. And
government regulators appeared to be taking steps to restore the public's
confidence in corporate accounting, notably a requirement for the top executives
of America's largest companies to certify under oath that their financial
statements legitimately reflect their businesses' health. Corporate America also
took steps to win back the public's trust, when several high-profile companies
announced they would treat option compensation as an expense.
Despite the period's late rally, the stock market and the economy remained
decoupled. Historically, stocks and the economy have behaved more-or-less in
lockstep. But at the end of July, stocks were still depressed, while the
economic data were generally positive. This difference of opinion will surely be
reconciled eventually, but which ends up being right -- investors or the
economic figures -- will determine how stocks perform during the balance of the
year.
INVESTMENT HOLDINGS
STATEMENT OF INVESTMENT SECURITIES
INVESCO STOCK FUNDS, INC.
JULY 31, 2002
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
DYNAMICS FUND
92.96 COMMON STOCK
2.36 ADVERTISING
Lamar Advertising Class A Shrs(a) 1,551,900 $ 49,009,002
Omnicom Group 684,700 36,501,357
WPP Group PLC 1,181,434 8,951,336
================================================================================
94,461,695
0.82 AEROSPACE & DEFENSE
L-3 Communications Holdings(a) 712,600 32,936,372
================================================================================
0.01 ALTERNATIVE CARRIERS
Time Warner Telecom Class A Shrs(a)(b) 235,300 277,654
================================================================================
0.58 APPAREL RETAIL
Limited Brands 1,295,000 23,271,150
================================================================================
5.35 APPLICATION SOFTWARE
BEA Systems(a) 4,358,300 24,188,565
Check Point Software Technologies Ltd(a) 1,300,900 21,829,102
Intuit Inc(a) 1,093,400 48,087,732
Mercury Interactive(a) 1,059,700 27,149,514
PeopleSoft Inc(a) 2,615,500 47,026,690
Quest Software(a) 710,000 6,872,800
Rational Software(a) 1,250,900 8,406,048
Siebel Systems(a) 2,375,100 22,325,940
TIBCO Software(a) 1,494,600 8,100,732
================================================================================
213,987,123
2.93 BANKS
Banknorth Group 808,200 20,560,608
M&T Bank 104,000 8,694,400
National Commerce Financial 485,000 12,488,750
Northern Trust 815,800 32,493,314
Synovus Financial 925,000 22,200,000
TCF Financial 440,000 20,882,400
================================================================================
117,319,472
1.84 BIOTECHNOLOGY
Gilead Sciences(a) 1,162,800 35,430,516
IDEC Pharmaceuticals(a) 860,100 38,351,859
================================================================================
73,782,375
2.85 BROADCASTING -- RADIO/TV
Cox Radio Class A Shrs(a) 728,500 16,937,625
Entercom Communications(a) 778,050 33,689,565
Univision Communications Class A Shrs(a) 1,335,000 38,167,650
Westwood One(a) 798,500 25,352,375
================================================================================
114,147,215
2.58 CABLE & SATELLITE OPERATORS
Cablevision Systems-Rainbow Media Group(a) 1,293,027 12,244,966
EchoStar Communications Class A Shrs(a) 1,637,200 26,702,732
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
USA Interactive(a) 2,919,700 $ 64,376,465
================================================================================
103,324,163
1.95 CASINOS & GAMING
Harrah's Entertainment(a) 1,274,400 60,304,608
MGM MIRAGE(a) 507,000 17,745,000
================================================================================
78,049,608
2.32 COMPUTER & ELECTRONICS RETAIL
Best Buy(a) 934,000 30,728,600
CDW Computer Centers(a) 1,295,700 61,934,460
================================================================================
92,663,060
2.70 COMPUTER STORAGE & PERIPHERALS
Brocade Communications Systems(a) 1,929,900 36,185,625
Emulex Corp(a) 920,800 21,325,728
Lexmark International Class A Shrs(a) 494,400 24,166,272
Network Appliance(a) 3,122,701 26,418,050
================================================================================
108,095,675
1.51 CONSUMER FINANCE
Capital One Financial 790,400 25,055,680
SLM Corp(c) 386,700 35,189,700
================================================================================
60,245,380
1.09 DATA PROCESSING SERVICES
Concord EFS(a) 479,800 9,356,100
Paychex Inc 1,298,450 34,162,220
================================================================================
43,518,320
0.24 DEPARTMENT STORES
Kohl's Corp(a) 147,500 9,735,000
================================================================================
0.06 DIVERSIFIED COMMERCIAL SERVICES
Hewitt Associates(a) 94,700 2,225,450
================================================================================
1.83 DIVERSIFIED FINANCIAL SERVICES
A.G. Edwards 412,100 14,176,240
Ambac Financial Group 504,200 31,779,726
Neuberger Berman 455,000 13,868,400
SEI Investments 508,200 13,370,742
================================================================================
73,195,108
1.34 EDUCATION SERVICES
Apollo Group Class A Shrs(a) 759,550 29,812,338
Career Education(a) 540,500 23,857,670
================================================================================
53,670,008
1.43 ELECTRICAL COMPONENTS & EQUIPMENT
Molex Inc 1,025,662 29,928,817
SPX Corp(a) 263,200 27,504,400
================================================================================
57,433,217
1.93 ELECTRONIC EQUIPMENT & INSTRUMENTS
AVX Corp 570,000 7,478,400
Celestica Inc(a) 1,067,600 22,900,020
Flextronics International Ltd(a) 1,150,300 9,110,376
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Tech Data(a) 1,125,300 $ 37,753,815
================================================================================
77,242,611
1.51 EMPLOYMENT SERVICES
Manpower Inc 449,600 16,931,936
Robert Half International(a) 2,186,300 43,616,685
================================================================================
60,548,621
0.77 HEALTH CARE DISTRIBUTORS & SERVICES
McKesson Corp 551,700 18,161,964
Triad Hospitals(a) 315,000 12,593,700
================================================================================
30,755,664
4.20 HEALTH CARE EQUIPMENT
Laboratory Corp of America Holdings(a) 1,028,200 35,267,260
St Jude Medical(a) 1,270,600 48,282,800
Varian Medical Systems(a) 960,600 40,153,080
Zimmer Holdings(a) 1,190,000 44,303,700
================================================================================
168,006,840
0.88 HEALTH CARE SUPPLIES
Alcon Inc(a) 997,000 35,094,400
================================================================================
0.54 HOTELS
Hotels.com Class A Shrs(a)(c) 510,000 21,777,000
================================================================================
0.63 INDUSTRIAL GASES
Praxair Inc 480,000 25,104,000
================================================================================
3.35 INDUSTRIAL MACHINERY
Danaher Corp 549,000 34,065,450
Eaton Corp 430,000 30,022,600
Illinois Tool Works 451,900 29,820,881
ITT Industries 285,900 18,263,292
Parker-Hannifin Corp 541,000 21,780,660
================================================================================
133,952,883
0.71 INTEGRATED OIL & GAS
Murphy Oil 340,700 28,329,205
================================================================================
1.89 INTERNET RETAIL
Amazon.com Inc(a)(c) 752,800 10,884,735
eBay Inc(a) 1,132,600 64,660,134
================================================================================
75,544,869
1.33 INTERNET SOFTWARE & SERVICES
Expedia Inc(a)(c) 955,600 46,461,272
Expedia Inc Warrants (Exp 2009)(a)(d) 180,786 4,031,528
webMethods Inc(a)(b) 327,700 2,880,483
================================================================================
53,373,283
3.73 INVESTMENT ADVISER/BROKER DEALER SERVICES
Bear Stearns 378,800 22,811,336
E*TRADE Group(a) 2,631,000 10,392,450
Eaton Vance 654,900 17,525,124
Federated Investors Class B Shrs 580,200 16,489,284
Investment Technology Group(a) 530,250 17,959,568
Legg Mason 910,700 38,832,248
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Lehman Brothers Holdings 443,580 $ 25,155,422
================================================================================
149,165,432
1.03 INVESTMENT COMPANIES
iShares Trust Russell Midcap Growth Index Fund(c) 9,500 491,625
Nasdaq-100 Trust Series 1 Shrs(a) 1,703,600 40,630,860
================================================================================
41,122,485
3.59 IT CONSULTING & SERVICES
Affiliated Computer Services Class A Shrs(a) 993,600 46,679,328
BISYS Group(a) 1,801,400 41,612,340
KPMG Consulting(a) 3,023,500 31,867,690
SunGard Data Systems(a) 993,500 23,297,575
================================================================================
143,456,933
0.23 LEISURE PRODUCTS
Mattel Inc 500,000 9,405,000
================================================================================
1.52 LIFE & HEALTH INSURANCE
John Hancock Financial Services 629,700 20,843,070
Nationwide Financial Services Class A Shrs(b) 1,295,000 39,989,600
================================================================================
60,832,670
1.34 MANAGED HEALTH CARE
First Health Group(a) 1,491,200 37,488,768
WellPoint Health Networks(a) 225,000 16,087,500
================================================================================
53,576,268
0.98 MOVIES & ENTERTAINMENT
Blockbuster Inc Class A Shrs 839,000 19,380,900
Metro-Goldwyn-Mayer Inc(a) 1,831,000 19,683,250
================================================================================
39,064,150
0.78 NETWORKING EQUIPMENT
Extreme Networks(a) 2,990,300 31,099,120
================================================================================
1.10 OIL & GAS DRILLING
GlobalSantaFe Corp 305,000 6,874,700
Nabors Industries Ltd(a) 443,000 13,520,360
Noble Corp(a) 729,000 23,619,600
================================================================================
44,014,660
3.94 OIL & GAS EQUIPMENT & SERVICES
BJ Services(a) 1,455,900 46,428,651
Cooper Cameron(a) 1,031,700 44,352,783
Smith International(a) 2,117,400 66,931,014
================================================================================
157,712,448
2.02 OIL & GAS EXPLORATION & PRODUCTION
Apache Corp 623,290 32,099,435
Kerr-McGee Corp 497,200 23,254,044
Pioneer Natural Resources(a) 1,050,400 25,430,184
================================================================================
80,783,663
0.24 PERSONAL PRODUCTS
Estee Lauder Class A Shrs 311,600 9,447,712
================================================================================
6.64 PHARMACEUTICALS
Allergan Inc 332,300 20,100,827
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
AmerisourceBergen Corp 867,789 $ 58,133,185
Forest Laboratories(a) 1,583,600 122,681,492
Teva Pharmaceutical Industries Ltd Sponsored ADR
Representing Ord Shrs 971,400 64,793,351
================================================================================
265,708,855
0.19 REINSURANCE
RenaissanceRe Holdings Ltd 195,000 7,605,000
================================================================================
1.30 RESTAURANTS
CBRL Group 1,300,000 38,896,000
Starbucks Corp(a) 661,000 12,975,430
================================================================================
51,871,430
1.90 SEMICONDUCTOR EQUIPMENT
ASML Holding NV New York Registered Shrs(a) 536,200 6,353,970
KLA-Tencor Corp(a) 620,500 24,441,495
Lam Research(a) 1,179,300 14,505,390
Novellus Systems(a) 625,100 16,871,449
Teradyne Inc(a) 927,400 13,911,000
================================================================================
76,083,304
6.19 SEMICONDUCTORS
Altera Corp(a) 1,803,100 21,330,673
Analog Devices(a) 720,200 17,356,820
Cypress Semiconductor(a) 1,404,000 16,117,920
Fairchild Semiconductor International
Class A Shrs(a) 786,800 14,028,644
Integrated Device Technology(a) 718,600 9,198,080
Linear Technology 1,156,300 31,312,604
Maxim Integrated Products(a) 1,008,200 35,468,476
Microchip Technology(a) 1,615,915 35,582,448
Micron Technology(a) 635,100 12,378,099
National Semiconductor(a) 587,200 10,634,192
QLogic Corp(a) 595,800 24,278,850
RF Micro Devices(a) 1,815,900 12,093,894
Xilinx Inc(a) 409,200 7,852,548
================================================================================
247,633,248
0.31 SPECIALTY STORES
Office Depot(a) 959,700 12,456,906
================================================================================
0.09 STEEL
Nucor Corp 67,000 3,740,610
================================================================================
3.81 SYSTEMS SOFTWARE
Adobe Systems 1,233,300 29,549,868
BMC Software(a) 1,419,300 19,089,585
Networks Associates(a) 1,136,700 13,810,905
Symantec Corp(a) 1,629,800 54,663,492
VERITAS Software(a) 2,101,600 35,369,928
================================================================================
152,483,778
0.22 TELECOMMUNICATIONS EQUIPMENT
Polycom Inc(a) 772,800 8,848,560
================================================================================
0.28 WIRELESS TELECOMMUNICATION SERVICES
Nextel Partners Class A Shrs(a) 2,848,350 11,137,048
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS & WARRANTS
(COST $4,132,329,618) $3,719,316,701
================================================================================
7.04 SHORT-TERM INVESTMENTS
0.63 US GOVERNMENT AGENCY OBLIGATIONS
Freddie Mac, Reference Bills, Discount
Notes, 1.740%, 8/1/2002
(Amortized Cost $25,000,000) $ 25,000,000 25,000,000
================================================================================
5.00 COMMERCIAL PAPER
1.25 BANKS
UBS Finance, Discount Notes, 1.790%,
8/1/2002 $ 50,000,000 50,000,000
================================================================================
1.25 CONSUMER RECEIVABLES
New Center Asset Trust, Series 1,
Discount Notes 1.810%, 8/1/2002 $ 50,000,000 50,000,000
================================================================================
1.25 DIVERSIFIED FINANCIAL SERVICES
State Street, Discount Notes, 1.820%,
8/1/2002 $ 50,000,000 50,000,000
================================================================================
1.25 MULTI-LINE INSURANCE
AIG Funding, 1.800%, 8/1/2002 $ 50,000,000 50,000,000
================================================================================
TOTAL COMMERCIAL PAPER
(Amortized Cost $200,000,000) 200,000,000
================================================================================
1.41 REPURCHASE AGREEMENTS
Repurchase Agreement with State
Street dated 7/31/2002 due 8/1/2002
at 1.800%, repurchased at $56,463,823
(Collateralized by Fannie Mae, Benchmark
Notes, due 6/15/2009 at 6.375%, value
$57,735,192) (Cost $56,461,000) $ 56,461,000 56,461,000
================================================================================
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $281,461,000) 281,461,000
================================================================================
100.00 TOTAL INVESTMENT SECURTIES AT VALUE
(Cost $4,413,790,618) $4,000,777,701
================================================================================
GROWTH FUND
88.97 COMMON STOCKS
0.51 ADVERTISING
Omnicom Group 52,600 $ 2,804,106
================================================================================
4.37 AEROSPACE & DEFENSE
Honeywell International 265,600 8,594,816
United Technologies 220,800 15,345,600
================================================================================
23,940,416
2.57 APPLICATION SOFTWARE
BEA Systems(a) 1,024,050 5,683,477
Mercury Interactive(a) 165,300 4,234,986
Siebel Systems(a) 444,500 4,178,300
================================================================================
14,096,763
8.40 BANKS
Bank of America 203,300 13,519,450
Bank One 212,000 8,248,920
Fifth Third Bancorp 85,700 5,662,199
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Wells Fargo & Co 366,200 $ 18,624,932
================================================================================
46,055,501
0.45 BROADCASTING -- RADIO/TV
Clear Channel Communications(a) 94,600 2,464,330
================================================================================
2.21 CABLE & SATELLITE OPERATORS
EchoStar Communications Class A Shrs(a) 472,170 7,701,093
USA Interactive(a) 200,410 4,418,840
================================================================================
12,119,933
1.04 COMPUTER & ELECTRONICS RETAIL
Best Buy(a) 172,800 5,685,120
================================================================================
0.71 COMPUTER STORAGE & PERIPHERALS
Brocade Communications Systems(a) 67,195 1,259,906
Network Appliance(a) 312,970 2,647,726
================================================================================
3,907,632
0.48 CONSUMER FINANCE
MBNA Corp 134,850 2,614,742
================================================================================
2.66 DATA PROCESSING SERVICES
First Data 219,300 7,664,535
Fiserv Inc(a) 200,600 6,902,646
================================================================================
14,567,181
2.60 DIVERSIFIED FINANCIAL SERVICES
Citigroup Inc 314,621 10,552,388
JP Morgan Chase & Co 148,800 3,714,048
================================================================================
14,266,436
0.73 DIVERSIFIED METALS & MINING
Phelps Dodge 116,800 3,992,224
================================================================================
0.84 ELECTRICAL COMPONENTS & EQUIPMENT
SPX Corp(a) 43,900 4,587,550
================================================================================
3.44 GENERAL MERCHANDISE STORES
Target Corp 321,600 10,725,360
Wal-Mart Stores 165,100 8,119,618
================================================================================
18,844,978
2.55 HEALTH CARE EQUIPMENT
Baxter International 224,600 8,963,786
Laboratory Corp of America Holdings(a) 145,500 4,990,650
================================================================================
13,954,436
1.70 HEALTH CARE FACILITIES
Tenet Healthcare(a) 195,900 9,334,635
================================================================================
1.64 HOME IMPROVEMENT RETAIL
Home Depot 290,502 8,970,702
================================================================================
1.41 HOUSEHOLD PRODUCTS
Procter & Gamble 86,800 7,724,332
================================================================================
6.41 INDUSTRIAL CONGLOMERATES
General Electric 766,390 24,677,758
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
3M Co 83,400 $ 10,494,222
================================================================================
35,171,980
1.28 INSURANCE BROKERS
Marsh & McLennan 147,000 7,041,300
================================================================================
3.20 INTEGRATED OIL & GAS
Exxon Mobil 477,400 17,549,224
================================================================================
0.46 INTERNET RETAIL
eBay Inc(a) 43,835 2,502,540
================================================================================
0.95 INVESTMENT ADVISER/BROKER DEALER SERVICES
Goldman Sachs Group 71,200 5,208,280
================================================================================
1.36 INVESTMENT COMPANIES
Nasdaq-100 Trust Series 1 Shrs(a) 313,500 7,476,975
================================================================================
0.87 IT CONSULTING & SERVICES
Affiliated Computer Services Class A Shrs(a) 102,000 4,791,960
================================================================================
2.45 MOVIES & ENTERTAINMENT
Viacom Inc Class B Shrs(a) 344,300 13,403,599
================================================================================
2.45 MULTI-LINE INSURANCE
American International Group 210,300 13,442,376
================================================================================
3.03 NETWORKING EQUIPMENT
Cisco Systems(a) 1,258,840 16,604,100
================================================================================
1.54 OIL & GAS DRILLING
GlobalSantaFe Corp 158,000 3,561,320
Noble Corp(a) 150,200 4,866,480
================================================================================
8,427,800
0.80 OIL & GAS EQUIPMENT & SERVICES
Weatherford International Ltd(a) 108,200 4,388,592
================================================================================
1.01 PAPER PRODUCTS
International Paper 138,900 5,530,998
================================================================================
1.34 PERSONAL PRODUCTS
Gillette Co 224,200 7,371,696
================================================================================
7.20 PHARMACEUTICALS
Abbott Laboratories 122,100 5,056,161
AmerisourceBergen Corp 65,600 4,394,544
Forest Laboratories(a) 34,800 2,695,956
Johnson & Johnson 104,100 5,517,300
Pfizer Inc 674,600 21,823,310
================================================================================
39,487,271
0.87 RESTAURANTS
Starbucks Corp(a) 242,200 4,754,386
================================================================================
1.44 SEMICONDUCTOR EQUIPMENT
Applied Materials(a) 530,040 7,881,695
================================================================================
5.85 SEMICONDUCTORS
Analog Devices(a) 214,210 5,162,461
Intel Corp 451,100 8,476,169
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Maxim Integrated Products(a) 109,975 $ 3,868,920
Taiwan Semiconductor Manufacturing Ltd
Sponsored ADR Representing 5 Ord Shrs 271,621 2,477,184
Texas Instruments 522,280 12,090,782
================================================================================
32,075,516
7.67 SYSTEMS SOFTWARE
Adobe Systems 225,200 5,395,792
Microsoft Corp(a) 398,140 19,102,757
Oracle Corp(a) 775,445 7,761,429
Symantec Corp(a) 117,900 3,954,366
VERITAS Software(a) 345,785 5,819,562
================================================================================
42,033,906
0.48 TELECOMMUNICATIONS EQUIPMENT
Nokia Corp Sponsored ADR Representing Ord Shrs 212,260 2,632,024
================================================================================
TOTAL COMMON STOCKS (COST $569,500,083) 487,707,235
================================================================================
11.03 SHORT-TERM INVESTMENTS
10.03 COMMERCIAL PAPER
6.38 BANKS
Citicorp Inc, 1.700%, 8/2/2002 $ 10,000,000 10,000,000
UBS Finance, Discount Notes, 1.790%,
8/1/2002 $ 25,000,000 25,000,000
================================================================================
35,000,000
3.65 CONSUMER RECEIVABLES
New Center Asset Trust, Series 1,
Discount Notes 1.810%, 8/1/2002 $ 20,000,000 20,000,000
================================================================================
TOTAL COMMERCIAL PAPER (Amortized Cost $55,000,000) 55,000,000
================================================================================
1.00 REPURCHASE AGREEMENTS
Repurchase Agreement with State
Street dated 7/31/2002 due 8/1/2002
at 1.800%, repurchased at $5,491,275
(Collateralized by Fannie Mae,
Benchmark Notes, due 6/15/2009 at
6.375%, value $5,618,861)(Cost $5,491,000) $ 5,491,000 5,491,000
================================================================================
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $60,491,000) 60,491,000
================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $629,991,083) $ 548,198,235
================================================================================
GROWTH & INCOME FUND
100.00 COMMON STOCKS
1.10 ADVERTISING
Omnicom Group 9,330 $ 497,382
================================================================================
2.43 AEROSPACE & DEFENSE
General Dynamics 3,600 291,312
Honeywell International 8,900 288,004
Lockheed Martin 3,900 250,029
United Technologies 3,800 264,100
================================================================================
1,093,445
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
0.85 APPLICATION SOFTWARE
Intuit Inc(a) 3,000 $ 131,940
Mercury Interactive(a) 9,820 251,588
================================================================================
383,528
4.94 BANKS
Bank of America 11,600 771,400
Bank One 16,000 622,560
Wells Fargo & Co 16,400 834,104
================================================================================
2,228,064
0.71 BREWERS
Anheuser-Busch Cos 6,200 320,602
================================================================================
0.34 BROADCASTING -- RADIO/TV
Univision Communications Class A Shrs(a) 5,400 154,386
================================================================================
1.04 CABLE & SATELLITE OPERATORS
USA Interactive(a) 21,170 466,777
================================================================================
0.46 COMPUTER & ELECTRONICS RETAIL
Best Buy(a) 6,250 205,625
================================================================================
1.19 COMPUTER HARDWARE
Dell Computer(a) 21,500 535,995
================================================================================
1.88 COMPUTER STORAGE & PERIPHERALS
Brocade Communications Systems(a) 24,220 454,125
Emulex Corp(a) 17,045 394,762
================================================================================
848,887
2.51 CONSUMER FINANCE
MBNA Corp 21,150 410,099
SLM Corp 7,900 718,900
================================================================================
1,128,999
1.85 DATA PROCESSING SERVICES
First Data 23,840 833,208
================================================================================
1.11 DEPARTMENT STORES
Kohl's Corp(a) 7,610 502,260
================================================================================
1.40 DIVERSIFIED FINANCIAL SERVICES
Ambac Financial Group 5,100 321,453
Moody's Corp 6,200 307,520
================================================================================
628,973
1.29 DRUG RETAIL
Walgreen Co 16,500 582,945
================================================================================
0.21 ELECTRONIC EQUIPMENT & INSTRUMENTS
Sanmina-SCI Corp(a) 23,200 94,424
================================================================================
3.56 GENERAL MERCHANDISE STORES
Target Corp 8,000 266,800
Wal-Mart Stores 27,200 1,337,696
================================================================================
1,604,496
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
0.61 HEALTH CARE DISTRIBUTORS & SERVICES
McKesson Corp 8,300 $ 273,236
================================================================================
4.28 HEALTH CARE EQUIPMENT
Baxter International 28,085 1,120,872
Laboratory Corp of America Holdings(a) 14,850 509,355
Medtronic Inc 7,400 298,960
================================================================================
1,929,187
4.30 HEALTH CARE FACILITIES
HCA Inc 12,240 575,280
Tenet Healthcare(a) 28,642 1,364,791
================================================================================
1,940,071
1.16 HOME IMPROVEMENT RETAIL
Home Depot 16,880 521,254
================================================================================
1.47 HOTELS
Cendant Corp(a) 8,900 122,998
Hilton Hotels 13,500 164,970
Marriott International Class A Shrs 7,350 246,225
Starwood Hotels & Resorts Worldwide Paired
Certificates 5,000 128,500
================================================================================
662,693
2.71 HOUSEHOLD PRODUCTS
Procter & Gamble 13,720 1,220,943
================================================================================
0.65 HOUSEWARES & SPECIALTIES
Newell Rubbermaid 9,700 291,776
================================================================================
7.42 INDUSTRIAL CONGLOMERATES
General Electric 82,295 2,649,899
3M Co 5,500 692,065
================================================================================
3,341,964
0.45 INDUSTRIAL MACHINERY
Danaher Corp 3,300 204,765
================================================================================
0.63 INSURANCE BROKERS
Marsh & McLennan 5,880 281,652
================================================================================
0.31 INTEGRATED OIL & GAS
Murphy Oil 1,700 141,355
================================================================================
0.82 INTERNET RETAIL
eBay Inc(a) 6,510 371,656
================================================================================
1.31 INVESTMENT ADVISER/BROKER DEALER SERVICES
Goldman Sachs Group 1,900 138,985
Lehman Brothers Holdings 5,705 323,531
Merrill Lynch & Co 3,580 127,627
================================================================================
590,143
0.45 IT CONSULTING & SERVICES
BISYS Group(a) 8,800 203,280
================================================================================
1.00 LEISURE PRODUCTS
Electronic Arts(a) 2,200 132,396
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Mattel Inc 16,900 $ 317,889
================================================================================
450,285
2.74 MANAGED HEALTH CARE
UnitedHealth Group 8,800 771,408
WellPoint Health Networks(a) 6,500 464,750
================================================================================
1,236,158
0.49 MOTORCYCLE MANUFACTURERS
Harley-Davidson Inc 4,700 222,592
================================================================================
2.36 MOVIES & ENTERTAINMENT
Viacom Inc Class B Shrs(a) 25,460 991,158
Walt Disney 4,000 70,920
================================================================================
1,062,078
2.29 MULTI-LINE INSURANCE
American International Group 7,957 508,612
Radian Group 11,455 524,639
================================================================================
1,033,251
5.02 NETWORKING EQUIPMENT
Cisco Systems(a) 148,485 1,958,517
Extreme Networks(a) 29,115 302,796
================================================================================
2,261,313
1.24 OIL & GAS DRILLING
Nabors Industries Ltd(a) 6,500 198,380
Noble Corp(a) 7,300 236,520
Transocean Inc 4,900 124,950
================================================================================
559,850
0.58 OIL & GAS EXPLORATION & PRODUCTION
Anadarko Petroleum 3,000 130,500
Devon Energy 3,100 129,208
================================================================================
259,708
0.55 PACKAGED FOODS
Kraft Foods Class A Shrs 6,700 247,900
================================================================================
0.73 PERSONAL PRODUCTS
Gillette Co 10,000 328,800
================================================================================
11.46 PHARMACEUTICALS
AmerisourceBergen Corp 16,205 1,085,573
Forest Laboratories(a) 16,525 1,280,192
Johnson & Johnson 31,695 1,679,835
Pfizer Inc 34,671 1,121,607
================================================================================
5,167,207
0.70 PUBLISHING & PRINTING
Gannett Co 4,400 316,404
================================================================================
0.71 RAILROADS
Norfolk Southern 15,700 317,925
================================================================================
0.84 RESTAURANTS
Starbucks Corp(a) 19,380 380,429
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
1.50 SEMICONDUCTOR EQUIPMENT
Applied Materials(a) 45,600 $ 678,072
================================================================================
4.66 SEMICONDUCTORS
Intel Corp 85,305 1,602,881
Maxim Integrated Products(a) 6,800 239,224
Texas Instruments 11,085 256,618
================================================================================
2,098,723
3.90 SOFT DRINKS
Coca-Cola Co 21,100 1,053,734
PepsiCo Inc 16,400 704,216
================================================================================
1,757,950
5.79 SYSTEMS SOFTWARE
Microsoft Corp(a) 46,800 2,245,464
Oracle Corp(a) 36,360 363,927
================================================================================
2,609,391
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $52,874,209) $ 45,072,007
================================================================================
INVESCO ENDEAVOR FUND
91.32 COMMON STOCKS
0.63 AEROSPACE & DEFENSE
Rockwell Collins 15,200 $ 390,640
================================================================================
0.44 APPAREL & ACCESSORIES
Oakley Inc(a) 19,600 269,500
================================================================================
1.45 APPLICATION SOFTWARE
BEA Systems(a) 31,065 172,411
Siebel Systems(a) 76,470 718,818
================================================================================
891,229
3.48 BANKS
Bank of America 7,000 465,500
Fifth Third Bancorp 9,400 621,058
Wells Fargo & Co 20,700 1,052,802
================================================================================
2,139,360
0.76 BREWERS
Anheuser-Busch Cos 9,000 465,390
================================================================================
6.10 BROADCASTING -- RADIO/TV
Fox Entertainment Group Class A Shrs(a) 67,100 1,338,645
Grupo Televisa SA de CV Sponsored ADR
Representing Ord Participation Certificates(a) 27,500 831,875
Univision Communications Class A Shrs(a) 55,200 1,578,168
================================================================================
3,748,688
1.02 CABLE & SATELLITE OPERATORS
EchoStar Communications Class A Shrs(a) 18,500 301,735
USA Interactive(a) 14,800 326,325
================================================================================
628,060
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
1.51 COMPUTER & ELECTRONICS RETAIL
Best Buy(a) 28,200 $ 927,780
================================================================================
1.76 COMPUTER STORAGE & PERIPHERALS
Emulex Corp(a) 24,600 569,736
Network Appliance(a) 60,900 515,214
================================================================================
1,084,950
1.77 DATA PROCESSING SERVICES
First Data 12,300 429,885
Fiserv Inc(a) 19,200 660,672
================================================================================
1,090,557
1.12 DIVERSIFIED FINANCIAL SERVICES
Moody's Corp 13,900 689,440
================================================================================
1.05 DRUG RETAIL
Walgreen Co 18,300 646,539
================================================================================
1.00 ELECTRICAL COMPONENTS & EQUIPMENT
SPX Corp(a) 5,900 616,550
================================================================================
1.06 ELECTRONIC EQUIPMENT & INSTRUMENTS
Samsung Electronics Ltd GDR
Representing 1/2 Ord Shr(d) 4,700 650,950
================================================================================
0.72 FOOD DISTRIBUTORS
Performance Food Group(a) 13,400 442,468
================================================================================
3.46 FOOD RETAIL
Dean Foods(a) 30,000 1,000,200
United Natural Foods(a) 25,400 467,868
Whole Foods Market(a) 15,000 658,050
================================================================================
2,126,118
1.92 GENERAL MERCHANDISE STORES
Target Corp 16,800 560,280
Wal-Mart Stores 12,600 619,668
================================================================================
1,179,948
0.79 HEALTH CARE DISTRIBUTORS & SERVICES
Quest Diagnostics(a) 8,100 489,159
================================================================================
0.91 HEALTH CARE EQUIPMENT
Medtronic Inc 13,800 557,520
================================================================================
0.50 HEALTH CARE FACILITIES
Province Healthcare(a) 16,000 307,200
================================================================================
1.92 HEALTH CARE SUPPLIES
Alcon Inc(a) 33,500 1,179,200
================================================================================
0.93 HOME IMPROVEMENT RETAIL
Home Depot 18,600 574,368
================================================================================
2.80 INDUSTRIAL CONGLOMERATES
General Electric 53,500 1,722,700
================================================================================
1.39 INTEGRATED OIL & GAS
Murphy Oil 10,300 856,445
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
3.09 INTERNET RETAIL
eBay Inc(a) 33,305 $ 1,901,382
================================================================================
2.20 INTERNET SOFTWARE & SERVICES
Expedia Inc(a)(c) 27,800 1,351,636
================================================================================
2.25 INVESTMENT ADVISER/BROKER DEALER SERVICES
Goldman Sachs Group 10,500 768,075
Legg Mason 14,400 614,016
================================================================================
1,382,091
1.52 INVESTMENT COMPANIES
Nasdaq-100 Trust Series 1 Shrs(a) 39,200 934,920
================================================================================
1.95 IT CONSULTING & SERVICES
Affiliated Computer Services Class A Shrs(a) 15,000 704,700
BISYS Group(a) 21,400 494,340
================================================================================
1,199,040
2.04 LIFE & HEALTH INSURANCE
AFLAC Inc 20,700 650,187
John Hancock Financial Services 18,300 605,730
================================================================================
1,255,917
1.41 METAL & GLASS CONTAINERS
Ball Corp 20,100 864,702
================================================================================
1.44 MOTORCYCLE MANUFACTURERS
Harley-Davidson Inc 18,700 885,632
================================================================================
2.69 MOVIES & ENTERTAINMENT
Blockbuster Inc Class A Shrs 30,400 702,240
Viacom Inc Class B Shrs(a) 24,400 949,892
================================================================================
1,652,132
2.08 NETWORKING EQUIPMENT
Cisco Systems(a) 96,800 1,276,792
================================================================================
0.88 OIL & GAS DRILLING
Nabors Industries Ltd(a) 8,950 273,154
Noble Corp(a) 8,300 268,920
================================================================================
542,074
2.09 OIL & GAS EQUIPMENT & SERVICES
Cooper Cameron(a) 6,595 283,519
FMC Technologies(a) 22,400 414,400
Smith International(a) 18,670 590,159
================================================================================
1,288,078
0.96 OIL & GAS EXPLORATION & PRODUCTION
Apache Corp 11,427 588,491
================================================================================
0.76 PAPER PRODUCTS
Bowater Inc 10,200 465,018
================================================================================
0.66 PERSONAL PRODUCTS
Avon Products 8,800 407,088
================================================================================
10.29 PHARMACEUTICALS
Abbott Laboratories 19,600 811,636
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Forest Laboratories(a) 31,200 $ 2,417,064
Pfizer Inc 57,385 1,856,405
Teva Pharmaceutical Industries Ltd Sponsored
ADR Representing Ord Shrs 18,685 1,246,308
================================================================================
6,331,413
0.59 PROPERTY & CASUALTY INSURANCE
St Paul 11,600 362,036
================================================================================
4.16 RESTAURANTS
Darden Restaurants 28,600 664,092
Diageo PLC Sponsored ADR Representing 4 Ord Shrs 12,000 580,680
P.F. Chang's China Bistro(a) 24,200 755,524
Starbucks Corp(a) 28,400 557,492
================================================================================
2,557,788
1.35 SEMICONDUCTOR EQUIPMENT
Applied Materials(a) 40,300 599,261
Novellus Systems(a) 8,500 229,415
================================================================================
828,676
4.57 SEMICONDUCTORS
Analog Devices(a) 32,355 779,755
QLogic Corp(a) 14,400 586,800
Taiwan Semiconductor Manufacturing Ltd Sponsored
ADR Representing 5 Ord Shrs 30,280 276,154
Texas Instruments 38,800 898,220
Xilinx Inc(a) 14,180 272,114
================================================================================
2,813,043
5.85 SYSTEMS SOFTWARE
Microsoft Corp(a) 48,790 2,340,944
Oracle Corp(a) 56,100 561,505
Symantec Corp(a) 6,300 211,302
VERITAS Software (a) 28,700 483,021
================================================================================
3,596,772
TOTAL COMMON STOCKS (COST $58,122,312) 56,159,480
================================================================================
0.08 PREFERRED STOCKS
0.08 NETWORKING EQUIPMENT
Calient Networks, Pfd, Series D Shrs(a)(h)
(Cost $648,056) 89,696 51,520
================================================================================
8.60 SHORT-TERM INVESTMENTS -- REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 7/31/2002 due 8/1/2002 at 1.800%,
repurchased at $5,287,264 (Collateralized
by Federal Home Loan Bank, Consolidated
Notes, due 5/14/2004 at 3.375%, value
$5,402,259) (Cost $5,287,000) $ 5,287,000 5,287,000
================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $64,057,368) $ 61,498,000
================================================================================
S&P 500 INDEX FUND
96.79 COMMON STOCKS(e)
0.23 ADVERTISING
Interpublic Group of Cos 5,936 $ 124,122
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Omnicom Group 2,943 $ 156,891
TMP Worldwide(a) 1,700 26,248
================================================================================
307,261
1.97 AEROSPACE & DEFENSE
Boeing Co 13,056 542,085
General Dynamics 3,134 253,603
Goodrich Corp 1,610 35,919
Honeywell International 12,736 412,137
Lockheed Martin 7,056 452,360
Northrop Grumman 1,718 190,183
Raytheon Co 6,247 203,527
Rockwell Collins 2,837 72,911
United Technologies 7,406 514,717
================================================================================
2,677,442
1.01 AIR FREIGHT & COURIERS
FedEx Corp 4,632 236,000
United Parcel Service Class B Shrs 17,400 1,136,916
================================================================================
1,372,916
0.16 AIRLINES
AMR Corp(a) 2,420 27,056
Delta Air Lines 1,898 29,571
Southwest Airlines 12,066 166,631
================================================================================
223,258
0.26 ALUMINUM
Alcoa Inc 13,200 357,060
================================================================================
0.13 APPAREL & ACCESSORIES
Jones Apparel Group(a) 2,000 68,060
Liz Claiborne 1,700 49,045
VF Corp 1,717 66,242
================================================================================
183,347
0.34 APPAREL RETAIL
Gap Inc 13,494 163,952
Limited Brands 8,058 144,802
TJX Cos 8,392 148,790
================================================================================
457,544
0.32 APPLICATION SOFTWARE
Autodesk Inc 1,800 23,202
Citrix Systems(a) 2,800 15,428
Compuware Corp(a) 5,800 21,518
Intuit Inc(a) 3,300 145,134
Mercury Interactive(a) 1,300 33,306
Parametric Technology(a) 4,036 12,592
PeopleSoft Inc(a) 4,847 87,149
Rational Software(a) 3,000 20,160
Siebel Systems(a) 7,400 69,560
================================================================================
428,049
0.29 AUTO PARTS & EQUIPMENT
Dana Corp 2,307 37,097
Delphi Corp 8,730 86,951
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Johnson Controls 1,412 $ 114,400
Snap-On Inc 900 24,453
TRW Inc 2,017 108,817
Visteon Corp 2,042 22,748
================================================================================
394,466
0.58 AUTOMOBILE MANUFACTURERS
Ford Motor 28,317 381,430
General Motors 8,764 407,964
================================================================================
789,394
7.37 BANKS
AmSouth Bancorp 5,650 126,108
Bank of America 23,989 1,595,269
Bank of New York 11,394 364,836
Bank One 18,343 713,726
BB&T Corp 7,480 276,910
Charter One Financial 3,489 118,347
Comerica Inc 2,703 157,206
Fifth Third Bancorp 9,150 604,541
First Tennessee National 2,000 74,860
FleetBoston Financial 16,310 378,392
Golden West Financial 2,445 160,759
Huntington Bancshares 3,841 75,821
KeyCorp 6,688 175,627
Marshall & Ilsley 3,300 99,297
Mellon Financial 6,884 182,977
National City 9,480 292,932
North Fork Bancorp 2,600 105,586
Northern Trust 3,500 139,405
PNC Financial Services Group 4,400 185,460
Regions Financial 3,600 126,828
SouthTrust Corp 5,400 136,296
SunTrust Banks 4,438 292,020
Synovus Financial 4,586 110,064
Union Planters 3,200 98,048
US Bancorp 29,830 638,064
Wachovia Corp 21,390 765,762
Washington Mutual 15,241 570,166
Wells Fargo & Co 26,666 1,356,233
Zions Bancorp 1,400 70,714
================================================================================
9,992,254
1.00 BIOTECHNOLOGY
Amgen Inc(a) 20,032 914,260
Applera Corp-Applied Biosystems Group 3,300 61,578
Biogen Inc(a) 2,300 82,731
Chiron Corp(a) 3,000 101,220
Genzyme Corp-General Division(a) 3,300 75,174
MedImmune Inc(a) 3,900 115,986
================================================================================
1,350,949
0.55 BREWERS
Adolph Coors Class B Shrs 600 36,246
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Anheuser-Busch Cos 13,644 $ 705,531
================================================================================
741,777
0.26 BROADCASTING -- RADIO/TV
Clear Channel Communications(a) 9,603 250,158
Univision Communications Class A Shrs(a) 3,570 102,066
================================================================================
352,224
0.21 BUILDING PRODUCTS
American Standard(a) 1,100 78,661
Crane Co 950 21,831
Masco Corp 7,516 181,887
================================================================================
282,379
0.23 CABLE & SATELLITE OPERATORS
Comcast Corp Class A Shrs(a) 14,798 309,278
================================================================================
0.12 CASINOS & GAMING
Harrah's Entertainment(a) 1,814 85,838
International Game Technology(a) 1,400 81,550
================================================================================
167,388
0.03 COMMERCIAL PRINTING
R.R. Donnelley & Sons 1,720 47,799
================================================================================
0.21 COMPUTER & ELECTRONICS RETAIL
Best Buy(a) 5,000 164,500
Circuit City Stores-Circuit City Group 3,228 55,037
RadioShack Corp 2,728 69,837
================================================================================
289,374
2.88 COMPUTER HARDWARE
Apple Computer(a) 5,536 84,479
Dell Computer(a) 40,512 1,009,964
Gateway Inc(a) 5,100 17,340
Hewlett-Packard Co 47,114 666,663
International Business Machines 26,676 1,877,990
NCR Corp(a) 1,500 39,465
Palm Inc(a) 9,027 9,839
Sun Microsystems(a) 50,616 198,415
================================================================================
3,904,155
0.30 COMPUTER STORAGE & PERIPHERALS
EMC Corp(a) 34,704 260,280
Lexmark International Class A Shrs(a) 2,000 97,760
Network Appliance(a) 5,200 43,992
================================================================================
402,032
0.03 CONSTRUCTION & ENGINEERING
Fluor Corp 1,212 38,905
McDermott International(a) 1,000 4,690
================================================================================
43,595
0.37 CONSTRUCTION & FARM MACHINERY
Caterpillar Inc 5,344 238,877
Cummins Inc 600 19,380
Deere & Co 3,666 154,045
Navistar International(a) 900 23,211
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
PACCAR Inc 1,800 $ 69,030
================================================================================
504,543
0.05 CONSTRUCTION MATERIALS
Vulcan Materials 1,600 64,704
================================================================================
2.20 CONSUMER FINANCE
Capital One Financial 3,400 107,780
Countrywide Credit Industries 1,915 97,301
Fannie Mae 15,597 1,168,059
Freddie Mac 10,856 672,529
Household International 7,152 305,176
MBNA Corp 20,014 388,071
Providian Financial 4,538 22,781
SLM Corp 2,400 218,400
================================================================================
2,980,097
0.18 CRUISE LINES
Carnival Corp 9,200 243,800
================================================================================
0.92 DATA PROCESSING SERVICES
Automatic Data Processing 9,684 361,116
Concord EFS(a) 8,000 156,000
First Data 11,920 416,604
Fiserv Inc(a) 2,950 101,510
Paychex Inc 5,900 155,229
Sabre Holdings(a) 2,237 59,325
================================================================================
1,249,784
0.72 DEPARTMENT STORES
Dillard's Inc Class A Shrs 1,315 30,903
Federated Department Stores(a) 3,138 118,020
J.C. Penney Holding 4,164 73,286
Kohl's Corp(a) 5,200 343,200
May Department Stores 4,428 136,028
Nordstrom Inc 2,100 39,690
Sears Roebuck & Co 4,957 233,822
================================================================================
974,949
0.05 DISTILLERS & VINTNERS
Brown-Forman Corp Class B Shrs 1,100 74,558
================================================================================
0.88 DIVERSIFIED CHEMICALS
Dow Chemical 14,207 410,156
E.I. du Pont de Nemours & Co 15,522 650,527
Rohm & Haas 3,476 130,350
================================================================================
1,191,033
0.40 DIVERSIFIED COMMERCIAL SERVICES
Cintas Corp 2,700 118,500
Convergys Corp(a) 2,700 40,824
Deluxe Corp 1,011 39,318
Ecolab Inc 2,000 91,900
Equifax Inc 2,221 47,085
H&R Block 2,830 136,632
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
IMS Health 4,512 $ 71,380
================================================================================
545,639
3.84 DIVERSIFIED FINANCIAL SERVICES
Ambac Financial Group 1,700 107,151
American Express 20,715 730,411
Citigroup Inc 80,308 2,693,530
Franklin Resources 4,100 140,753
JP Morgan Chase & Co 31,103 776,331
MBIA Inc 2,318 114,950
Moody's Corp 2,424 120,230
Prudential Financial(a) 9,100 300,209
State Street 5,112 217,260
================================================================================
5,200,825
0.06 DIVERSIFIED METALS & MINING
Freeport McMoRan Copper & Gold Class B Shrs(a) 2,227 34,006
Phelps Dodge 1,389 47,476
================================================================================
81,482
0.54 DRUG RETAIL
CVS Corp 6,126 175,204
Walgreen Co 15,946 563,372
================================================================================
738,576
0.08 EDUCATION SERVICES
Apollo Group Class A Shrs(a) 2,700 105,975
================================================================================
2.46 ELECTRIC UTILITIES
AES Corp(a) 8,300 17,015
Allegheny Energy 2,000 42,100
Ameren Corp 2,214 96,752
American Electric Power 5,303 174,522
Calpine Corp(a) 5,800 28,826
Cinergy Corp 2,622 88,886
CMS Energy 2,100 17,052
Consolidated Edison 3,354 143,719
Constellation Energy Group 2,521 70,260
Dominion Resources 4,307 256,008
DTE Energy 2,620 107,315
Duke Energy 12,972 330,656
Edison International(a) 5,053 66,194
Entergy Corp 3,534 143,233
Exelon Corp 5,057 248,046
FirstEnergy Corp 4,605 141,604
FPL Group 2,719 154,031
Mirant Corp(a) 6,275 22,590
NiSource Inc 3,251 64,370
PG&E Corp(a) 6,061 84,248
Pinnacle West Capital 1,300 44,200
PPL Corp 2,323 76,775
Progress Energy 3,414 159,605
Public Service Enterprise Group 3,232 111,666
Reliant Energy 4,740 47,684
Southern Co 10,996 316,465
TECO Energy 2,450 56,595
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
TXU Corp 4,162 $ 179,507
Xcel Energy 6,140 42,734
================================================================================
3,332,658
0.42 ELECTRICAL COMPONENTS & EQUIPMENT
American Power Conversion(a) 3,100 33,945
Cooper Industries Ltd Class A Shrs 1,417 44,125
Emerson Electric 6,591 335,811
Molex Inc 2,975 86,811
Power-One Inc(a) 1,200 5,472
Rockwell Automation 2,937 54,335
Thomas & Betts(a) 900 13,248
================================================================================
573,747
0.31 ELECTRONIC EQUIPMENT & INSTRUMENTS
Agilent Technologies(a) 7,259 137,050
Jabil Circuit(a) 3,100 55,149
Millipore Corp 800 26,480
PerkinElmer Inc 2,000 15,240
Sanmina-SCI Corp(a) 8,200 33,374
Solectron Corp(a) 12,800 51,200
Symbol Technologies 3,550 32,447
Tektronix Inc(a) 1,400 26,096
Thermo Electron(a) 2,721 46,203
================================================================================
423,239
0.04 EMPLOYMENT SERVICES
Robert Half International(a) 2,700 53,865
================================================================================
0.18 ENVIRONMENTAL SERVICES
Allied Waste Industries(a) 3,100 20,460
Waste Management 9,653 228,487
================================================================================
248,947
0.03 FOOD DISTRIBUTORS
SUPERVALU Inc 2,100 43,764
================================================================================
0.49 FOOD RETAIL
Albertson's Inc 6,366 179,394
Kroger Co(a) 12,434 242,214
Safeway Inc(a) 7,500 208,650
Winn-Dixie Stores 2,221 34,981
================================================================================
665,239
0.17 FOOTWEAR
NIKE Inc Class B Shrs 4,191 206,574
Reebok International Ltd(a) 900 24,219
================================================================================
230,793
0.16 FOREST PRODUCTS
Louisiana-Pacific Corp 1,615 12,791
Weyerhaeuser Co 3,431 201,571
================================================================================
214,362
0.14 GAS UTILITIES
KeySpan Corp 2,200 76,780
Nicor Inc 700 18,900
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Peoples Energy 600 $ 21,066
Sempra Energy 3,218 68,222
================================================================================
184,968
3.20 GENERAL MERCHANDISE STORES
Big Lots(a) 1,829 30,361
Costco Wholesale(a) 7,080 246,880
Dollar General 5,197 89,181
Family Dollar Stores 2,700 81,783
Target Corp 14,172 472,636
Wal-Mart Stores 69,460 3,416,043
================================================================================
4,336,884
0.11 GOLD
Newmont Mining Holding 6,122 149,377
================================================================================
0.12 HEALTH CARE DISTRIBUTORS & SERVICES
McKesson Corp 4,486 147,679
Quintiles Transnational(a) 1,900 18,867
================================================================================
166,546
1.61 HEALTH CARE EQUIPMENT
Baxter International 9,368 373,877
Becton Dickinson & Co 4,034 117,228
Biomet Inc 4,161 107,895
Boston Scientific(a) 6,356 190,616
C.R. Bard 800 43,256
Guidant Corp(a) 4,794 166,831
Medtronic Inc 18,916 764,206
St Jude Medical(a) 2,826 107,388
Stryker Corp 3,100 156,922
Waters Corp(a) 2,100 47,691
Zimmer Holdings(a) 3,010 112,062
================================================================================
2,187,972
0.67 HEALTH CARE FACILITIES
HCA Inc 7,990 375,530
Health Management Associates Class A Shrs(a) 3,800 76,874
HEALTHSOUTH Corp(a) 6,155 63,089
Manor Care(a) 1,600 35,184
Tenet Healthcare(a) 7,650 364,523
================================================================================
915,200
0.02 HEALTH CARE SUPPLIES
Bausch & Lomb 800 26,464
================================================================================
0.05 HOME FURNISHINGS
Leggett & Platt 3,100 69,719
================================================================================
1.23 HOME IMPROVEMENT RETAIL
Home Depot 36,790 1,136,075
Lowe's Cos 12,160 460,256
Sherwin-Williams Co 2,424 69,642
================================================================================
1,665,973
0.10 HOMEBUILDING
Centex Corp 1,000 47,950
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
KB HOME 800 $ 36,968
Pulte Homes 978 46,866
================================================================================
131,784
0.37 HOTELS
Cendant Corp(a) 16,279 224,976
Hilton Hotels 5,735 70,082
Marriott International Class A Shrs 3,768 126,228
Starwood Hotels & Resorts Worldwide
Paired Certificates 3,100 79,670
================================================================================
500,956
0.15 HOUSEHOLD APPLIANCES
Black & Decker 1,213 55,192
Maytag Corp 1,213 40,187
Stanley Works 1,312 47,350
Whirlpool Corp 1,100 63,107
================================================================================
205,836
2.12 HOUSEHOLD PRODUCTS
Clorox Co 3,636 139,986
Colgate-Palmolive Co 8,588 440,994
Kimberly-Clark Corp 8,076 493,040
Procter & Gamble 20,282 1,804,895
================================================================================
2,878,915
0.21 HOUSEWARES & SPECIALTIES
American Greetings Class A Shrs 1,010 16,231
Fortune Brands 2,324 121,545
Newell Rubbermaid 4,153 124,922
Tupperware Corp 900 15,615
================================================================================
278,313
4.61 INDUSTRIAL CONGLOMERATES
General Electric 155,147 4,995,733
Textron Inc 2,208 86,995
3M Co 6,068 763,536
Tyco International Ltd 31,123 398,374
================================================================================
6,244,638
0.21 INDUSTRIAL GASES
Air Products & Chemicals 3,544 156,822
Praxair Inc 2,522 131,901
================================================================================
288,723
0.69 INDUSTRIAL MACHINERY
Danaher Corp 2,400 148,920
Dover Corp 3,146 92,335
Eaton Corp 1,111 77,570
Illinois Tool Works 4,787 315,894
Ingersoll-Rand Co Class A Shrs 2,623 100,697
ITT Industries 1,417 90,518
Pall Corp 1,918 33,718
Parker-Hannifin Corp 1,816 73,112
================================================================================
932,764
0.38 INSURANCE BROKERS
Aon Corp 4,215 100,106
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Marsh & McLennan 8,536 $ 408,874
================================================================================
508,980
4.46 INTEGRATED OIL & GAS
Amerada Hess 1,413 96,649
ChevronTexaco Corp 16,618 1,246,350
Conoco Inc 9,795 236,255
Exxon Mobil 105,870 3,891,781
Marathon Oil 4,789 116,085
Occidental Petroleum 5,847 158,395
Phillips Petroleum 5,953 308,068
================================================================================
6,053,583
3.33 INTEGRATED TELECOMMUNICATION SERVICES
ALLTEL Corp 4,870 197,332
AT&T Corp 59,299 603,664
BellSouth Corp 29,302 786,759
CenturyTel Inc 2,200 58,520
Citizens Communications(a) 4,400 24,112
SBC Communications 52,172 1,443,078
Verizon Communications 42,515 1,402,995
================================================================================
4,516,460
0.12 INTEGRATED TELECOMMUNICATION
SERVICES -- LONG DISTANCE
Qwest Communications International(a) 26,137 33,455
Sprint Corp 13,864 129,628
================================================================================
163,083
0.19 INTERNET RETAIL
eBay Inc(a) 4,400 251,196
================================================================================
0.09 INTERNET SOFTWARE & SERVICES
Yahoo! Inc(a) 9,300 122,481
================================================================================
1.71 INVESTMENT ADVISER/BROKER DEALER SERVICES
Bear Stearns 1,550 93,341
Charles Schwab 21,383 191,378
Goldman Sachs Group 7,400 541,310
Lehman Brothers Holdings 3,800 215,498
Merrill Lynch & Co 13,438 479,065
Morgan Stanley 17,178 693,132
Stilwell Financial 3,500 47,425
T. Rowe Price Group 1,900 51,357
================================================================================
2,312,506
0.38 IT CONSULTING & SERVICES
Computer Sciences(a) 2,702 99,974
Electronic Data Systems 7,500 275,775
SunGard Data Systems(a) 4,400 103,180
Unisys Corp(a) 5,025 37,788
================================================================================
516,717
0.24 LEISURE PRODUCTS
Brunswick Corp 1,414 32,352
Electronic Arts(a) 2,200 132,396
Hasbro Inc 2,677 32,793
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Mattel Inc 6,791 $ 127,739
================================================================================
325,280
0.91 LIFE & HEALTH INSURANCE
AFLAC Inc 8,100 254,421
Jefferson-Pilot Corp 2,322 100,891
John Hancock Financial Services 4,600 152,260
Lincoln National 2,934 107,648
MetLife Inc 11,000 310,090
Principal Financial Group(a) 5,600 160,776
Torchmark Corp 1,920 69,581
UnumProvident Corp 3,830 78,362
================================================================================
1,234,029
0.64 MANAGED HEALTH CARE
Aetna Inc 2,298 100,377
Anthem Inc(a) 2,200 149,336
Humana Inc(a) 2,623 32,289
UnitedHealth Group 4,848 424,976
WellPoint Health Networks(a) 2,300 164,450
================================================================================
871,428
0.03 METAL & GLASS CONTAINERS
Ball Corp 900 38,718
================================================================================
0.16 MOTORCYCLE MANUFACTURERS
Harley-Davidson Inc 4,700 222,592
================================================================================
1.80 MOVIES & ENTERTAINMENT
AOL Time Warner(a) 69,454 798,721
Viacom Inc Class B Shrs(a) 27,606 1,074,702
Walt Disney 31,829 564,328
================================================================================
2,437,751
2.40 MULTI-LINE INSURANCE
American International Group 40,819 2,609,150
CIGNA Corp 2,247 202,230
Cincinnati Financial 2,545 102,029
Hartford Financial Services Group 3,856 195,114
Loews Corp 2,952 140,043
================================================================================
3,248,566
0.18 NATURAL GAS PIPELINES
Dynegy Inc Class A Shrs 5,650 13,560
El Paso 8,985 129,833
Kinder Morgan 1,900 79,059
Williams Cos 8,063 23,786
================================================================================
246,238
1.12 NETWORKING EQUIPMENT
Avaya Inc(a) 5,658 8,430
Cisco Systems(a) 114,264 1,507,142
================================================================================
1,515,572
0.06 OFFICE ELECTRONICS
Xerox Corp(a) 11,228 78,035
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
0.19 OFFICE SERVICES & SUPPLIES
Avery Dennison 1,714 $ 106,628
Pitney Bowes 3,790 147,810
================================================================================
254,438
0.21 OIL & GAS DRILLING
Nabors Industries Ltd(a) 2,200 67,144
Noble Corp(a) 2,100 68,040
Rowan Cos 1,512 29,590
Transocean Inc 4,940 125,970
================================================================================
290,744
0.51 OIL & GAS EQUIPMENT & SERVICES
Baker Hughes 5,294 141,879
BJ Services(a) 2,400 76,536
Halliburton Co 6,796 89,707
Schlumberger Ltd 9,025 387,353
================================================================================
695,475
0.56 OIL & GAS EXPLORATION & PRODUCTION
Anadarko Petroleum 3,880 168,780
Apache Corp 2,274 117,111
Burlington Resources 3,125 114,219
Devon Energy 2,418 100,782
EOG Resources 1,800 61,722
Kerr-McGee Corp 1,516 70,903
Unocal Corp 3,862 126,133
================================================================================
759,650
0.06 OIL & GAS REFINING & MARKETING
Ashland Inc 1,100 39,237
Sunoco Inc 1,200 42,648
================================================================================
81,885
1.47 PACKAGED FOODS
Archer-Daniels-Midland Co 10,206 119,410
Campbell Soup 6,400 149,120
ConAgra Foods 8,366 210,070
General Mills 5,708 236,597
Hershey Foods 2,094 164,295
H.J. Heinz 5,441 209,206
Kellogg Co 6,370 219,383
Sara Lee 12,230 229,190
SYSCO Corp 10,348 269,565
Wm. Wrigley Jr. 3,552 181,685
================================================================================
1,988,521
0.11 PAPER PACKAGING
Bemis Inc 800 38,448
Pactiv Corp(a) 2,424 44,044
Sealed Air(a) 1,319 19,139
Temple-Inland Inc 830 44,571
================================================================================
146,202
0.42 PAPER PRODUCTS
Boise Cascade 900 26,091
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Georgia-Pacific Corp 3,632 $ 79,541
International Paper 7,492 298,331
MeadWestvaco Corp 3,089 82,137
Plum Creek Timber 2,900 82,650
================================================================================
568,750
0.56 PERSONAL PRODUCTS
Alberto-Culver Co Class B Shrs 900 42,759
Avon Products 3,674 169,959
Gillette Co 16,536 543,704
================================================================================
756,422
9.90 PHARMACEUTICALS
Abbott Laboratories 24,404 1,010,570
Allergan Inc 2,000 120,980
AmerisourceBergen Corp 1,600 107,184
Bristol-Myers Squibb 30,206 707,727
Cardinal Health 7,028 404,813
Eli Lilly & Co 17,528 1,023,986
Forest Laboratories(a) 2,800 216,916
Johnson & Johnson 47,002 2,491,106
King Pharmaceuticals(a) 3,866 81,998
Merck & Co 35,374 1,754,550
Pfizer Inc 97,498 3,154,060
Pharmacia Corp 20,169 902,361
Schering-Plough Corp 22,862 582,981
Watson Pharmaceuticals(a) 1,700 35,819
Wyeth 20,654 824,095
================================================================================
13,419,146
0.10 PHOTOGRAPHIC PRODUCTS
Eastman Kodak 4,513 138,910
================================================================================
0.99 PROPERTY & CASUALTY INSURANCE
ACE Ltd 4,100 129,847
Allstate Corp 11,064 420,543
Chubb Corp 2,659 172,543
MGIC Investment 1,675 105,525
Progressive Corp 3,457 176,826
SAFECO Corp 2,020 64,115
St Paul 3,482 108,673
XL Capital Ltd Class A Shrs 2,150 159,315
================================================================================
1,337,387
0.70 PUBLISHING & PRINTING
Dow Jones & Co 1,313 54,096
Gannett Co 4,186 301,015
Knight-Ridder Inc 1,312 79,442
McGraw-Hill Cos 3,028 189,401
Meredith Corp 800 29,176
New York Times Class A Shrs 2,326 105,252
Tribune Co 4,734 188,887
================================================================================
947,269
0.48 RAILROADS
Burlington Northern Santa Fe 6,009 176,785
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
CSX Corp 3,343 $ 115,568
Norfolk Southern 6,053 122,573
Union Pacific 3,962 232,451
================================================================================
647,377
0.28 REAL ESTATE INVESTMENT TRUSTS
Equity Office Properties Trust 6,500 171,470
Equity Residential SBI 4,300 115,025
Simon Property Group 2,700 97,173
================================================================================
383,668
0.65 RESTAURANTS
Darden Restaurants 2,681 62,253
McDonald's Corp 19,804 490,149
Starbucks Corp(a) 6,000 117,780
Wendy's International 1,818 66,884
Yum! Brands(a) 4,642 143,438
================================================================================
880,504
0.44 SEMICONDUCTOR EQUIPMENT
Applied Materials(a) 25,604 380,731
KLA-Tencor Corp(a) 2,924 115,176
Novellus Systems(a) 2,300 62,077
Teradyne Inc(a) 2,900 43,500
================================================================================
601,484
2.76 SEMICONDUCTORS
Advanced Micro Devices(a) 5,340 42,880
Altera Corp(a) 6,000 70,980
Analog Devices(a) 5,700 137,370
Applied Micro Circuits(a) 4,700 21,667
Broadcom Corp Class A Shrs(a) 4,200 78,792
Intel Corp 104,396 1,961,601
Linear Technology 5,000 135,400
LSI Logic(a) 5,740 44,772
Maxim Integrated Products(a) 5,021 176,639
Micron Technology(a) 9,360 182,426
National Semiconductor(a) 2,823 51,125
NVIDIA Corp(a) 2,300 25,461
PMC-Sierra Inc(a) 2,600 24,830
QLogic Corp(a) 1,500 61,125
Texas Instruments 27,024 625,606
Vitesse Semiconductor(a) 3,100 7,502
Xilinx Inc(a) 5,200 99,788
================================================================================
3,747,964
2.48 SOFT DRINKS
Coca-Cola Co 38,724 1,933,877
Coca-Cola Enterprises 7,000 130,340
Pepsi Bottling Group 4,400 108,768
PepsiCo Inc 27,599 1,185,101
================================================================================
3,358,086
0.29 SPECIALTY CHEMICALS
Eastman Chemical 1,211 53,672
Englehard Corp 2,020 50,500
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Great Lakes Chemical 800 $ 20,104
Hercules Inc(a) 1,713 18,158
International Flavors & Fragrances 1,515 46,344
PPG Industries 2,617 150,216
Sigma-Aldrich Corp 1,114 53,383
================================================================================
392,377
0.40 SPECIALTY STORES
AutoZone Inc(a) 1,621 119,549
Bed Bath & Beyond(a) 4,600 142,600
Office Depot(a) 4,800 62,304
Staples Inc(a) 7,300 121,837
Tiffany & Co 2,300 56,672
Toys "R" Us(a) 3,310 44,619
================================================================================
547,581
0.10 STEEL
Allegheny Technologies 1,262 12,077
Nucor Corp 1,212 67,666
United States Steel 1,612 26,840
Worthington Industries 1,314 23,061
================================================================================
129,644
3.88 SYSTEMS SOFTWARE
Adobe Systems 3,740 89,610
BMC Software(a) 3,800 51,110
Computer Associates International 9,076 84,770
Microsoft Corp(a) 84,570 4,057,669
Novell Inc(a) 5,649 12,597
Oracle Corp(a) 85,664 857,411
VERITAS Software(a) 6,400 107,712
================================================================================
5,260,879
0.79 TELECOMMUNICATIONS EQUIPMENT
ADC Telecommunications(a) 12,400 22,320
Andrew Corp(a) 1,513 17,021
CIENA Corp(a) 6,700 27,001
Comverse Technology(a) 2,900 23,084
Corning Inc(a) 14,805 23,688
JDS Uniphase(a) 21,300 53,889
Lucent Technologies(a) 53,499 93,623
Motorola Inc 35,408 410,733
QUALCOMM Inc(a) 12,000 329,760
Scientific-Atlanta Inc 2,422 30,638
Tellabs Inc(a) 6,438 36,890
================================================================================
1,068,647
0.05 TIRES & RUBBER
Cooper Tire & Rubber 1,111 22,231
Goodyear Tire & Rubber 2,503 43,652
================================================================================
65,883
1.19 TOBACCO
Philip Morris 33,392 1,537,702
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
UST Inc 2,626 $ 77,283
================================================================================
1,614,985
0.11 TRADING COMPANIES & DISTRIBUTORS
Genuine Parts 2,725 83,685
W.W. Grainger 1,426 69,931
================================================================================
153,616
0.02 TRUCKING
Ryder System 1,000 26,170
================================================================================
0.25 WIRELESS TELECOMMUNICATION SERVICES
AT&T Wireless Services(a) 42,191 197,876
Nextel Communications Class A Shrs(a) 12,700 72,771
Sprint Corp-PCS Group Series 1 Shrs(a) 15,482 63,476
================================================================================
334,123
TOTAL COMMON STOCKS (COST $160,099,969) 131,242,554
================================================================================
3.21 SHORT-TERM INVESTMENTS
0.45 US GOVERNMENT OBLIGATIONS
US Treasury Bills, 8/29/2002(f)
(Amortized Cost $609,137) $ 610,000 609,198
================================================================================
2.76 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 7/31/2002 due 8/1/2002 at 1.800%,
repurchased at $3,741,187 (Collateralized
by Federal Home Loan Bank, Consolidated
Notes, due 5/14/2004 at 3.375%, value
$3,825,457) (Cost $3,741,000) $ 3,741,000 3,741,000
================================================================================
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $4,350,137) 4,350,198
================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $164,450,106) $ 135,592,752
================================================================================
SMALL COMPANY GROWTH FUND
89.74 COMMON STOCKS
0.87 AEROSPACE & DEFENSE
Alliant Techsystems(a) 124,900 $ 7,668,860
================================================================================
0.57 APPAREL & ACCESSORIES
Coach Inc(a) 222,400 5,070,720
================================================================================
3.12 APPAREL RETAIL
American Eagle Outfitters(a) 307,200 5,087,232
AnnTaylor Stores(a) 289,200 7,183,728
Stage Stores(a) 332,000 9,047,000
Too Inc(a) 250,900 6,275,009
================================================================================
27,592,969
1.69 APPLICATION SOFTWARE
Cerner Corp(a) 77,600 3,367,840
Jack Henry & Associates 348,280 4,969,956
Manugistics Group(a) 331,400 1,332,228
T-HQ Inc(a)(c) 213,200 5,304,416
================================================================================
14,974,440
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
0.83 AUTO PARTS & EQUIPMENT
O'Reilly Automotive(a) 262,000 $ 7,383,160
================================================================================
8.48 BANKS
City National 258,380 13,397,003
Commerce Bancorp(c) 251,500 11,624,330
Cullen/Frost Bankers 283,400 10,372,440
Dime Community Bancshares 198,000 5,096,520
Greater Bay Bancorp(c) 308,600 7,483,550
Investors Financial Services 572,200 17,606,594
Silicon Valley Bancshares(a) 434,600 9,404,744
================================================================================
74,985,181
2.36 BIOTECHNOLOGY
Biotech HOLDRs Trust Depository Receipts(g) 72,700 6,135,880
Cephalon Inc(a) 121,300 5,822,400
Charles River Laboratories(a) 102,400 3,901,440
Scios Inc(a)(c) 160,200 5,023,872
================================================================================
20,883,592
3.07 BROADCASTING -- RADIO/TV
Cumulus Media Class A Shrs(a) 490,000 6,536,600
Entravision Communications Class A Shrs(a) 677,000 6,770,000
Lin TV Corp Class A Shrs(a) 166,600 3,508,596
Radio One Class D Shrs(a) 522,400 7,313,600
Regent Communications(a) 504,100 2,999,395
================================================================================
27,128,191
0.83 CASINOS & GAMING
Alliance Gaming(a) 565,400 7,350,200
================================================================================
0.26 COMPUTER HARDWARE
Concurrent Computer(a) 828,500 2,344,655
================================================================================
0.30 CONSUMER FINANCE
iDine Rewards Network(a) 213,700 2,658,428
================================================================================
0.83 DIVERSIFIED COMMERCIAL SERVICES
Corporate Executive Board(a) 242,300 7,319,883
================================================================================
0.53 DIVERSIFIED FINANCIAL SERVICES
New York Community Bancorp 161,800 4,659,840
================================================================================
0.54 DRUG RETAIL
Duane Reade(a) 322,500 4,773,000
================================================================================
3.21 EDUCATION SERVICES
Career Education(a)(c) 288,100 12,716,734
Corinthian Colleges(a) 356,300 11,241,265
University of Phoenix Online(a) 166,933 4,408,701
================================================================================
28,366,700
1.12 ELECTRICAL COMPONENTS & EQUIPMENT
Aeroflex Inc(a) 1,023,460 7,778,296
Microsemi Corp(a) 391,500 2,114,100
================================================================================
9,892,396
2.02 ELECTRONIC EQUIPMENT & INSTRUMENTS
Itron Inc(a) 214,900 3,393,271
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
OSI Systems(a) 365,900 $ 5,495,818
Plexus Corp(a) 384,900 5,350,110
Sipex Corp(a) 970,897 3,611,737
================================================================================
17,850,936
2.11 EMPLOYMENT SERVICES
FTI Consulting(a) 251,200 10,110,800
Heidrick & Struggles International(a) 550,650 8,562,608
================================================================================
18,673,408
2.25 ENVIRONMENTAL SERVICES
Stericycle Inc(a) 215,300 7,107,053
Waste Connections(a) 396,100 12,790,069
================================================================================
19,897,122
1.08 FOOD DISTRIBUTORS
Performance Food Group(a) 290,500 9,592,310
================================================================================
1.49 FOOD RETAIL
United Natural Foods(a) 329,400 6,067,548
Whole Foods Market(a) 161,500 7,085,005
================================================================================
13,152,553
1.51 GENERAL MERCHANDISE STORES
Fred's Inc Class A Shrs 112,600 3,316,070
Ross Stores 130,300 4,907,098
Tuesday Morning(a) 339,400 5,152,092
================================================================================
13,375,260
3.81 HEALTH CARE DISTRIBUTORS & SERVICES
Accredo Health(a) 165,875 7,912,403
D & K Healthcare Resources 230,200 6,542,284
DaVita Inc(a) 204,100 4,816,760
Renal Care Group(a)(c) 218,000 7,063,200
United Surgical Partners International(a) 256,100 7,357,753
================================================================================
33,692,400
1.75 HEALTH CARE EQUIPMENT
CTI Molecular Imaging(a) 365,600 7,297,376
Varian Medical Systems(a) 195,100 8,155,180
================================================================================
15,452,556
1.65 HEALTH CARE FACILITIES
Province Healthcare(a) 758,025 14,554,080
================================================================================
0.58 INDUSTRIAL MACHINERY
Kennametal Inc 157,900 5,122,276
================================================================================
1.40 INSURANCE BROKERS
Arthur J. Gallagher & Co 253,400 7,452,494
Hub International Ltd 355,300 4,981,306
================================================================================
12,433,800
1.87 INTERNET SOFTWARE & SERVICES
Overture Services(a) 391,900 8,954,915
PEC Solutions(a)(c) 318,700 7,553,190
================================================================================
16,508,105
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
3.13 INVESTMENT ADVISER/BROKER DEALER SERVICES
Affiliated Managers Group(a) 128,700 $ 6,077,214
Eaton Vance 230,900 6,178,884
Raymond James Financial 347,500 9,452,000
Waddell & Reed Financial Class A Shrs 332,400 5,963,256
================================================================================
27,671,354
3.05 IT CONSULTING & SERVICES
Anteon International(a) 176,400 3,478,608
BISYS Group(a) 176,800 4,084,080
Manhattan Associates(a) 296,500 6,594,753
SRA International Class A Shrs(a) 121,399 3,010,695
Tier Technologies Class B Shrs(a) 662,980 9,838,623
================================================================================
27,006,759
0.69 LEISURE FACILITIES
Intrawest Corp 432,200 6,094,020
================================================================================
2.30 MANAGED HEALTH CARE
Cross Country(a) 238,200 6,819,666
First Health Group(a) 358,100 9,002,634
Mid Atlantic Medical Services(a) 138,100 4,496,536
================================================================================
20,318,836
0.38 METAL & GLASS CONTAINERS
Crown Cork & Seal(a) 966,700 3,335,115
================================================================================
0.82 MOVIES & ENTERTAINMENT
Pixar Inc(a) 164,900 7,253,951
================================================================================
3.72 OIL & GAS DRILLING
Patterson-UTI Energy(a) 535,100 12,794,241
Precision Drilling(a) 316,400 9,397,080
Pride International(a) 793,600 10,673,920
================================================================================
32,865,241
3.15 OIL & GAS EQUIPMENT & SERVICES
Cal Dive International(a) 114,885 2,203,494
FMC Technologies(a) 491,100 9,085,350
Maverick Tube(a) 442,000 4,605,640
Smith International(a)(c) 377,300 11,926,453
================================================================================
27,820,937
1.63 OIL & GAS EXPLORATION & PRODUCTION
Evergreen Resources(a) 242,700 8,555,175
Spinnaker Exploration(a) 208,200 5,858,748
================================================================================
14,413,923
1.31 PACKAGED FOODS
American Italian Pasta Class A Shrs(a) 281,200 11,624,808
================================================================================
0.72 PERSONAL PRODUCTS
Playtex Products(a) 566,400 6,343,680
================================================================================
1.44 PHARMACEUTICALS
Atrix Laboratories(a) 309,800 4,947,506
Neurocrine Biosciences(a) 111,700 4,100,507
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
NPS Pharmaceuticals(a)(c) 168,500 $ 3,668,245
================================================================================
12,716,258
0.95 PUBLISHING & PRINTING
Getty Images(a) 211,800 3,488,770
McClatchy Co Class A Shrs 89,100 4,962,870
================================================================================
8,451,640
0.50 REINSURANCE
RenaissanceRe Holdings Ltd 113,500 4,426,500
================================================================================
2.41 RESTAURANTS
California Pizza Kitchen(a) 424,400 9,285,872
P.F. Chang's China Bistro(a)(c) 248,900 7,770,658
Panera Bread Class A Shrs(a) 132,400 4,256,660
================================================================================
21,313,190
3.98 SEMICONDUCTOR EQUIPMENT
ATMI Inc(a) 381,400 6,891,898
Brooks-PRI Automation(a) 352,400 6,702,648
Cymer Inc(a) 237,800 6,656,022
Microtune Inc(a) 403,200 1,556,352
Photon Dynamics(a) 227,200 5,925,376
Varian Semiconductor Equipment(a) 282,800 7,431,984
================================================================================
35,164,280
4.52 SEMICONDUCTORS
Cohu Inc 250,040 3,833,113
Exar Corp(a) 529,760 8,831,099
OmniVision Technologies(a)(c) 414,600 3,942,846
QLogic Corp(a) 174,700 7,119,025
Semtech Corp(a) 303,000 5,956,980
Silicon Laboratories(a)(c) 374,300 10,296,993
================================================================================
39,980,056
1.99 SPECIALTY STORES
Cost Plus(a) 162,900 3,986,163
Linens 'n Things(a) 222,300 5,413,005
Pier 1 Imports 345,700 5,980,610
Yankee Candle(a) 100,800 2,210,544
================================================================================
17,590,322
1.19 TELECOMMUNICATIONS EQUIPMENT
Anaren Microwave(a) 496,600 3,873,480
Polycom Inc(a) 268,500 3,074,325
Tekelec(a) 526,400 3,547,936
================================================================================
10,495,741
1.73 TRUCKING
J.B. Hunt Transport Services(a) 277,100 7,293,272
Yellow Corp(a) 320,700 8,017,500
================================================================================
15,310,772
TOTAL COMMON STOCKS (COST $872,930,623) 793,554,404
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
10.26 SHORT-TERM INVESTMENTS
9.04 COMMERCIAL PAPER
4.52 CONSUMER FINANCE
American General Finance, 1.730%, 8/2/2002 $ 40,000,000 $ 40,000,000
================================================================================
4.52 DIVERSIFIED FINANCIAL SERVICES
State Street, Discount Notes, 1.820%,
8/1/2002 $ 40,000,000 40,000,000
================================================================================
TOTAL COMMERCIAL PAPER (Amortized Cost $80,000,000) 80,000,000
================================================================================
1.22 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 7/31/2002 due 8/1/2002 at 1.800%,
repurchased at $10,689,534 (Collateralized
by Federal Home Loan Bank, Consolidated
Notes, due 5/14/2004 at 3.375%, value
$10,922,293)(Cost $10,689,000) $ 10,689,000 10,689,000
================================================================================
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $90,689,000) 90,689,000
================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $963,619,623) $ 884,243,404
================================================================================
VALUE EQUITY FUND
92.15 COMMON STOCKS
3.61 AEROSPACE & DEFENSE
Honeywell International 48,700 $ 1,575,932
L-3 Communications Holdings(a) 7,100 328,162
Lockheed Martin 10,200 653,922
United Technologies 28,000 1,946,000
================================================================================
4,504,016
1.19 ALUMINUM
Alcoa Inc 55,100 1,490,455
================================================================================
1.19 AUTOMOBILE MANUFACTURERS
General Motors 32,000 1,489,600
================================================================================
10.69 BANKS
Bank of America 60,264 4,007,556
Bank One 69,300 2,696,463
FleetBoston Financial 45,400 1,053,280
Mellon Financial 80,300 2,134,374
Wells Fargo & Co 67,700 3,443,222
================================================================================
13,334,895
1.89 BREWERS
Anheuser-Busch Cos 45,600 2,357,976
================================================================================
1.24 COMPUTER HARDWARE
International Business Machines 21,900 1,541,760
================================================================================
2.09 DIVERSIFIED CHEMICALS
Dow Chemical 51,100 1,475,257
Olin Corp 61,000 1,131,550
================================================================================
2,606,807
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
4.43 DIVERSIFIED FINANCIAL SERVICES
Citigroup Inc 121,226 $ 4,065,920
JP Morgan Chase & Co 58,800 1,467,648
================================================================================
5,533,568
0.63 DIVERSIFIED METALS & MINING
Phelps Dodge 23,100 789,558
================================================================================
3.24 ELECTRIC UTILITIES
Dominion Resources 34,900 2,074,456
Entergy Corp 16,500 668,745
FPL Group 11,600 657,140
TXU Corp 14,900 642,637
================================================================================
4,042,978
1.30 ELECTRICAL COMPONENTS & EQUIPMENT
SPX Corp(a) 15,500 1,619,750
================================================================================
1.72 GENERAL MERCHANDISE STORES
Target Corp 64,200 2,141,070
================================================================================
1.24 HOME IMPROVEMENT RETAIL
Lowe's Cos 40,800 1,544,280
================================================================================
1.35 HOUSEHOLD PRODUCTS
Procter & Gamble 18,900 1,681,911
================================================================================
3.10 INDUSTRIAL CONGLOMERATES
General Electric 120,000 3,864,000
================================================================================
1.20 INDUSTRIAL GASES
Praxair Inc 28,600 1,495,780
================================================================================
3.56 INDUSTRIAL MACHINERY
Illinois Tool Works 33,715 2,224,853
ITT Industries 34,700 2,216,636
================================================================================
4,441,489
2.70 INSURANCE BROKERS
Marsh & McLennan 70,400 3,372,160
================================================================================
8.33 INTEGRATED OIL & GAS
Amerada Hess 19,700 1,347,480
BP PLC Sponsored ADR Representing 6 Ord Shrs 60,000 2,784,000
ChevronTexaco Corp 20,000 1,500,000
Exxon Mobil 129,600 4,764,096
================================================================================
10,395,576
3.90 INTEGRATED TELECOMMUNICATION SERVICES
BellSouth Corp 50,000 1,342,500
SBC Communications 64,902 1,795,189
Verizon Communications 52,500 1,732,500
================================================================================
4,870,189
6.78 INVESTMENT ADVISER/BROKER DEALER SERVICES
Goldman Sachs Group 26,300 1,923,845
Lehman Brothers Holdings 43,900 2,489,569
Merrill Lynch & Co 84,200 3,001,730
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Stilwell Financial 77,000 $ 1,043,350
================================================================================
8,458,494
1.38 IT CONSULTING & SERVICES
Veridian Corp(a) 86,900 1,724,965
================================================================================
1.85 MARINE
Tsakos Energy Navigation Ltd(a) 196,100 2,310,058
================================================================================
1.59 MULTI-LINE INSURANCE
Allmerica Financial 72,600 1,981,980
================================================================================
0.93 OIL & GAS DRILLING
GlobalSantaFe Corp 18,800 423,752
Noble Corp(a) 22,700 735,480
================================================================================
1,159,232
1.02 OIL & GAS EXPLORATION & PRODUCTION
Kerr-McGee Corp 27,300 1,276,821
================================================================================
1.54 PACKAGED FOODS
H.J. Heinz 50,000 1,922,500
================================================================================
2.26 PAPER PRODUCTS
Bowater Inc 33,500 1,527,265
International Paper 32,300 1,286,186
================================================================================
2,813,451
3.31 PHARMACEUTICALS
Pfizer Inc 70,000 2,264,500
Pharmacia Corp 41,700 1,865,658
================================================================================
4,130,158
2.04 PROPERTY & CASUALTY INSURANCE
Travelers Property Casualty Class A Shrs(a) 156,300 2,547,690
================================================================================
1.75 PUBLISHING & PRINTING
McGraw-Hill Cos 35,000 2,189,250
================================================================================
1.11 RAILROADS
Union Pacific 23,700 1,390,479
================================================================================
2.72 SEMICONDUCTORS
Intel Corp 91,200 1,713,648
Texas Instruments 72,600 1,680,690
================================================================================
3,394,338
0.94 SPECIALTY CHEMICALS
Potash Corp of Saskatchewan 21,500 1,174,975
================================================================================
1.81 TELECOMMUNICATIONS EQUIPMENT
General Motors Class H Shrs(a) 65,000 643,500
Nokia Corp Sponsored ADR Representing Ord Shrs 130,000 1,612,000
================================================================================
2,255,500
2.52 TOBACCO
Philip Morris 68,300 3,145,215
================================================================================
TOTAL COMMON STOCKS (COST $112,837,593) 114,992,924
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
7.85 SHORT-TERM INVESTMENTS -- REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 7/31/2002 due 8/1/2002 at 1.800%,
repurchased at $9,795,490 (Collateralized
by Federal Home Loan Bank, Consolidated
Discount Notes, due 10/25/2002, value
$9,992,665) (Cost $9,795,000) $ 9,795,000 $ 9,795,000
================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $122,632,593) $ 124,787,924
================================================================================
(a) Security is non-income producing.
(b) Security is an affiliated company (See Notes).
(c) Loaned security, a portion or all of the security is on loan at July 31,
2002.
(d) Securities acquired pursuant to Rule 144A. The Fund deems such securities
to be "liquid" because an institutional market exists.
(e) All common stock securities have been designated as collateral for futures
contracts.
(f) Security has been designated as collateral for variation margin on futures
contracts.
(g) HOLDRs - Holding Company Depository Receipts
(h) The following is a restricted security at July 31, 2002:
SCHEDULE OF RESTRICTED OR ILLIQUID SECURITIES
VALUE AS
ACQUISITION ACQUISITION % OF
DESCRIPTION DATE COST NET ASSETS
- --------------------------------------------------------------------------------
INVESCO ENDEAVOR FUND
Calient Networks, Pfd, Series D Shrs 12/8/00 $ 648,056 0.09%
================================================================================
FUTURES CONTRACTS
OPEN AT JULY 31, 2002
NUMBER OF FACE MARKET
POSITION CONTRACTS AMOUNT VALUE
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND
S&P 500 Index
(Expires September 2002) Long 20 $ 5,000 $ 4,557,500
================================================================================
See Notes to Financial Statements
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
INVESCO STOCK FUNDS, INC.
JULY 31, 2002
DYNAMICS GROWTH
FUND FUND
- -----------------------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 4,413,790,618 $ 629,991,083
===============================================================================================
At Value(a) $ 4,000,777,701 $ 548,198,235
Receivables:
Investment Securities Sold 25,292,521 15,759,466
Fund Shares Sold 27,612,713 604,492
Dividends and Interest 597,777 189,254
Loans to Affiliated Funds (Note 6) 1,130,000 0
Other Investments (Note 5) 81,374,022 0
Prepaid Expenses and Other Assets 507,020 173,084
===============================================================================================
TOTAL ASSETS 4,137,291,754 564,924,531
===============================================================================================
LIABILITIES
Payables:
Custodian 224,918 50,139
Investment Securities Purchased 62,936,977 26,937,340
Fund Shares Repurchased 217,579,879 5,621,915
Securities Loaned 81,374,022 0
Accrued Distribution Expenses
Investor Class 826,404 115,109
Class A 569 26
Class B 299 31
Class C 16,806 3,278
Class K 17,372 1,105
Accrued Expenses and Other Payables 388,760 147,832
===============================================================================================
TOTAL LIABILITIES 363,366,006 32,876,775
===============================================================================================
NET ASSETS AT VALUE $ 3,773,925,748 $ 532,047,756
===============================================================================================
NET ASSETS
Paid-in Capital(b) $ 7,866,862,642 $ 2,099,243,594
Accumulated Undistributed Net Investment Loss (254,274) (101,824)
Accumulated Undistributed Net Realized Loss on
Investment Securities and Foreign Currency
Transactions (3,679,669,879) (1,485,301,166)
Net Depreciation of Investment Securities
and Foreign Currency Transactions (413,012,741) (81,792,848)
===============================================================================================
NET ASSETS AT VALUE, Applicable to Shares
Outstanding $ 3,773,925,748 $ 532,047,756
===============================================================================================
NET ASSETS AT VALUE:
Institutional Class $ 25,132,867 --
===============================================================================================
Investor Class $ 3,688,212,581 $ 525,365,269
===============================================================================================
Class A $ 2,005,596 $ 86,531
===============================================================================================
Class B $ 389,634 $ 39,331
===============================================================================================
Class C $ 13,440,450 $ 3,668,900
===============================================================================================
Class K $ 44,744,620 $ 2,887,725
===============================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO STOCK FUNDS, INC.
JULY 31, 2002
DYNAMICS GROWTH
FUND FUND
(CONTINUED) (CONTINUED)
- ------------------------------------------------------------------------------------------------
Shares Outstanding
Institutional Class 2,309,341 --
Investor Class 341,270,695 319,908,636
Class A 185,290 52,839
Class B 36,139 24,060
Class C 1,268,561 2,296,072
Class K 4,156,776 1,926,300
================================================================================================
NET ASSET VALUE PER SHARE:
Institutional Class, Offering and Redemption Price
per Share $ 10.88 --
Investor Class, Offering and Redemption Price
per Share $ 10.81 $ 1.64
Class A
Redemption Price per Share $ 10.82 $ 1.64
Offering Price per Share (Maximum sales charge
of 5.50%) $ 11.45 $ 1.74
Class B, Offering and Redemption Price per Share $ 10.78 $ 1.63
Class C, Offering and Redemption Price per Share $ 10.60 $ 1.60
Class K, Offering and Redemption Price per Share $ 10.76 $ 1.50
================================================================================================
(a) Investment securities at cost and value at July 31, 2002 include repurchase
agreements of $56,461,000 and $5,491,000 for Dynamics and Growth Funds,
respectively.
(b) The INVESCO Stock Funds, Inc. have 9 billion authorized shares of common
stock, par value of $0.01 per share. Of such shares, 2.4 billion have been
allocated to Dynamics Fund and 2.6 billion to Growth Fund: 200 million to
Dynamics Fund - Institutional Class, 1 billion to Dynamics Fund - Investor
Class, 300 million to Dynamics Fund - Class A, 300 million to Dynamics Fund
- Class B, 300 million to Dynamics Fund - Class C, 300 million to Dynamics
Fund - Class K, 1 billion to Growth Fund - Investor Class, 400 million to
Growth Fund - Class A, 400 million to Growth Fund - Class B, 400 million to
Growth Fund - Class C and 400 million to Growth Fund - Class K.
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO STOCK FUNDS, INC.
JULY 31, 2002
INVESCO
GROWTH & ENDEAVOR
INCOME FUND FUND
- -----------------------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 52,790,618 $ 64,057,368
===============================================================================================
At Value(a) $ 45,072,007 $ 61,498,000
Cash 687,870 119,286
Receivables:
Investment Securities Sold 0 1,911,222
Fund Shares Sold 75,263 48,303
Dividends and Interest 12,087 17,511
Other Investments (Note 5) 0 1,768,780
Prepaid Expenses and Other Assets 16,032 19,447
===============================================================================================
TOTAL ASSETS 45,863,259 65,382,549
===============================================================================================
LIABILITIES
Payables:
Investment Securities Purchased 434,458 3,346,043
Fund Shares Repurchased 47,961 570,996
Securities Loaned 0 1,768,780
Accrued Distribution Expenses
Investor Class 9,896 12,960
Class A 13 21
Class B 2 1
Class C 978 867
Class K 21 1
Accrued Expenses and Other Payables 11,273 15,252
===============================================================================================
TOTAL LIABILITIES 504,602 5,714,921
===============================================================================================
NET ASSETS AT VALUE $ 45,358,657 $ 59,667,628
===============================================================================================
NET ASSETS
Paid-in Capital(b) $ 138,076,328 $ 271,169,077
Accumulated Undistributed Net Investment Loss (4,727) (5,285)
Accumulated Undistributed Net Realized Loss on
Investment Securities (84,910,742) (208,936,796)
Net Depreciation of Investment Securities (7,802,202) (2,559,368)
===============================================================================================
NET ASSETS AT VALUE, Applicable to Shares Outstanding $ 45,358,657 $ 59,667,628
===============================================================================================
NET ASSETS AT VALUE:
Investor Class $ 44,018,177 $ 58,652,386
===============================================================================================
Class A $ 45,445 $ 639
===============================================================================================
Class B $ 6,032 $ 917
===============================================================================================
Class C $ 1,230,608 $ 1,011,471
===============================================================================================
Class K $ 58,395 $ 2,215
===============================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO STOCK FUNDS, INC.
JULY 31, 2002
INVESCO
GROWTH & ENDEAVOR
INCOME FUND FUND
(CONTINUED) (CONTINUED)
- ------------------------------------------------------------------------------------------------
Shares Outstanding
Investor Class 7,082,379 11,103,925
Class A 7,304 113
Class B 974 174
Class C 201,884 194,867
Class K 9,417 420
================================================================================================
NET ASSET VALUE PER SHARE:
Investor Class, Offering and Redemption Price
per Share $ 6.22 $ 5.28
Class A
Redemption Price per Share $ 6.22 $ 5.65
Offering Price per Share (Maximum sales
charge of 5.50%) $ 6.58 $ 5.98
Class B, Offering and Redemption Price per Share $ 6.19 $ 5.27
Class C, Offering and Redemption Price per Share $ 6.10 $ 5.19
Class K, Offering and Redemption Price per Share $ 6.20 $ 5.27
================================================================================================
(a) Investment securities at cost and value at July 31, 2002 includes a
repurchase agreement of $5,287,000 for INVESCO Endeavor Fund.
(b) The INVESCO Stock Funds, Inc. have 9 billion authorized shares of common
stock, par value of $0.01 per share. Of such shares, 500 million have been
allocated to Growth & Income Fund and 500 million to INVESCO Endeavor Fund:
100 million to each Class.
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO STOCK FUNDS, INC.
JULY 31, 2002
SMALL
S&P 500 COMPANY
INDEX FUND FUND
- -----------------------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 164,450,106 $ 963,619,623
===============================================================================================
At Value(a) $ 135,592,752 $ 884,243,404
Cash 56,846 1,734
Receivables:
Investment Securities Sold 46 4,069,614
Fund Shares Sold 222,405 2,364,669
Dividends and Interest 134,143 114,207
Variation Margin on Futures Contracts 33,532 0
Other Investments (Note 5) 0 32,504,150
Prepaid Expenses and Other Assets 19,848 118,871
===============================================================================================
TOTAL ASSETS 136,059,572 923,416,649
===============================================================================================
LIABILITIES
Payables:
Distributions to Shareholders 6,837 0
Investment Securities Purchased 40,740 3,600,267
Fund Shares Repurchased 46,676 16,260,578
Securities Loaned 0 32,504,150
Accrued Distribution Expenses
Investor Class 28,278 180,292
Class A -- 826
Class B -- 57
Class C -- 2,762
Class K -- 26,085
Accrued Expenses and Other Payables 21,207 109,727
===============================================================================================
TOTAL LIABILITIES 143,738 52,684,744
===============================================================================================
NET ASSETS AT VALUE $ 135,915,834 $ 870,731,905
===============================================================================================
NET ASSETS
Paid-in Capital(b) $ 180,969,990 $ 1,628,100,947
Accumulated Undistributed Net Investment Income (Loss) 8,166 (55,787)
Accumulated Undistributed Net Realized Loss on
Investment Securities, Futures Contracts and
Option Contracts (16,213,263) (677,937,036)
Net Depreciation of Investment Securities and
Futures Contracts (28,849,059) (79,376,219)
===============================================================================================
NET ASSETS AT VALUE, Applicable to Shares Outstanding $ 135,915,834 $ 870,731,905
===============================================================================================
NET ASSETS AT VALUE:
Institutional Class $ 337,528 --
===============================================================================================
Investor Class $ 135,578,306 $ 800,519,741
===============================================================================================
Class A -- $ 2,606,593
===============================================================================================
Class B -- $ 66,903
===============================================================================================
Class C -- $ 1,087,311
===============================================================================================
Class K -- $ 66,451,357
===============================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO STOCK FUNDS, INC.
JULY 31, 2002
SMALL
S&P 500 COMPANY
INDEX FUND FUND
(CONTINUED) (CONTINUED)
- ------------------------------------------------------------------------------------------------
Shares Outstanding
Institutional Class 36,562 --
Investor Class 14,141,923 95,176,788
Class A -- 309,790
Class B -- 7,959
Class C -- 134,350
Class K -- 7,887,332
===============================================================================================
NET ASSET VALUE PER SHARE:
Institutional Class, Offering and Redemption
Price per Share $ 9.23 --
Investor Class, Offering and Redemption Price
per Share $ 9.59 $ 8.41
Class A
Redemption Price per Share -- $ 8.41
Offering Price per Share (Maximum sales
charge of 5.50%) -- $ 8.90
Class B, Offering and Redemption Price per Share -- $ 8.41
Class C, Offering and Redemption Price per Share -- $ 8.09
Class K, Offering and Redemption Price per Share -- $ 8.43
===============================================================================================
(a) Investment securities at cost and value at July 31, 2002 include repurchase
agreements of $3,741,000 and $10,689,000 for S&P 500 Index and Small
Company Growth Funds, respectively.
(b) The INVESCO Stock Funds, Inc. have 9 billion authorized shares of common
stock, par value of $0.01 per share. Of such shares, 200 million have been
allocated to S&P 500 Index Fund and 1.3 billion have been allocated to
Small Company Growth Fund: 100 million to S&P 500 Index Fund -
Institutional Class, 100 million to S&P 500 Index Fund - Investor Class,
500 million to Small Company Growth Fund - Investor Class, 200 million to
Small Company Growth Fund - Class A, 200 million to Small Company Growth
Fund - Class B, 200 million to Small Company Growth Fund - Class C and 200
million to Small Company Growth Fund - Class K.
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO STOCK FUNDS, INC.
JULY 31, 2002
VALUE
EQUITY
FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 122,632,593
================================================================================
At Value(a) $ 124,787,924
Receivables:
Investment Securities Sold 3,019,649
Fund Shares Sold 420,091
Dividends and Interest 132,018
Prepaid Expenses and Other Assets 19,783
================================================================================
TOTAL ASSETS 128,379,465
================================================================================
LIABILITIES
Payables:
Custodian 52,075
Distributions to Shareholders 2,845
Fund Shares Repurchased 851,674
Accrued Distribution Expenses
Investor Class 26,958
Class A 49
Class B 203
Class C 1,047
Accrued Expenses and Other Payables 43,200
================================================================================
TOTAL LIABILITIES 978,051
================================================================================
NET ASSETS AT VALUE $ 127,401,414
================================================================================
NET ASSETS
Paid-in Capital(b) $ 127,247,650
Accumulated Undistributed Net Investment Loss (16,773)
Accumulated Undistributed Net Realized Loss on
Investment Securities (1,984,794)
Net Appreciation of Investment Securities 2,155,331
================================================================================
NET ASSETS AT VALUE, Applicable to Shares Outstanding $ 127,401,414
================================================================================
NET ASSETS AT VALUE:
Investor Class $ 125,312,616
================================================================================
Class A $ 162,770
================================================================================
Class B $ 241,762
================================================================================
Class C $ 1,684,266
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO STOCK FUNDS, INC.
JULY 31, 2002
VALUE
EQUITY
FUND
(CONTINUED)
- --------------------------------------------------------------------------------
Shares Outstanding
Investor Class 7,722,514
Class A 10,119
Class B 14,938
Class C 105,973
================================================================================
NET ASSET VALUE PER SHARE:
Investor Class, Offering and Redemption Price per Share $ 16.23
Class A
Redemption Price per Share $ 16.09
Offering Price per Share (Maximum sales charge of 5.50%) $ 17.03
Class B, Offering and Redemption Price per Share $ 16.18
Class C, Offering and Redemption Price per Share $ 15.89
================================================================================
(a) Investment securities at cost and value at July 31, 2002 includes a
repurchase agreement of $9,795,000.
(b) The INVESCO Stock Funds, Inc. have 9 billion authorized shares of common
stock, par value of $0.01 per share. Of such shares, 500 million have been
allocated to Value Equity Fund: 100 million to each class.
See Notes to Financial Statements
STATEMENT OF OPERATIONS
INVESCO STOCK FUNDS, INC.
YEAR ENDED JULY 31, 2002 (NOTE 1)
DYNAMICS GROWTH
FUND FUND
- -----------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 13,312,387 $ 2,619,201
Dividends from Affiliated Investment Companies 1,475,840 0
Interest 3,397,156 206,448
Securities Loaned Income 403,188 41,319
Foreign Taxes Withheld (136,859) (19,880)
===============================================================================================
TOTAL INCOME 18,451,712 2,847,088
===============================================================================================
EXPENSES
Investment Advisory Fees 25,412,356 4,804,592
Distribution Expenses 13,950,019 2,196,936
Transfer Agent Fees 22,038,510 4,594,606
Administrative Services Fees 2,474,447 395,944
Custodian Fees and Expenses 624,078 149,251
Directors' Fees and Expenses 258,652 48,004
Interest Expenses 131,499 66,745
Professional Fees and Expenses 185,338 54,133
Registration Fees and Expenses - Institutional Class 12,775 --
Registration Fees and Expenses - Investor Class 1,055,414 305,516
Reports to Shareholders 1,123,324 711,798
Other Expenses 216,377 38,893
===============================================================================================
TOTAL EXPENSES 67,482,789 13,366,418
Fees and Expenses Absorbed/Reimbursed by
Investment Adviser (1,073,896) (298)
Fees and Expenses Paid Indirectly (567,099) (129,907)
===============================================================================================
NET EXPENSES 65,841,794 13,236,213
===============================================================================================
NET INVESTMENT LOSS (47,390,082) (10,389,125)
===============================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on:
Investment Securities (2,391,931,751) (937,036,510)
Foreign Currency Transactions (2,355,318) 0
===============================================================================================
Total Net Realized Loss (2,394,287,069) (937,036,510)
===============================================================================================
Change in Net Appreciation/Depreciation of:
Investment Securities 60,408,834 425,195,008
Foreign Currency Transactions 2,098,457 0
===============================================================================================
Total Change in Net Appreciation/Depreciation 62,507,291 425,195,008
===============================================================================================
NET LOSS ON INVESTMENT SECURITIES
AND FOREIGN CURRENCY TRANSACTIONS (2,331,779,778) (511,841,502)
===============================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS $ (2,379,169,860) $ (522,230,627)
===============================================================================================
See Notes to Financial Statements
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO STOCK FUNDS, INC.
YEAR ENDED JULY 31, 2002 (NOTE 1)
INVESCO
GROWTH & INCOME ENDEAVOR
FUND FUND
- ------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 359,823 $ 378,501
Interest 10,374 39,952
Securities Loaned Income 0 35,966
Foreign Taxes Withheld (1,325) (5,169)
================================================================================================
TOTAL INCOME 368,872 449,250
================================================================================================
EXPENSES
Investment Advisory Fees 529,870 843,408
Distribution Expenses 189,146 293,945
Transfer Agent Fees 692,789 1,258,165
Administrative Services Fees 41,792 60,604
Custodian Fees and Expenses 20,021 30,199
Directors' Fees and Expenses 12,265 14,126
Interest Expenses 569 4,129
Professional Fees and Expenses 23,422 24,741
Registration Fees and Expenses - Investor Class 31,527 47,750
Reports to Shareholders 175,696 331,540
Other Expenses 5,594 7,907
================================================================================================
TOTAL EXPENSES 1,722,691 2,916,514
Fees and Expenses Absorbed/Reimbursed by Investment Adviser (651,211) (1,219,926)
Fees and Expenses Paid Indirectly (103) (887)
================================================================================================
NET EXPENSES 1,071,377 1,695,701
================================================================================================
NET INVESTMENT LOSS (702,505) (1,246,451)
================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on Investment Securities (50,203,808) (89,108,502)
Change in Net Appreciation/Depreciation of
Investment Securities 17,515,562 18,225,710
================================================================================================
NET LOSS ON INVESTMENT SECURITIES (32,688,246) (70,882,792)
================================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS $ (33,390,751) $ (72,129,243)
================================================================================================
See Notes to Financial Statements
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO STOCK FUNDS, INC.
YEAR ENDED JULY 31, 2002 (NOTE 1)
SMALL
S&P 500 COMPANY
INDEX FUND GROWTH FUND
- ------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 1,855,374 $ 1,804,295
Dividends from Affiliated Investment Companies 0 1,403,493
Interest 141,498 1,864,657
Securities Loaned Income 0 188,106
Foreign Taxes Withheld (7,990) (6,564)
================================================================================================
TOTAL INCOME 1,988,882 5,253,987
================================================================================================
EXPENSES
Investment Advisory Fees 334,015 7,564,840
Distribution Expenses 332,989 3,086,763
Transfer Agent Fees 393,798 4,970,823
Administrative Services Fees 70,123 543,032
Custodian Fees and Expenses 37,966 152,390
Directors' Fees and Expenses 15,418 64,238
Interest Expenses 0 9,761
Professional Fees and Expenses 25,522 64,473
Registration Fees and Expenses - Institutional Class 13,488 --
Registration Fees and Expenses - Investor Class 32,795 276,391
Reports to Shareholders 108,905 332,622
Other Expenses 6,542 47,994
===============================================================================================
TOTAL EXPENSES 1,371,561 17,113,327
Fees and Expenses Absorbed/Reimbursed by
Investment Adviser (503,524) (14,378)
Fees and Expenses Paid Indirectly (307) (6,755)
================================================================================================
NET EXPENSES 867,730 17,092,194
================================================================================================
NET INVESTMENT INCOME (LOSS) 1,121,152 (11,838,207)
================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on:
Investment Securities (2,983,229) (344,145,052)
Futures Contracts (1,792,987) 0
Option Contracts 0 244,618
================================================================================================
Total Net Realized Loss (4,776,216) (343,900,434)
================================================================================================
Change in Net Appreciation/Depreciation of:
Investment Securities (33,156,128) (118,826,648)
Futures Contracts 23,854 0
================================================================================================
Total Change in Net Appreciation/Depreciation (33,132,274) (118,826,648)
================================================================================================
NET LOSS ON INVESTMENT SECURITIES,
FUTURES CONTRACTS AND OPTION CONTRACTS (37,908,490) (462,727,082)
================================================================================================
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (36,787,338) $ (474,565,289)
================================================================================================
See Notes to Financial Statements
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO STOCK FUNDS, INC.
YEAR ENDED JULY 31, 2002 (NOTE 1)
VALUE
EQUITY
FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 3,096,932
Interest 166,155
Foreign Taxes Withheld (26,010)
================================================================================
TOTAL INCOME 3,237,077
================================================================================
EXPENSES
Investment Advisory Fees 1,308,023
Distribution Expenses 446,373
Transfer Agent Fees 802,516
Administrative Services Fees 88,482
Custodian Fees and Expenses 26,750
Directors' Fees and Expenses 17,598
Interest Expenses 1,317
Professional Fees and Expenses 25,423
Registration Fees and Expenses - Investor Class 29,840
Reports to Shareholders 125,118
Other Expenses 8,545
================================================================================
TOTAL EXPENSES 2,879,985
Fees and Expenses Absorbed/Reimbursed by
Investment Adviser (603,576)
Fees and Expenses Paid Indirectly (395)
================================================================================
NET EXPENSES 2,276,014
================================================================================
NET INVESTMENT INCOME 961,063
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Loss on Investment Securities (276,900)
Change in Net Appreciation/Depreciation of
Investment Securities (36,981,073)
================================================================================
NET LOSS ON INVESTMENT SECURITIES (37,257,973)
================================================================================
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (36,296,910)
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
DYNAMICS FUND
YEAR ENDED JULY 31
- --------------------------------------------------------------------------------
2002 2001
(Note 1) (Note 1)
OPERATIONS
Net Investment Loss $ (47,390,082) $ (38,937,198)
Net Realized Loss (2,394,287,069) (1,078,630,430)
Change in Net Appreciation/Depreciation 62,507,291 (2,723,740,486)
================================================================================
NET DECREASE IN NET
ASSETS FROM OPERATIONS (2,379,169,860) (3,841,308,114)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Institutional Class (14,953) (64,349)
Investor Class (8,421,070) (26,080,699)
Class C (80,624) (58,525)
Class K (84,604) 0
================================================================================
TOTAL DISTRIBUTIONS (8,601,251) (26,203,573)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Institutional Class 35,692,949 1,760,000
Investor Class 14,256,183,765 9,422,415,412
Class A 8,734,823 --
Class B 500,161 --
Class C 1,220,215,124 276,450,384
Class K 80,446,673 6,601
Reinvestment of Distributions
Institutional Class 14,947 64,342
Investor Class 8,219,289 25,775,697
Class C 52,260 55,355
Class K 81,490 0
================================================================================
15,610,141,481 9,726,527,791
Amounts Paid for Repurchases of Shares
Institutional Class (9,426,772) (4,252,239)
Investor Class (14,785,336,080) (6,901,667,149)
Class A (6,288,847) --
Class B (4,882) --
Class C (1,229,382,393) (243,371,492)
Class K (20,987,745) (54)
================================================================================
(16,051,426,719) (7,149,290,934)
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (441,285,238) 2,577,236,857
================================================================================
TOTAL DECREASE IN NET ASSETS (2,829,056,349) (1,290,274,830)
NET ASSETS
Beginning of Period 6,602,982,097 7,893,256,927
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss of
($254,274) and ($212,917),
respectively) $ 3,773,925,748 $ 6,602,982,097
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
GROWTH FUND
YEAR ENDED JULY 31
- --------------------------------------------------------------------------------
2002 2001
(Note 1) (Note 1)
OPERATIONS
Net Investment Loss $ (10,389,125) $ (17,311,009)
Net Realized Loss (937,036,510) (514,574,564)
Change in Net Appreciation/Depreciation 425,195,008 (949,198,952)
================================================================================
NET DECREASE IN NET
ASSETS FROM OPERATIONS (522,230,627) (1,481,084,525)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (8,433,763) (286,517,749)
Class C (67,169) (1,285,704)
Class K (37,778) 0
================================================================================
TOTAL DISTRIBUTIONS (8,538,710) (287,803,453)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 682,767,593 2,301,288,528
Class A 117,396 --
Class B 48,462 --
Class C 6,388,175 23,759,247
Class K 8,562,546 9,993
Reinvestment of Distributions
Investor Class 7,887,172 263,067,424
Class C 63,610 1,216,606
Class K 37,714 0
================================================================================
705,872,668 2,589,341,798
Amounts Paid for Repurchases of Shares
Investor Class (891,104,786) (1,563,899,890)
Class A (2,256) --
Class C (7,911,299) (8,288,445)
Class K (4,195,177) 0
================================================================================
(903,213,518) (1,572,188,335)
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (197,340,850) 1,017,153,463
================================================================================
TOTAL DECREASE IN NET ASSETS (728,110,187) (751,734,515)
NET ASSETS
Beginning of Period 1,260,157,943 2,011,892,458
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss of
($101,824) and ($99,757),
respectively) $ 532,047,756 $ 1,260,157,943
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
GROWTH & INCOME FUND
YEAR ENDED JULY 31
- --------------------------------------------------------------------------------
2002 2001
(Note 1) (Note 1)
OPERATIONS
Net Investment Loss $ (702,505) $ (1,615,364)
Net Realized Loss (50,203,808) (32,144,000)
Change in Net Appreciation/Depreciation 17,515,562 (54,965,496)
================================================================================
NET DECREASE IN NET
ASSETS FROM OPERATIONS (33,390,751) (88,724,860)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (870,866) (8,639,870)
Class C (20,943) (96,137)
Class K (149) 0
================================================================================
TOTAL DISTRIBUTIONS (891,958) (8,736,007)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 63,165,278 209,999,965
Class A 54,987 --
Class B 5,991 --
Class C 2,714,384 5,515,111
Class K 70,795 11,723
Reinvestment of Distributions
Investor Class 841,595 8,387,847
Class C 20,675 94,796
Class K 148 0
================================================================================
66,873,853 224,009,442
Amounts Paid for Repurchases of Shares
Investor Class (74,932,736) (234,625,892)
Class A (207) --
Class C (2,855,444) (3,332,109)
Class K (5,264) (546)
================================================================================
(77,793,651) (237,958,547)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (10,919,798) (13,949,105)
================================================================================
TOTAL DECREASE IN NET ASSETS (45,202,507) (111,409,972)
NET ASSETS
Beginning of Period 90,561,164 201,971,136
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment
Loss of ($4,727) and ($4,609),
respectively) $ 45,358,657 $ 90,561,164
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
INVESCO ENDEAVOR FUND
YEAR ENDED JULY 31
- --------------------------------------------------------------------------------
2002 2001
(Note 1) (Note 1)
OPERATIONS
Net Investment Loss $ ( 1,246,451) $ (3,694,094)
Net Realized Loss (89,108,502) (100,219,094)
Change in Net Appreciation/Depreciation 18,225,710 (121,011,690)
================================================================================
NET DECREASE IN NET
ASSETS FROM OPERATIONS (72,129,243) (224,924,878)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (13,371) (7,826,514)
Class C (196) (99,462)
================================================================================
TOTAL DISTRIBUTIONS (13,567) (7,925,976)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 165,169,619 409,849,729
Class A 2,380,021 --
Class B 1,485 --
Class C 1,562,719 8,625,942
Class K 2,574 1,000
Reinvestment of Distributions
Investor Class 12,462 7,571,388
Class C 182 97,234
================================================================================
169,129,062 426,145,293
Amounts Paid for Repurchases of Shares
Investor Class (197,497,474) (416,804,053)
Class A (2,278,068) --
Class C (1,824,148) (5,356,195)
Class K (35) 0
================================================================================
(201,599,725) (422,160,248)
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (32,470,663) 3,985,045
================================================================================
TOTAL DECREASE IN NET ASSETS (104,613,473) (228,865,809)
NET ASSETS
Beginning of Period 164,281,101 393,146,910
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss
($5,285) and ($5,146),
respectively) $ 59,667,628 $ 164,281,101
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
S&P 500 INDEX FUND
YEAR ENDED JULY 31
- --------------------------------------------------------------------------------
2002 2001
OPERATIONS
Net Investment Loss $ 1,121,152 $ 795,628
Net Realized Loss (4,776,216) (10,045,619)
Change in Net Appreciation/Depreciation (33,132,274) (8,095,913)
================================================================================
NET DECREASE IN NET
ASSETS FROM OPERATIONS (36,787,338) (17,345,904)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Institutional Class (6,932) (80,960)
Investor Class (1,112,643) (2,015,912)
================================================================================
TOTAL DISTRIBUTIONS (1,119,575) (2,096,872)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Institutional Class 60,055 3,145,596
Investor Class 113,976,490 120,500,794
Reinvestment of Distributions
Institutional Class 6,932 80,960
Investor Class 1,086,073 1,980,650
================================================================================
115,129,550 125,708,000
Amounts Paid for Repurchases of Shares
Institutional Class (153,889) (4,939,506)
Investor Class (58,005,970) (79,884,123)
================================================================================
(58,159,859) (84,823,629)
NET INCREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 56,969,691 40,884,371
================================================================================
TOTAL INCREASE IN NET ASSETS 19,062,778 21,441,595
NET ASSETS
Beginning of Period 116,853,056 95,411,461
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income of
$8,166 and $6,460, respectively) $ 135,915,834 $ 116,853,056
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
SMALL COMPANY GROWTH FUND
YEAR ENDED JULY 31
- --------------------------------------------------------------------------------
2002 2001
(Note 1)
OPERATIONS
Net Investment Loss $ (11,838,207) $ ( 4,083,737)
Net Realized Loss (343,900,434) (318,953,447)
Change in Net Appreciation/Depreciation (118,826,648) (142,743,589)
================================================================================
NET DECREASE IN NET
ASSETS FROM OPERATIONS (474,565,289) (465,780,773)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class 0 (82,131,248)
Class C 0 (128,945)
================================================================================
Total Distributions 0 (82,260,193)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 1,668,964,619 2,522,761,344
Class A 5,175,121 --
Class B 83,804 --
Class C 242,988,367 13,360,651
Class K 97,590,130 --
Reinvestment of Distributions
Investor Class 0 79,745,135
Class C 0 128,101
================================================================================
2,014,802,041 2,615,995,231
Amounts Paid for Repurchases of Shares
Investor Class (1,817,548,640) (2,100,702,067)
Class A (2,036,706) --
Class C (242,505,249) (12,477,195)
Class K (4,561,049) --
================================================================================
(2,066,651,644) (2,113,179,262)
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (51,849,603) 502,815,969
================================================================================
TOTAL DECREASE IN NET ASSETS (526,414,892) (45,224,997)
NET ASSETS
Beginning of Period 1,397,146,797 1,442,371,794
================================================================================
End of Period (Including
Accumulated Undistributed Net
Investment Loss of ($55,787)
and ($45,709), respectively) $ 870,731,905 $ 1,397,146,797
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
VALUE EQUITY FUND
YEAR ENDED JULY 31
- --------------------------------------------------------------------------------
2002 2001
(Note 1)
OPERATIONS
Net Investment Loss $ 961,063 $ 1,100,851
Net Realized Gain (Loss) (276,900) 7,791,525
Change in Net Appreciation/Depreciation (36,981,073) (9,963,843)
================================================================================
NET DECREASE IN NET
ASSETS FROM OPERATIONS (36,296,910) (1,071,467)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (7,145,493) (43,885,630)
Class A (1,496) --
Class B (1,972) --
Class C (40,643) (113,944)
================================================================================
TOTAL DISTRIBUTIONS (7,189,604) (43,999,574)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 234,949,185 363,067,005
Class A 194,149 --
Class B 294,702 --
Class C 15,133,201 15,855,600
Reinvestment of Distributions
Investor Class 7,004,884 40,382,445
Class A 1,049 --
Class B 1,907 --
Class C 38,509 112,157
================================================================================
257,617,586 419,417,207
Amounts Paid for Repurchases of Shares
Investor Class (272,467,187) (408,530,793)
Class A (2,898) --
Class B (5,125) --
Class C (14,183,369) (14,926,324)
================================================================================
(286,658,579) (423,457,117)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (29,040,993) (4,039,910)
================================================================================
TOTAL DECREASE IN NET ASSETS (72,527,507) (49,110,951)
NET ASSETS
Beginning of Period 199,928,921 249,039,872
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss
of ($16,773) and ($22,717),
respectively) $ 127,401,414 $ 199,928,921
================================================================================
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
INVESCO STOCK FUNDS, INC.
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Stock Funds,
Inc. is incorporated in Maryland and presently consists of seven separate Funds:
Dynamics Fund, Growth Fund, Growth & Income Fund, INVESCO Endeavor Fund, S&P 500
Index Fund, Small Company Growth Fund and Value Equity Fund (individually the
"Fund" and collectively, the "Funds"). The investment objectives of the Funds
are: to seek long-term capital growth for Dynamics, Growth, INVESCO Endeavor and
Small Company Growth Funds; to seek a high rate of total return from capital
appreciation plus income on investments for Growth & Income Fund; to provide
both price performance and income comparable to the Standard and Poor's 500
Composite Stock Price Index for the S&P 500 Index Fund; and to achieve a high
total return on investments from capital appreciation and current income for
Value Equity Fund. INVESCO Stock Funds, Inc. is registered under the Investment
Company Act of 1940 (the "Act") as a diversified, open-end management investment
company.
Effective April 1, 2002, Small Company Growth Fund - Investor Class reopened to
investors.
Effective April 1, 2002, Dynamics, Growth, Growth & Income, INVESCO Endeavor,
Small Company Growth and Value Equity Funds began offering two additional
classes of shares, referred to as Class A and Class B shares. Effective December
17, 2001, Small Company Growth Fund and effective December 1, 2000, Dynamics,
Growth, Growth & Income and INVESCO Endeavor Funds began offering an additional
class of shares, referred to as Class K shares. Value Equity Fund's Class K
shares were effective August 31, 2001. Income, expenses (other than those
attributable to a specific class) and realized and unrealized gains and losses
are allocated daily to each class of shares based on the relative proportion of
net assets represented by such class. Operating expenses directly attributable
to a specific class are charged against operations of that class. Class A shares
are sold with a front-end sales charge ranging from 5.50% to 2.00% of the
offering price on purchases of less than $1,000,000. Class B shares and Class C
shares are subject to a contingent deferred sales charge paid by the redeeming
shareholder. Class B shares convert to Class A shares after eight years along
with a pro rata portion of its reinvested dividends and distributions. Certain
prior year information has been restated to conform to current year
presentation.
Effective April 1, 2002, the Investor Class shares are offered only to
grandfathered investors who have established and maintained an account in any of
the funds managed and distributed by INVESCO Funds Group, Inc. ("IFG") in
Investor Class shares prior to April 1, 2002.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
A. SECURITY VALUATION -- Equity securities and futures contracts traded on
national securities exchanges or in the over-the-counter market are valued at
the last sales price at the close of the regular trading day on the exchange
(generally 4:00 p.m. Eastern time) where such securities are primarily traded.
If last sales prices are not available, securities are valued at the highest
closing bid prices at the close of the regular trading day as obtained from one
or more dealers making a market for such securities or by a pricing service
approved by the Fund's board of directors.
Foreign securities are valued at the closing price on the principal stock
exchange on which they are traded. In the event that closing prices are not
available for foreign securities, prices will be obtained from the principal
stock exchange at or prior to the close of the New York Stock Exchange. Foreign
currency exchange rates are determined daily prior to the close of the New York
Stock Exchange.
Option contracts are valued at the average of the closing bid and ask prices
from the exchange with the highest trading volume on that particular day.
Investments in shares of investment companies are valued at the net asset value
of the respective fund as calculated each day.
If market quotations or pricing service valuations are not readily available,
securities are valued at fair value as determined in good faith under procedures
established by the Fund's board of directors. Restricted and illiquid securities
are valued in accordance with procedures established by the Fund's board of
directors.
Short-term securities are stated at amortized cost (which approximates market
value) if maturity is 60 days or less at the time of purchase, or market value
if maturity is greater than 60 days.
Assets and liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the date of valuation.
B. FUTURES CONTRACTS -- The Funds may enter into futures contracts for
non-speculative purposes. Upon entering into a contract, the Fund deposits and
maintains initial margin deposits as required by the broker upon entering into
futures contracts. The Fund agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in the value of the contract. Such
receipts or payments are known as "variation margin" and are recorded by the
Fund as variation margin receivable or payable on futures contracts. During the
period the futures contracts are open, changes in the value of the contracts are
recognized on a daily basis to reflect the market value of the contracts at the
end of each day's trading and are recorded as unrealized gain or loss. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The Fund's use of futures contracts may subject
it to certain risks as a result of unanticipated movements in the market. In
addition, there can be no assurance that a liquid secondary market will exist
for any contract purchased or sold. Securities designated as collateral for
market value on futures contracts are noted in the Statement of Investment
Securities.
C. REPURCHASE AGREEMENTS -- Repurchase agreements held by the Fund are fully
collateralized by securities issued by the U.S. Government, its agencies or
instrumentalities and such collateral is in the possession of the Fund's
custodian. The collateral is evaluated daily to ensure its market value exceeds
the current market value of the repurchase agreements including accrued
interest. In the event of default on the obligation to repurchase, the Fund has
the right to liquidate the collateral and apply the proceeds in satisfaction of
the obligation.
D. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Interest income, which may be comprised of stated coupon rate,
market discount, original issue discount or amortized premium, is recorded on
the accrual basis. Cost is determined on the specific identification basis.
Certain dividends from foreign securities will be recorded as soon as the Fund
is informed of the dividend if such information is obtained subsequent to the
ex-dividend date. Investment income received from foreign sources may be subject
to foreign withholding taxes. Dividend and interest income is shown gross of
foreign withholding taxes in the accompanying financial statements. Income and
expenses on foreign securities are translated into U.S. dollars at rates of
exchange prevailing when accrued. The cost of foreign securities is translated
into U.S. dollars at the rates of exchange prevailing when such securities are
acquired.
Each Fund may invest in securities issued by other INVESCO investment companies
that invest in short-term debt securities and seek to maintain a net asset value
of one dollar per share. During the year ended July 31, 2002, Dynamics and Small
Company Growth Funds invested in INVESCO Treasurer's Series Money Market Reserve
Fund. The income from this investment is recorded in the Statement of
Operations.
The Fund may have elements of risk due to investments in specific industries or
foreign issuers located in a specific country. Such investments may subject the
Fund to additional risks resulting from future political or economic conditions
and/or possible impositions of adverse foreign governmental laws or currency
exchange restrictions. Net realized and unrealized gain or loss from investment
securities includes fluctuations from currency exchange rates and fluctuations
in market value.
The Fund's use of short-term forward foreign currency contracts may subject it
to certain risks as a result of unanticipated movements in foreign exchange
rates. The Fund does not hold short-term forward foreign currency contracts for
trading purposes. The Fund may hold foreign currency in anticipation of settling
foreign security transactions and not for investment purposes.
Restricted securities held by a Fund may not be sold except in exempt
transactions or in a public offering registered under the Securities Act of
1933. The risk of investing in such securities is generally greater than the
risk of investing in the securities of widely held, publicly traded companies.
Lack of a secondary market and resale restrictions may result in the inability
of a Fund to sell a security at a fair price and may substantially delay the
sale of the security which each Fund seeks to sell. In addition, these
securities may exhibit greater price volatility than securities for which
secondary markets exist.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded by the Fund on the ex-dividend/distribution date. The
Fund distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers.
F. TAX INFORMATION -- The Fund has complied, and continues to comply, with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and, accordingly, has made or intends to make sufficient distributions
of net investment income and net realized capital gains, if any, to relieve it
from all federal and state income taxes and federal excise taxes.
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal income tax purposes, taxable
as ordinary income to shareholders. The tax composition of distributions from
ordinary income, long-term capital gains and of the ordinary income
distributions declared for the year ended July 31, 2002, amounts qualifying for
the dividends received deduction available to the Fund's corporate shareholders
were as follows:
ORDINARY INCOME LONG-TERM CAPITAL QUALIFYING
FUND DISTRIBUTIONS GAIN DISTRIBUTIONS PERCENTAGE
- --------------------------------------------------------------------------------
Dynamics Fund $ 0 $ 8,601,251 0.00%
Growth Fund 0 8,538,710 0.00%
Growth & Income Fund 0 891,958 0.00%
INVESCO Endeavor Fund 0 13,567 0.00%
S&P 500 Index Fund 1,119,575 0 100.00%
Value Equity Fund 949,901 6,239,703 100.00%
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from accounting principles generally accepted
in the United States. The Fund may use a tax accounting practice to treat a
portion of the price of capital shares redeemed during the year as a dividends
paid deduction from net investment income and realized captial gains. For the
fiscal year ended July 31, 2002, Value Equity Fund used this practice and
generated a long-term capital gain dividends paid deduction of $6,240,797.
During the current fiscal year, the Fund adopted the revised AICPA Audit and
Accounting Guide, AUDITS OF INVESTMENT COMPANIES, which requires disclosure of
tax components. The tax components of the Fund at July 31, 2002 include:
NET TAX
COST OF GROSS TAX GROSS TAX APPRECIATION
INVESTMENTS FOR UNREALIZED UNREALIZED (DEPRECIATION)
FUND TAX PURPOSES APPRECIATION DEPRECIATION ON INVESTMENTS
- ----------------------------------------------------------------------------------------------------
Dynamics Fund $4,519,373,696 $440,886,698 $959,482,693 $(518,595,995)
Growth Fund 647,961,121 18,238,625 118,001,511 (99,762,886)
Growth & Income Fund 53,548,879 2,455,302 10,932,174 (8,476,872)
INVESCO Endeavor Fund 64,738,284 4,231,292 7,471,576 (3,240,284)
S&P 500 Index Fund 170,786,354 4,574,791 39,768,393 (35,193,602)
Small Company Growth Fund 975,536,335 87,003,694 178,296,625 (91,292,931)
Value Equity Fund 123,462,052 21,228,420 19,902,548 1,325,872
ACCUMULATED CUMULATIVE EFFECT
UNDISTRIBUTED ACCUMULATED CAPITAL LOSS OF OTHER
FUND ORDINARY INCOME CAPITAL GAINS CARRYOVERS TIMING DIFFERENCES
- ----------------------------------------------------------------------------------------------------
Dynamics Fund $ 0 $ 0 $(1,741,337,396) $(1,833,003,679)
Growth Fund 0 0 (1,095,444,617) (371,988,335)
Growth & Income Fund 0 0 (40,128,863) (44,111,936)
INVESCO Endeavor Fund 0 0 (160,788,898) (47,472,267)
S&P 500 Index Fund 12,605 0 (5,495,760) (4,377,399)
Small Company Growth Fund 0 0 (415,820,392) (250,255,719)
Value Equity Fund 14,054 1,111 0 (1,187,273)
The primary difference between book and tax appreciation/depreciation is wash
sale loss deferrals. The net tax appreciation/depreciation on investments
excludes the effect of foreign currency transactions and futures contracts.
Capital loss carryovers expire in the years 2006, 2009 and 2010. To the extent
future capital gains and income are offset by capital loss carryovers and
deferred post-October 31 losses, such gains and income will not be distributed
to shareholders.
The cumulative effect of other timing differences includes deferred post-October
31 capital and currency losses, deferred director's fees and foreign currency
contracts. Deferred post-October 31 capital and currency losses are: Dynamics
Fund $1,832,751,014, Growth Fund $371,886,511, Growth & Income Fund $44,107,209,
INVESCO Endeavor Fund $47,466,982, S&P 500 Index Fund $4,372,960, Small Company
Growth Fund $250,199,934 and Value Equity Fund $1,156,446.
Due to inherent differences in the recognition of income, expenses and realized
gains/losses under accounting principles generally accepted in the United States
and Federal income tax purposes, permanent and temporary differences between
book and tax basis reporting have been identified and appropriately reclassified
on the Statement of Assets and Liabilities. Dynamics, Growth, Growth & Income,
INVESCO Endeavor and Small Company Growth Funds reclassified $47,352,175,
$10,387,058, $702,387, $1,246,312 and $11,828,052 of net investment losses to
paid-in capital.
G. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund enters into short-term forward
foreign currency contracts in connection with planned purchases or sales of
securities as a hedge against fluctuations in foreign exchange rates pending the
settlement of transactions in foreign securities. A forward foreign currency
contract is an agreement between contracting parties to exchange an amount of
currency at some future time at an agreed upon rate. These contracts are
marked-to-market daily and the related appreciation or depreciation of the
contracts is presented in the Statement of Assets and Liabilities. Any realized
gain or loss incurred by the Fund upon the sale of securities is included in the
Statement of Operations.
H. OPTION CONTRACTS -- The Fund may buy or write put and call options, including
securities index options, on portfolio securities for hedging purposes or as a
substitute for an investment. The Fund generally invests in options to hedge
against adverse movements in the value of portfolio holdings.
When an option is written, the Fund receives a premium and becomes obligated to
sell or purchase the underlying security at a fixed price, upon exercise of the
option. In writing an option, the Fund bears the market risk of an unfavorable
change in the price of the security underlying the written option. Exercise of
an option written by the Fund could result in the Fund buying or selling a
security at a price different from the current market value.
When an option is exercised, the proceeds on sales for a written call option,
the purchase cost for a written put option, or the cost of the security for a
purchased put or call option is adjusted by the amount of premium received or
paid.
Securities designated to cover outstanding written options are noted in the
Statement of Investment Securities where applicable. Options written are
reported as a liability in the Statement of Assets and Liabilities. Gains and
losses are reported in the Statement of Operations.
The 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. The risk in writing a put option is that the Fund may incur a loss if
the market price of the security decreases and the option is exercised. The risk
in buying an option is that the Fund pays a premium whether or not the option is
exercised. The use of such instruments may involve certain additional risks as a
result of unanticipated movements in the market. A lack of correlation between
the value of an instrument underlying an option and the asset being hedged, or
unexpected adverse price movements, could render the Fund's hedging strategy
unsuccessful. In addition, there can be no assurance that a liquid secondary
market will exist for any option purchased or sold.
Written option activity for the year ended July 31, 2002, was as follows:
CALL OPTIONS
- --------------------------------------------------------------------------------
NUMBER AMOUNT
OF OPTIONS OF PREMIUMS
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
Options outstanding at July 31, 2001 0 $ 0
Options written (2,422) 271,260
Options closed or expired 2,422 (271,260)
Options outstanding at July 31, 2002 0 $ 0
I. EXPENSES -- Each Fund or Class bears expenses incurred specifically on its
behalf and, in addition, each Fund or Class bears a portion of general expenses,
based on the relative net assets of each Fund or Class.
Under an agreement between each Fund and the Fund's Custodian, certain Custodian
Fees and Expenses are reduced by credits granted by the Custodian from any
temporarily uninvested cash. Similarly, Custodian Fees and Expenses for Dynamics
and Growth Funds are reduced by credits earned from security brokerage
transactions under certain broker/service arrangements with third parties. Such
credits are included in Fees and Expenses Paid Indirectly in the Statement of
Operations.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. IFG serves as the Funds'
investment adviser. As compensation for its services to the Funds, IFG receives
an investment advisory fee which is accrued daily at the applicable rate and
paid monthly. The fee is based on the annual rate of each Fund's average net
assets as follows:
AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------
$700 $2 $4 $6
$0 TO $350 TO MILLION BILLION BILLION BILLION OVER
$350 $700 TO $2 TO $4 TO $6 TO $8 $8
FUND MILLION MILLION BILLION BILLION BILLION BILLION BILLION
- --------------------------------------------------------------------------------------------------
Dynamics Fund 0.60% 0.55% 0.50% 0.45% 0.40% 0.375% 0.35%
Growth Fund 0.60% 0.55% 0.50% 0.45% 0.40% 0.375% 0.35%
Small Company Growth Fund 0.75% 0.65% 0.55% 0.45% 0.40% 0.375% 0.35%
AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------
$500 $1 $2 $4 $6
$0 TO MILLION BILLION BILLION BILLION BILLION OVER
$500 TO $1 TO $2 TO $4 TO $6 TO $8 $8
FUND MILLION BILLION BILLION BILLION BILLION BILLION BILLION
- --------------------------------------------------------------------------------------------------
Growth & Income Fund 0.75% 0.65% 0.55% 0.45% 0.40% 0.375% 0.35%
INVESCO Endeavor Fund 0.75% 0.65% 0.55% 0.45% 0.40% 0.375% 0.35%
Value Equity Fund 0.75% 0.65% 0.50% 0.45% 0.40% 0.375% 0.35%
S&P 500 Index Fund's investment advisory fee is based on the annual rate of
0.25% of average net assets.
A sub-advisory Agreement between IFG and World Asset Management ("World"),
unaffiliated with any IFG entity, provides that investment decisions of S&P 500
Index Fund are made by World.
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
compensation of marketing and advertising expenditures to INVESCO Distributors,
Inc. ("IDI" or the "Distributor"), a wholly owned subsidiary of IFG, of 0.25% of
annual average net assets of Investor Class shares. A master distribution plan
and agreement for Class A, Class B and Class C shares pursuant to Rule 12b-1 of
the Act provides for compensation of certain promotional and other sales related
costs to IDI. Class A shares of the Fund pay compensation to IDI at a rate of
0.35% of annual average net assets. During any period that Class A shares of the
Fund are closed to new investors, the Fund will reduce this payment for Class A
shares from 0.35% to 0.25% per annum. Class B and Class C shares of the Fund pay
compensation to IDI at a rate of 1.00% of annual average net assets. Of these
amounts, IDI may pay a service fee of 0.25% of the average net assets of the
Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the applicable class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose caps on the total sales charges,
including asset-based sales charges, that may be paid by the respective class. A
plan of distribution pursuant to Rule 12b-1 of the Act provides for financing
the distribution and continuing personal shareholder servicing of Class K shares
of 0.45% of annual average net assets. Any unreimbursed expenses IDI incurs with
respect to Investor Class, Class A, Class C and Class K shares in any fiscal
year can not be recovered in subsequent years. For the year/period ended July
31, 2002, amounts paid to the Distributor were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- ---------------------------------------------------------------------------------------------
Dynamics Fund $ 13,988,320 $ 974 $ 628 $ 297,540 $ 175,421
Growth Fund 2,266,041 72 57 67,363 11,129
Growth & Income Fund 181,179 16 2 17,356 100
INVESCO Endeavor Fund 298,179 75 3 18,498 4
S&P 500 Index Fund 328,466 -- -- -- --
Small Company Growth Fund 2,929,624 626 67 31,239 200,641
Value Equity Fund 447,080 101 512 12,790 --
If the Class B Plan is terminated, the Board of Directors may allow the Class B
shares to continue payments of the asset-based sales charge to the Distributor
for allowable unreimbursed expenses incurred for distributing shares before the
Class B Plan was terminated. The Class B Plan allows for the carry-forward of
distribution expenses, to be recovered from asset-based sales charges in
subsequent fiscal periods. Distribution fees related to the Distributor for the
period ended July 31, 2002, for Class B were as follows:
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
AMOUNT RETAINED EXPENSES OF NET ASSETS
FUND BY DISTRIBUTOR UNDER PLAN OF CLASS
- ----------------------------------------------------------------------------------------------
Dynamics Fund - Class B Plan $ 901 $ 16,155 4.15%
Growth Fund - Class B Plan 87 1,560 3.97%
Growth & Income Fund - Class B Plan 4 196 3.25%
INVESCO Endeavor Fund - Class B Plan 4 16 1.74%
Small Company Growth Fund - Class B Plan 124 3,188 4.77%
Value Equity Fund - Class B Plan 627 5,636 2.33%
Distribution Expenses for each class as presented in the Statement of Operations
for the year/period ended July 31, 2002 were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- ---------------------------------------------------------------------------------------------
Dynamics Fund $ 13,462,581 $ 1,542 $ 927 $ 292,177 $ 192,792
Growth Fund 2,121,492 98 87 63,028 12,231
Growth & Income Fund 172,384 29 4 16,612 117
INVESCO Endeavor Fund 276,806 96 4 17,034 5
S&P 500 Index Fund 332,989 -- -- -- --
Small Company Growth Fund 2,826,198 1,452 124 32,263 226,726
Value Equity Fund 432,460 150 715 13,048 --
IFG receives a transfer agent fee from each Class at an annual rate of $22.50
per shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. The fee is paid monthly at one-twelfth of the
annual fee and is based upon the actual number of accounts in existence during
each month. Transfer agent fees for each class as presented in the Statement of
Operations for the year/period ended July 31, 2002 were as follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- -----------------------------------------------------------------------------------------------
Dynamics Fund $ 152 $ 21,766,055 $ 504 $ 199 $ 128,811 $ 142,789
Growth Fund -- 4,506,799 32 21 63,544 24,210
Growth & Income Fund -- 676,148 37 6 16,078 520
INVESCO Endeavor Fund -- 1,228,065 15 11 29,877 197
S&P 500 Index Fund 14,415 379,383 -- -- -- --
Small Company Growth Fund -- 4,947,246 203 34 23,314 26
Value Equity Fund -- 793,314 56 45 9,101 --
In accordance with an Administrative Services Agreement, each Fund pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.045% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG has voluntarily agreed to absorb and assume certain fees and expenses
incurred by the Funds. Effective June 1, 2002, IFG is entitled to reimbursement
from a Fund share class that has fees and expenses voluntarily absorbed pursuant
to this arrangement if such reimbursements do not cause a share class to exceed
voluntary expense limitations and the reimbursement is made within three years
after IFG incurred the expense. For the year/period ended July 31, 2002, total
fees voluntarily absorbed were as follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- ----------------------------------------------------------------------------------------------------
Dynamics Fund -- $ 1,017,405 $ 0 $ 0 $ 56,491 $ 0
Growth Fund -- 0 97 201 0 0
Growth & Income Fund -- 625,115 248 243 17,986 7,619
INVESCO Endeavor Fund -- 1,181,839 0 248 35,071 2,768
S&P 500 Index Fund $ 28,777 474,747 -- -- -- --
Small Company Growth Fund -- 0 0 0 14,378 0
Value Equity Fund -- 593,826 0 0 9,750 --
As of the year/period ended July 31, 2002, the reimbursement that may
potentially be made by the Funds to IFG and that will expire during the year
ended July 31, 2005, are as follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- ----------------------------------------------------------------------------------------------------
Dynamics Fund $ 0 $ 0 $ 0 $ 0 $ 28,197 $ 0
Growth Fund -- 0 97 201 0 0
Growth & Income Fund -- 94,911 246 242 4,335 503
INVESCO Endeavor Fund -- 221,651 0 245 8,102 308
S&P 500 Index Fund 4,447 94,254 -- -- -- --
Small Company Growth Fund -- 0 0 0 7,821 0
Value Equity Fund -- 115,919 0 0 3,099 --
A 1% redemption fee is retained by S&P 500 Index Fund to offset transaction
costs and other expenses associated with short-term redemptions and exchanges.
The fee is imposed on redemptions or exchanges of shares held less than three
months. The redemption fee is accounted for as an addition to Paid-in Capital by
S&P 500 Index Fund. Total redemption fees received by S&P 500 Index Fund -
Institutional Class and S&P 500 Index Fund - Investor Class for the year ended
July 31, 2002 were $7 and $72,888, respectively.
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended July
31, 2002, the aggregate cost of purchases and proceeds from sales of investment
securities (excluding all U.S. Government securities and short-term securities)
were as follows:
FUND PURCHASES SALES
- ----------------------------------------------------------------------------------------------
Dynamics Fund $ 4,236,690,959 $ 4,355,583,073
Growth Fund 1,073,150,445 1,340,814,011
Growth & Income Fund 56,943,181 69,566,441
INVESCO Endeavor Fund 219,235,471 254,018,718
S&P 500 Index Fund 58,280,344 3,331,925
Small Company Growth Fund 1,097,033,332 1,022,529,641
Value Equity Fund 71,127,891 112,589,211
There were no purchases or sales of U.S. Government securities.
NOTE 4 -- TRANSACTIONS WITH AFFILIATES AND AFFILIATED COMPANIES. Certain of the
Funds' officers and directors are also officers and directors of IFG or IDI.
Each Fund has adopted an unfunded retirement plan covering all independent
directors of the Fund who will have served as an independent director for at
least five years at the time of retirement. Benefits under this plan are based
on an annual rate as defined in the plan agreement, as amended March 1, 2001.
Pension expenses for the year ended July 31, 2002, included in Directors' Fees
and Expenses in the Statement of Operations, and unfunded accrued pension costs
and pension liability included in Prepaid Expenses and Accrued Expenses,
respectively, in the Statement of Assets and Liabilities were as follows:
UNFUNDED
PENSION ACCRUED PENSION
FUND EXPENSES PENSION COSTS LIABILITY
- --------------------------------------------------------------------------------------------
Dynamics Fund $ 45,099 $ 0 $ 251,293
Growth Fund 5,984 0 101,844
Growth & Income Fund 191 0 4,729
INVESCO Endeavor Fund 215 0 7,215
S&P 500 Index Fund 1,536 0 4,439
Small Company Growth Fund 11,835 0 59,473
Value Equity Fund 1,792 0 30,833
The independent directors have contributed to a deferred fee agreement plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds. The
deferred amounts may be invested in the shares of any of the INVESCO Funds,
excluding the INVESCO Variable Investment Funds.
An affiliated company represents ownership by a Fund of at least 5% of the
voting securities of the issuer or may be affiliated with other INVESCO
investment companies during the period, as defined in the Act. A summary of the
transactions during the year ended July 31, 2002, in which the issuer was an
affiliate of the Fund, is as follows:
REALIZED
PURCHASES SALES LOSS ON
------------------------------------------------------ INVESTMENT VALUE AT
AFFILIATE SHARES COST SHARES PROCEEDS SECURITIES 7/31/2002
- -------------------------------------------------------------------------------------------------------------------------
DYNAMICS FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 111,454,257 $111,454,257 245,978,731 $ 245,978,731 -- --
Nationwide Financial
Services Class A Shrs 1,295,000 53,604,500 -- -- -- $ 39,989,600
Time Warner
Telecom
Class A Shrs 360,600 6,599,422 3,208,400 5,632,984 $ (137,367,703) 277,654
webMethods Inc -- -- 2,365,300 29,381,898 (91,704,151) 2,880,483
SMALL COMPANY GROWTH FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 1,401,948 1,401,948 77,135,034 77,135,034 -- --
Dividend income from INVESCO Treasurer's Series Money Market Reserve Fund is
disclosed in the Statement of Operations. Dividend income of $539,150 was
received from Nationwide Financial Services Class A Shares during the year ended
July 31, 2002. No dividend income was received from any other affiliated
companies.
NOTE 5 -- SECURITIES LOANED. The Funds have entered into a securities lending
agreement with the custodian. Under the terms of the agreement, the Funds
receive annual income, recorded monthly, after deduction of other amounts
payable to the custodian or to the borrower from lending transactions. In
exchange for such fees, the custodian is authorized to loan securities on behalf
of the Funds, against receipt of collateral at least equal in value to the value
of securities loaned. Cash collateral is invested by the custodian in the
INVESCO Treasurer's Series Money Market Reserve Fund or securities issued or
guaranteed by the U.S Governement, its agencies or instrumentalities. As of July
31, 2002, Dynamics, INVESCO Endeavor and Small Company Growth Funds have on loan
securities valued at $75,317,986, $1,351,636 and $30,530,606 respectively. The
Fund bears the risk of any deficiency in the amount of collateral available for
return to a borrower due to a loss in an approved investment. The securities
loaned income is recorded in the Statement of Operations. During the year ended
July 31, 2002, there were no such securities lending arrangements for Growth &
Income, S&P 500 Index and Value Equity Funds.
NOTE 6 -- INTERFUND BORROWING AND LENDING. Each Fund is party to an interfund
lending agreement between each Fund and other INVESCO sponsored mutual funds,
which permit it to borrow or lend cash, at rates beneficial to both the
borrowing and lending funds. Loans totaling 10% or more of a borrowing Fund's
total assets are collateralized at 102% of the value of the loan; loans of less
than 10% are unsecured. The Funds may borrow up to 10% of its total net assets
for temporary or emergency purposes. During the year ended July 31, 2002,
Dynamics, Growth, Growth & Income, INVESCO Endeavor and Value Equity Funds
borrowed cash at a weighted average rate ranging from 1.97% to 2.90% and
interest expense amounted to $96,055, $50,694, $569, $3,769 and $1,317,
respectively. During that same period, Dynamics and Small Company Growth Funds
lent cash at a weighted average rate ranging from 2.25% to 2.71% and interest
income amounted to $87,185 and $47,072, respectively. At July 31, 2002, INVESCO
Sector Funds, Inc. - Gold & Precious Metals Fund had borrowed from Dynamics Fund
at an interest rate of 2.09%. The amount of the lending and the related accrued
interest are presented in the Statement of Assets and Liabilities. On August 1,
2002, INVESCO Sector Funds, Inc. - Gold & Precious Metals Fund paid the
borrowing back to Dynamics Fund in full including interest. During the year
ended July 31, 2002, there were no such borrowings and/or lendings for S&P 500
Index Fund.
NOTE 7 -- LINE OF CREDIT. Each Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the net assets at value of each respective
Fund. Each Fund agrees to pay annual fees and interest on the unpaid principal
balance based on prevailing market rates as defined in the agreement. During the
year ended July 31, 2002, Dynamics, Growth, INVESCO Endeavor and Small Company
Growth Funds borrowed cash at a weighted average rate ranging from 2.29% to
2.90% and interest expenses amounted to $35,444, $16,051, $360 and $9,761,
respectively. During the year ended July 31, 2002, there were no such borrowings
for Growth & Income, S&P 500 Index and Value Equity Funds.
NOTE 8 -- CONTINGENT DEFERRED SALES CHARGE ("CDSC"). Class A shares may charge a
1.00% CDSC if a shareholder purchased $1,000,000 or more and redeemed these
shares within 18 months from the date of purchase. A CDSC is charged by Class B
shares on redemptions or exchanges of shares at a maximum of 5.00% beginning at
time of purchase to 0.00% at the beginning of the seventh year. A 1.00% CDSC is
charged by Class C shares on redemptions or exchanges held thirteen months or
less. Shares acquired through reinvestment of dividends or other distributions
are not charged a CDSC fee. The CDSC fee may be reduced or certain sales charge
exceptions may apply. The CDSC is paid by the redeeming shareholder and
therefore it is not an expense of the Fund. For the year/period ended July 31,
2002, the Distributor received the following CDSC fees from Class A, Class B and
Class C shareholders:
FUND CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Dynamics Fund $ 0 $ 0 $ 23,608
Growth Fund 0 0 10,422
Growth & Income Fund 0 0 1,330
INVESCO Endeavor Fund 0 0 992
Small Company Growth Fund 0 0 2,593
Value Equity Fund 0 275 118
NOTE 9 -- SHARE INFORMATION. Changes in fund share transactions during the
year/period ended July 31, 2002 and the year/period ended July 31, 2001 were as
follows:
DYNAMICS FUND GROWTH FUND GROWTH & INCOME FUND
YEAR ENDED JULY 31 YEAR ENDED JULY 31 YEAR ENDED JULY 31
- -----------------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001 2002 2001
(Note 1) (Note 1) (Note 1) (Note 1) (Note 1) (Note 1)
Shares Sold
Institutional Class 2,322,618 82,177 -- -- -- --
Investor Class 1,007,004,431 416,846,638 293,499,721 442,034,146 7,473,503 12,617,049
Class A 683,355 -- 54,166 -- 7,334 --
Class B 36,556 -- 24,060 -- 974 --
Class C 86,880,326 14,338,227 2,750,903 4,136,420 331,799 360,371
Class K 5,654,823 367 3,909,174 2,613 9,074 1,049
Shares Issued from
Reinvestment of Distributions
Institutional Class 966 2,857 -- -- -- --
Investor Class 533,720 1,145,587 2,965,102 48,626,141 94,244 551,107
Class C 3,443 2,476 24,279 226,135 2,346 6,270
Class K 5,305 0 15,456 0 17 0
====================================================================================================================================
1,103,125,543 432,418,329 303,242,861 495,025,455 7,919,291 13,535,846
Shares Repurchased
Institutional Class (686,853) (237,321) -- -- -- --
Investor Class (1,047,072,631) (319,494,009) (382,291,940) (322,134,707) (9,141,292) (15,108,421)
Class A (498,065) -- (1,327) -- (30) --
Class B (417) -- 0 -- 0 --
Class C (87,310,751) (12,817,189) (3,466,283) (1,756,203) (344,432) (228,000)
Class K (1,503,717) (2) (2,000,943) 0 (670) (53)
====================================================================================================================================
(1,137,072,434) (332,548,521) (387,760,493) (323,890,910) (9,486,424) (15,336,474)
NET INCREASE
(DECREASE) IN
FUND SHARES (33,946,891) 99,869,808 (84,517,632) 171,134,545 (1,567,133) (1,800,628)
====================================================================================================================================
NOTE 9 -- SHARE INFORMATION (CONTINUED)
INVESCO ENDEAVOR FUND S&P 500 INDEX FUND SMALL COMPANY GROWTH FUND
YEAR ENDED JULY 31 YEAR ENDED JULY 31 YEAR ENDED JULY 31
- ------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001 2002 2001
(Note 1) (Note 1) (Note 1) (Note 1) (Note 1) (Note 1)
Shares Sold
Institutional Class -- -- 5,390 218,663 -- --
Investor Class 20,724,503 21,558,377 10,083,637 8,632,391 152,230,876 168,166,641
Class A 307,620 -- -- -- 529,205 --
Class B 174 -- -- -- 7,959 --
Class C 182,242 498,307 -- -- 23,365,133 871,949
Class K 366 58 -- -- 8,324,153 --
Shares Issued from
Reinvestment of Distributions
Institutional Class -- -- 667 5,864 -- --
Investor Class 1,309 437,400 100,207 142,892 0 5,615,855
Class C 19 5,650 -- -- 0 9,117
====================================================================================================================================
21,216,233 22,499,792 10,189,901 8,999,810 184,457,326 174,663,562
Shares Repurchased
Institutional Class -- -- (13,188) (355,171) -- --
Investor Class (24,771,482) (22,910,337) (5,139,915) (5,719,548) (166,398,528) (142,299,748)
Class A (307,507) -- -- -- (219,415) --
Class C (218,017) (376,737) -- -- (23,392,895) (823,823)
Class K (4) 0 -- -- (436,821) --
====================================================================================================================================
(25,297,010) (23,287,074) (5,153,103) (6,074,719) (190,447,659) (143,123,571)
NET INCREASE
(DECREASE) IN
FUND SHARES (4,080,777) (787,282) 5,036,798 2,925,091 (5,990,333) 31,539,991
====================================================================================================================================
VALUE EQUITY FUND
YEAR ENDED JULY 31
- -----------------------------------------------------------------
2002 2001
(Note 1)
Shares Sold
Investor Class 12,155,609 15,919,746
Class A 10,203 --
Class B 15,111 --
Class C 798,955 720,579
Shares Issued from
Reinvestment of Distributions
Investor Class 366,423 1,939,285
Class A 62 --
Class B 111 --
Class C 2,040 5,427
=================================================================
13,348,514 18,585,037
Shares Repurchased
Investor Class (14,187,444) (18,370,431)
Class A (146) --
Class B (284) --
Class C (744,206) (680,687)
=================================================================
(14,932,080) (19,051,118)
NET DECREASE IN
FUND SHARES (1,583,566) (466,081)
=================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
INVESCO Stock Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the statement of investment securities, 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 INVESCO Dynamics Fund, INVESCO
Growth Fund, INVESCO Growth & Income Fund, INVESCO Endeavor Fund, INVESCO S&P
500 Index Fund, INVESCO Small Company Growth Fund and INVESCO Value Equity Fund
(constituting INVESCO Stock Funds, Inc., hereafter referred to as the "Fund") at
July 31, 2002, the results of each of their operations for the year then ended,
the changes in each of their 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 auditing standards generally accepted in the United States of
America, which 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 July 31, 2002 by
correspondence with the custodian and broker, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
September 3, 2002
FINANCIAL HIGHLIGHTS
DYNAMICS FUND -- INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 17.28 $ 27.87 $ 24.29
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.08) (0.07) (0.02)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (6.30) (10.44) 3.60
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (6.38) (10.51) 3.58
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.02 0.08 0.00
================================================================================
Net Asset Value -- End of Period $ 10.88 $ 17.28 $ 27.87
================================================================================
TOTAL RETURN (36.95%) (37.78%) 14.74%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 25,133 $ 11,622 $ 22,989
Ratio of Expenses to Average Net Assets(d) 0.84% 0.77% 0.77%(e)
Ratio of Net Investment Loss to Average
Net Assets (0.53%) (0.26%) (0.22%)(e)
Portfolio Turnover Rate 81% 55% 75%(f)
(a) From May 23, 2000, since inception of Institutional Class, to July 31,
2000.
(b) The per share information was computed based on average shares for the year
ended July 31, 2002, 2001 and the period ended July 31, 2000.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian fees).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2000.
FINANCIAL HIGHLIGHTS
DYNAMICS FUND -- INVESTOR CLASS
- -----------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED JULY 31 JULY 31 YEAR ENDED APRIL 30
- -----------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999(a) 1999 1998
PER SHARE DATA
Net Asset Value--Beginning of Period $ 17.23 $ 27.86 $ 19.39 $ 18.15 $ 16.41 $ 12.02
=======================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss(c) (0.00) (0.12) (0.00) (0.00) (0.00) (0.05)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (6.40) (10.43) 9.51 1.24 3.04 6.39
=======================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (6.40) (10.55) 9.51 1.24 3.04 6.34
=======================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.02 0.08 1.04 0.00 1.30 1.95
=======================================================================================================================
Net Asset Value -- End of Period $ 10.81 $ 17.23 $ 27.86 $ 19.39 $ 18.15 $ 16.41
=======================================================================================================================
TOTAL RETURN (37.17%) (37.94%) 50.34% 6.83%(d) 20.83% 56.42%
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 3,688,213 $ 6,562,467 $ 7,865,489 $ 2,471,482 $ 2,044,321 $ 1,340,299
Ratio of Expenses to Average Net
Assets(e)(f) 1.21% 1.00% 0.89% 1.03%(g) 1.05% 1.08%
Ratio of Net Investment Loss to
Average Net Assets(f) (0.86%) (0.49%) (0.34%) (0.32%)(g) (0.41%) (0.43%)
Portfolio Turnover Rate 81% 55% 75% 23%(d) 129% 178%
(a) From May 1, 1999 to July 31, 1999.
(b) The per share information was computed based on average shares for the year
ended July 31, 2001.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the
years ended July 31, 2002 and 2000, the period ended July 31, 1999 and the
year ended April 30, 1999.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian, distribution and transfer agent
fees).
(f) Various expenses of the Class were voluntarily absorbed by IFG for the year
ended July 31, 2002. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 1.23% and ratio of
net investment loss to average net assets would have been (0.88%).
(g) Annualized
FINANCIAL HIGHLIGHTS
DYNAMICS FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
PERIOD PERIOD
ENDED ENDED
JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002(a) 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 15.30 $ 15.30
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.03) (0.06)
Net Losses on Securities
(Both Realized and Unrealized) (4.45) (4.46)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (4.48) (4.52)
================================================================================
Net Asset Value -- End of Period $ 10.82 $ 10.78
================================================================================
TOTAL RETURN(c) (29.22%)(d) (29.54%)(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 2,006 $ 390
Ratio of Expenses to Average Net Assets(e) 1.11%(f) 2.09%(f)
Ratio of Net Investment Loss to Average
Net Assets (0.76%)(f) (1.71%)(f)
Portfolio Turnover Rate 81%(g) 81%(g)
(a) From April 1, 2002, since inception of Class, to July 31, 2002.
(b) The per share information for each class was computed based on average
shares.
(c) The applicable sales charges for Class A or CDSC fees for Class B are not
included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian fees).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2002.
FINANCIAL HIGHLIGHTS
DYNAMICS FUND -- CLASS C
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 17.04 $ 27.78 $ 28.25
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss(c) (0.25) (0.06) (0.00)
Net Losses on Securities
(Both Realized and Unrealized) (6.17) (10.60) (0.47)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (6.42) (10.66) (0.47)
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.02 0.08 0.00
================================================================================
Net Asset Value -- End of Period $ 10.60 $ 17.04 $ 27.78
================================================================================
TOTAL RETURN(d) (37.76%) (38.45%) (1.66%)(e)
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 13,440 $ 28,887 $ 4,779
Ratio of Expenses to Average Net
Assets(f)(g) 1.96% 1.86% 1.71%(h)
Ratio of Net Investment Loss to Average
Net Assets(g) (1.59%) (1.34%) (1.20)%(h)
Portfolio Turnover Rate 81% 55% 75%(i)
(a) From February 15, 2000, since inception of Class, to July 31, 2000.
(b) The per share information was computed based on average shares for the
period ended July 31, 2000.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the
period ended July 31, 2000.
(d) The applicable CDSC fees are not included in the Total Return calculation.
(e) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(f) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(g) Various expenses of the Class were voluntarily absorbed by IFG for the year
ended July 31, 2002. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 2.16% and ratio of
net investment loss to average net assets would have been (1.79%).
(h) Annualized
(i) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2000.
FINANCIAL HIGHLIGHTS
DYNAMICS FUND -- CLASS K
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR PERIOD
ENDED ENDED
JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 17.19 $ 22.50
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.15) (0.03)
Net Losses on Securities
(Both Realized and Unrealized) (6.26) (5.28)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (6.41) (5.31)
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.02 0.00
================================================================================
Net Asset Value -- End of Period $ 10.76 $ 17.19
================================================================================
TOTAL RETURN (37.32%) (23.60%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 44,745 $ 6
Ratio of Expenses to Average Net
Assets(d)(e) 1.36% 1.48%(f)
Ratio of Net Investment Loss to Average
Net Assets(e) (1.05%) (1.03%)(f)
Portfolio Turnover Rate 81% 55%(g)
(a) From December 1, 2000, since inception of Class, to July 31, 2001.
(b) The per share information was computed based on average shares for the year
ended July 31, 2002.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the
period ended July 31, 2001. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 3.06%
(annualized), and ratio of net investment loss to average net assets would
have been (2.61%) (annualized).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2001.
FINANCIAL HIGHLIGHTS
GROWTH FUND -- INVESTOR CLASS
- -----------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED JULY 31 JULY 31 YEAR ENDED APRIL 30
- -----------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999(a) 1998 1997
PER SHARE DATA
Net Asset Value--Beginning of Period $ 3.08 $ 8.47 $ 6.75 $ 5.15 $ 6.06 $ 5.44
=======================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss)(c) (0.03) (0.05) (0.00) (0.00) 0.02 0.01
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (1.39) (4.27) 2.48 2.11 0.69 1.39
=======================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.42) (4.32) 2.48 2.11 0.71 1.40
=======================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.02 1.07 0.76 0.51 1.62 0.78
=======================================================================================================================
Net Asset Value -- End of Period $ 1.64 $ 3.08 $ 8.47 $ 6.75 $ 5.15 $ 6.06
=======================================================================================================================
TOTAL RETURN (46.28%) (56.43%) 38.42% 42.06%(d) 13.42% 28.14%
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 525,365 $ 1,251,042 $ 2,008,680 $ 1,232,908 $ 747,739 $ 709,220
Ratio of Expenses to Average Net
Assets(e) 1.55% 1.16% 1.02% 1.03%(f) 1.04% 1.07%
Ratio of Net Investment Income (Loss)
to Average Net Assets (1.20%) (0.96%) (0.63%) (0.08%)(f) 0.37% 0.22%
Portfolio Turnover Rate 129% 129% 168% 134%(d) 153% 286%
(a) From September 1, 1998 to July 31, 1999.
(b) The per share information was computed based on average shares for the
years ended July 31, 2002 and 2001.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the
year ended July 31, 2000 and the period ended July 31, 1999.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian, distribution and transfer
agent fees).
(f) Annualized
FINANCIAL HIGHLIGHTS
GROWTH FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
PERIOD PERIOD
ENDED ENDED
JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002(a) 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 2.34 $ 2.34
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.01) (0.01)
Net Losses on Securities
(Both Realized and Unrealized) (0.69) (0.70)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.70) (0.71)
================================================================================
Net Asset Value -- End of Period $ 1.64 $ 1.63
================================================================================
TOTAL RETURN(c) (29.91%)(d) (30.34%)(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 87 $ 39
Ratio of Expenses to Average Net
Assets(e)(f) 1.65%(g) 2.30%(g)
Ratio of Net Investment Loss to Average
Net Assets(f) (0.89%)(g) (1.59%)(g)
Portfolio Turnover Rate 129%(h) 129%(h)
(a) From April 1, 2002, since inception of Class, to July 31, 2002.
(b) The per share information for each class was computed based on average
shares.
(c) The applicable sales charges for Class A or CDSC fees for Class B are not
included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(f) Various expenses of each Class were voluntarily absorbed by IFG for the
period ended July 31, 2002. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 1.99%
(annualized) for Class A and 4.56% (annualized) for Class B and ratio of
net investment loss to average net assets would have been (1.23%)
(annualized) for Class A and (3.85%) (annualized) for Class B.
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2002.
FINANCIAL HIGHLIGHTS
GROWTH FUND -- CLASS C
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 3.05 $ 8.44 $ 8.26
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.05) (0.03) (0.05)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (1.38) (4.29) 0.23
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.43) (4.32) 0.18
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.02 1.07 0.00
================================================================================
Net Asset Value -- End of Period $ 1.60 $ 3.05 $ 8.44
================================================================================
TOTAL RETURN(c) (47.07%) (56.67%) 2.18%(d)
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 3,669 $ 9,108 $ 3,213
Ratio of Expenses to Average Net Assets(e) 3.03% 2.04% 1.76%(f)
Ratio of Net Investment Loss to Average
Net Assets (2.69%) (1.82%) (1.54%)(f)
Portfolio Turnover Rate 129% 129% 168%(g)
(a) From February 15, 2000, since inception of Class C, to July 31, 2000.
(b) The per share information was computed based on average shares for the
period ended July 31, 2000.
(c) The applicable CDSC fees are not included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian fees).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2000.
FINANCIAL HIGHLIGHTS
GROWTH FUND -- CLASS K
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR PERIOD
ENDED ENDED
JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 3.03 $ 5.41
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.02) (0.02)
Net Losses on Securities (Both Realized
and Unrealized) (1.49) (2.36)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (1.51) (2.38)
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.02 0.00
================================================================================
Net Asset Value -- End of Period $ 1.50 $ 3.03
================================================================================
TOTAL RETURN (50.02%) (43.99%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 2,888 $ 8
Ratio of Expenses to Average Net Assets(d) 2.32% 2.96%(e)
Ratio of Net Investment Loss to Average
Net Assets (1.91%) (2.72%)(e)
Portfolio Turnover Rate 129% 129%(f)
(a) From December 1, 2000, since inception of Class, to July 31, 2001.
(b) The per share information was computed based on average shares for the
period ended July 31, 2001.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian fees) .
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2001.
FINANCIAL HIGHLIGHTS
GROWTH & INCOME FUND -- INVESTOR CLASS
- -------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD PERIOD
ENDED ENDED
YEAR ENDED JULY 31 JULY 31 APRIL 30
- -------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999(a) 1999(b)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.21 $ 18.93 $ 15.37 $ 14.54 $ 10.00
=============================================================================================================
INCOME FROM INVESTMENT OPERATIONS(c)
Net Investment Loss(d) (0.08) (0.00) (0.00) (0.00) (0.00)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (3.81) (7.93) 4.60 0.83 5.22
=============================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (3.89) (7.93) 4.60 0.83 5.22
=============================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.10 0.79 1.04 0.00 0.68
=============================================================================================================
Net Asset Value -- End of Period $ 6.22 $ 10.21 $ 18.93 $ 15.37 $ 14.54
=============================================================================================================
TOTAL RETURN (38.37%) (43.25%) 30.79% 5.71%(e) 53.07%(e)
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 44,018 $ 88,409 $ 200,584 $ 61,316 $ 53,994
Ratio of Expenses to Average Net
Assets(f)(g) 1.50% 1.51% 1.46% 1.52%(h) 1.52%(h)
Ratio of Net Investment Loss to Average
Net Assets(g) (0.98%) (0.99%) (0.85%) (0.45%)(h) (0.25%)(h)
Portfolio Turnover Rate 82% 218% 177% 46%(e) 121%(e)
(a) From May 1, 1999 to July 31, 1999.
(b) From July 1, 1998, commencement of investment operations, to April 30,
1999.
(c) The per share information was computed based on average shares for the year
ended July 31, 2002.
(d) Net Investment Loss aggregated less than $0.01 on a per share basis for the
years ended July 31, 2001 and 2000 and the periods ended July 31, 1999 and
April 30, 1999.
(e) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(f) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(g) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended July 31, 2002, 2001 and 2000 and the periods ended July 31,
1999 and April 30, 1999. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 2.40%,
1.69%, 1.46%, 1.75% (annualized), 1.71% (annualized), respectively, and
ratio of net investment loss to average net assets would have been (1.88%),
(1.17%), (0.85%), (0.68%) (annualized) and (0.44%) (annualized),
respectively.
(h) Annualized
FINANCIAL HIGHLIGHTS
GROWTH & INCOME FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
PERIOD PERIOD
ENDED ENDED
JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002(a) 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 8.54 $ 8.54
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.02) (0.02)
Net Losses on Securities (Both Realized
and Unrealized) (2.30) (2.33)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (2.32) (2.35)
================================================================================
Net Asset Value -- End of Period $ 6.22 $ 6.19
================================================================================
TOTAL RETURN(c) (27.17%)(d) (27.40%)(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 45 $ 6
Ratio of Expenses to Average Net
Assets(e)(f) 1.60%(g) 2.30%(g)
Ratio of Net Investment Loss to Average
Net Assets(f) (1.04%)(g) (1.80%)(g)
Portfolio Turnover Rate 82%(h) 82%(h)
(a) From April 1, 2002, since inception of Class, to July 31, 2002.
(b) The per share information for each class was computed based on average
shares.
(c) The applicable sales charges for Class A or CDSC fees for Class B are not
included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(f) Various expenses of each Class were voluntarily absorbed by IFG for the
period ended July 31, 2002. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 4.55%
(annualized) for Class A and 62.08% (annualized) for Class B, and ratio of
net investment loss to average net assets would have been (3.99%)
(annualized) for Class A and (61.58%) (annualized) for Class B.
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2002.
FINANCIAL HIGHLIGHTS
GROWTH & INCOME FUND -- CLASS C
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.09 $ 18.87 $ 18.19
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.05) (0.03) (0.13)
Net Gains or (Losses) on Securities (Both
Realized and Unrealized) (3.84) (7.96) 0.81
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (3.89) (7.99) 0.68
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.10 0.79 0.00
================================================================================
Net Asset Value -- End of Period $ 6.10 $ 10.09 $ 18.87
================================================================================
TOTAL RETURN(c) (38.83%) (43.72%) 3.74%(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 1,231 $ 2,142 $ 1,388
Ratio of Expenses to Average Net
Assets(e)(f) 2.25% 2.27% 2.00%(g)
Ratio of Net Investment Loss to Average
Net Assets(f) (1.72%) (1.78%) (1.63%)(g)
Portfolio Turnover Rate 82% 218% 177%(h)
(a) From February 15, 2000, since inception of Class, to July 31, 2000.
(b) The per share information was computed based on average shares for the
period ended July 31, 2000.
(c) The applicable CDSC fees are not included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(f) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended July 31, 2002 and 2001. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have
been 3.33% and 2.32%, respectively, and ratio of net investment loss to
average net assets would have been (2.80%) and (1.83%), respectively.
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2000.
FINANCIAL HIGHLIGHTS
GROWTH & INCOME FUND -- CLASS K
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR PERIOD
ENDED ENDED
JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.21 $ 15.22
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.08) (0.02)
Net Losses on Securities (Both Realized
and Unrealized) (3.83) (4.99)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (3.91) (5.01)
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.10 0.00
================================================================================
Net Asset Value -- End of Period $ 6.20 $ 10.21
================================================================================
TOTAL RETURN (38.57%) (32.92%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 58 $ 10
Ratio of Expenses to Average Net Assets(d)(e) 1.70% 1.81%(f)
Ratio of Net Investment Loss to Average
Net Assets(e) (1.18%) (1.31%)(f)
Portfolio Turnover Rate 82% 218%(g)
(a) From December 1, 2000, since inception of Class, to July 31, 2001.
(b) The per share information was computed based on average shares for the
period ended July 31, 2001.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year
ended July 31, 2002 and the period ended July 31, 2001. If such expenses
had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 30.95% and 2.68% (annualized), respectively, and ratio of
net investment loss to average net assets would have been (30.43%) and
(2.18%) (annualized), respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2001.
FINANCIAL HIGHLIGHTS
INVESCO ENDEAVOR FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD PERIOD
ENDED ENDED
YEAR ENDED JULY 31 JULY 31 APRIL 30
- -------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999(a) 1999(b)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.68 $ 24.32 $ 16.61 $ 16.32 $ 10.00
=============================================================================================================
INCOME FROM INVESTMENT OPERATIONS(c)
Net Investment Loss(d) (0.09) (0.23) (0.00) (0.03) (0.03)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (5.31) (12.93) 9.04 0.32 6.35
=============================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (5.40) (13.16) 9.04 0.29 6.32
=============================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS(e) 0.00 0.48 1.33 0.00 0.00
=============================================================================================================
Net Asset Value -- End of Period $ 5.28 $ 10.68 $ 24.32 $ 16.61 $ 16.32
=============================================================================================================
TOTAL RETURN (50.56%) (54.86%) 55.84% 1.78%(f) 63.20%(f)
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 58,652 $ 161,842 $ 390,638 $ 109,532 $ 72,592
Ratio of Expenses to Average Net
Assets(g)(h) 1.50% 1.51% 1.41% 1.49%(i) 1.43%(i)
Ratio of Net Investment Loss to
Average Net Assets(h) (1.10%) (1.24%) (0.93%) (0.83%)(i) (0.55%)(i)
Portfolio Turnover Rate 201% 195% 81% 47%(f) 107%(f)
(a) From May 1, 1999 to July 31, 1999.
(b) From October 28, 1998, commencement of investment operations, to April 30,
1999.
(c) The per share information was computed based on average shares for the
years ended July 31, 2002 and 2001 and the period ended April 30, 1999.
(d) Net Investment Loss aggregated less than $0.01 on a per share basis for the
year ended July 31, 2000.
(e) Dividends and Distributions aggregated less than $0.01 on a per share basis
for the year ended July 31, 2002.
(f) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(g) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(h) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended July 31, 2002 and 2001. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have
been 2.56% and 1.73%, respectively, and ratio of net investment loss to
average net assets would have been (2.16%) and (1.46%), respectively.
(i) Annualized
FINANCIAL HIGHLIGHTS
INVESCO ENDEAVOR FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
PERIOD PERIOD
ENDED ENDED
JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002(a) 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 8.75 $ 8.75
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.03) (0.05)
Net Losses on Securities (Both Realized
and Unrealized) (3.07) (3.43)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (3.10) (3.48)
================================================================================
Net Asset Value -- End of Period $ 5.65 $ 5.27
================================================================================
TOTAL RETURN(c) (35.09%)(d) (39.77%)(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 1 $ 1
Ratio of Expenses to Average Net
Assets(e)(f) 1.43%(g) 2.50%(g)
Ratio of Net Investment Loss to Average
Net Assets(f) (1.34%)(g) (2.16%)(g)
Portfolio Turnover Rate 201%(h) 201%(h)
(a) From April 1, 2002, since inception of Class, to July 31, 2002.
(b) The per share information for each class was computed based on average
shares.
(c) The applicable sales charges for Class A or CDSC fees for Class B are not
included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(f) Various expenses of Class B were voluntarily absorbed by IFG for the period
ended July 31, 2002. If such expenses had not been voluntarily absorbed for
Class B, ratio of expenses to average net assets would have been 69.33%
(annualized) and ratio of net investment loss to average net assets would
have been (68.99%)(annualized).
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2002.
FINANCIAL HIGHLIGHTS
INVESCO ENDEAVOR FUND -- CLASS C
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.57 $ 24.27 $ 25.74
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.06) (0.12) (0.16)
Net Losses on Securities
(Both Realized and Unrealized) (5.32) (13.10) (1.31)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (5.38) (13.22) (1.47)
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS(c) 0.00 0.48 0.00
================================================================================
Net Asset Value -- End of Period $ 5.19 $ 10.57 $ 24.27
================================================================================
TOTAL RETURN(d) (50.89%) (55.22%) (5.71%)(e)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 1,011 $ 2,438 $ 2,509
Ratio of Expenses to Average Net
Assets(f)(g) 2.25% 2.26% 2.05%(h)
Ratio of Net Investment Loss to Average
Net Assets(g) (1.85%) (1.97%) (1.58%)(h)
Portfolio Turnover Rate 201% 195% 81%(i)
(a) From February 15, 2000, since inception of Class, to July 31, 2000.
(b) The per share information was computed based on average shares for the
period ended July 31, 2000.
(c) Dividends and Distributions aggregated less than $0.01 on a per share basis
for the year ended July 31, 2002.
(d) The applicable CDSC fees are not included in the Total Return calculation.
(e) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(f) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(g) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended July 31, 2002 and 2001. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have
been 4.31% and 2.48%, respectively, and ratio of net investment loss to
average net assets would have been (3.91%) and (2.19%), respectively.
(h) Annualized
(i) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2000.
FINANCIAL HIGHLIGHTS
INVESCO ENDEAVOR FUND -- CLASS K
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR PERIOD
ENDED ENDED
JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.67 $ 17.31
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.03) (0.13)
Net Losses on Securities
(Both Realized and Unrealized) (5.37) (6.51)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (5.40) (6.64)
================================================================================
Net Asset Value -- End of Period $ 5.27 $ 10.67
================================================================================
TOTAL RETURN (50.61%) (38.36%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 2 $ 1
Ratio of Expenses to Average Net Assets(d)(e) 1.70% 1.74%(f)
Ratio of Net Investment Loss to Average
Net Assets(e) (1.33%) (1.44%)(f)
Portfolio Turnover Rate 201% 195%(g)
(a) From December 1, 2000, since inception of Class, to July 31, 2001.
(b) The per share information was computed based on average shares for the
period ended July 31, 2001.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year
ended July 31, 2002 and the period ended July 31, 2001. If such expenses
had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 285.50% and 4.23% (annualized), respectively, and ratio of
net investment loss to average net assets would have been (285.13%) and
(3.93%) (annualized), respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2001.
FINANCIAL HIGHLIGHTS
S&P 500 INDEX FUND -- INSTITUTIONAL CLASS
- ------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED JULY 31 JULY 31
- -------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 12.45 $ 15.07 $ 14.21 $ 12.01 $ 10.00
=============================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income 0.08 0.19 0.15 0.18 0.11
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (3.11) (2.44) 1.05 2.26 1.98
=============================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (3.03) (2.25) 1.20 2.44 2.09
=============================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.19 0.37 0.34 0.24 0.08
=============================================================================================================
Net Asset Value -- End of Period $ 9.23 $ 12.45 $ 15.07 $ 14.21 $ 12.01
=============================================================================================================
TOTAL RETURN (24.50%) (15.09%) 8.47% 20.40% 20.93%(c)
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 338 $ 544 $ 2,627 $ 4,420 $ 3,259
Ratio of Expenses to Average Net
Assets(d)(e) 0.35% 0.35% 0.36% 0.35% 0.46%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 1.15% 1.03% 1.00% 1.36% 1.96%(f)
Portfolio Turnover Rate 3% 43% 13% 2% 0%(c)(g)
(a) From December 23, 1997, commencement of investment operations, to July 31,
1998.
(b) The per share information was computed based on average shares for the year
ended July 31, 2001.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended July 31, 2002, 2001, 2000 and 1999 and the period ended July
31, 1998. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 7.36%, 1.84%, 1.00%, 1.17%
and 2.51% (annualized), respectively, and ratio of net investment income
(loss) to average net assets would have been (5.86%), (0.46%), 0.36%, 0.54%
and (0.09%) (annualized), respectively.
(f) Annualized
(g) Portfolio Turnover calculated to less than 0.10% for the period ended July
31, 1998.
FINANCIAL HIGHLIGHTS
S&P 500 INDEX FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED JULY 31 JULY 31
- -------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 12.78 $ 15.36 $ 14.39 $ 12.14 $ 10.00
=============================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.09 0.10 0.11 0.14 0.07
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (3.19) (2.39) 1.09 2.29 2.14
=============================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (3.10) (2.29) 1.20 2.43 2.21
=============================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.09 0.29 0.23 0.18 0.07
=============================================================================================================
Net Asset Value -- End of Period $ 9.59 $ 12.78 $ 15.36 $ 14.39 $ 12.14
=============================================================================================================
TOTAL RETURN (24.33%) (15.07%) 8.34% 20.09% 22.11%(b)
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 135,578 $ 116,309 $ 92,784 $ 64,613 $ 15,065
Ratio of Expenses to Average Net
Assets(c)(d) 0.65% 0.63% 0.63% 0.60% 0.62%(e)
Ratio of Net Investment Income to
Average Net Assets(d) 0.84% 0.75% 0.74% 1.06% 1.52%(e)
Portfolio Turnover Rate 3% 43% 13% 2% 0%(b)(f)
(a) From December 23, 1997, commencement of investment operations, to July 31,
1998.
(b) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended July 31, 2002, 2001, 2000 and 1999 and the period ended July
31, 1998. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 1.01%, 0.99%, 0.95%, 0.99%
and 1.71% (annualized), respectively, and ratio of net investment income to
average net assets would have been 0.48%, 0.39%, 0.43%, 0.67% and 0.43%
(annualized), respectively.
(e) Annualized
(f) Portfolio Turnover calculated to less than 0.10% for the period ended July
31, 1998.
FINANCIAL HIGHLIGHTS
SMALL COMPANY GROWTH FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED JULY 31 JULY 31 YEAR ENDED MAY 31
- ------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999(a) 1999 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 12.76 $ 18.50 $ 13.61 $ 12.08 $ 11.90 $ 12.82
========================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss(c) (0.01) (0.04) (0.00) (0.00) (0.00) (0.06)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (4.34) (4.77) 6.88 1.53 1.35 2.56
========================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (4.35) (4.81) 6.88 1.53 1.35 2.50
========================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.93 1.99 0.00 1.17 3.42
========================================================================================================================
Net Asset Value -- End of Period $ 8.41 $ 12.76 $ 18.50 $ 13.61 $ 12.08 $ 11.90
========================================================================================================================
TOTAL RETURN (34.09%) (26.53%) 53.55% 12.67%(d) 12.91% 22.65%
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 800,520 $ 1,395,113 $ 1,440,445 $ 452,861 $ 318,109 $ 272,619
Ratio of Expenses to Average Net
Assets(e)(f) 1.45% 1.29% 1.20% 1.50%(g) 1.51% 1.48%
Ratio of Net Investment Loss to
Average Net Assets(f) (1.01%) (0.28%) (0.34%) (0.69%)(g) (0.58%) (0.42%)
Portfolio Turnover Rate 99% 112% 186% 41%(d) 203% 158%
(a) From June 1, 1999 to July 31, 1999.
(b) The per share information was computed based on average shares for the year
ended July 31, 2001.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the
year ended July 31, 2000, the period ended July 31, 1999 and the year ended
May 31, 1999.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian, distribution and transfer agent
fees).
(f) Various expenses of the Class were voluntarily absorbed by IFG for the year
ended July 31, 2000, the period ended July 31, 1999, and the year ended May
31, 1999. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 1.21%, 1.62% (annualized)
and 1.59%, respectively, and ratio of net investment loss to average net
assets would have been (0.35%), (0.81%) (annualized) and (0.66%),
respectively.
(g) Annualized
FINANCIAL HIGHLIGHTS
SMALL COMPANY GROWTH FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
PERIOD PERIOD
ENDED ENDED
JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002(a) 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 11.25 $ 11.25
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.02) (0.04)
Net Losses on Securities (Both Realized
and Unrealized) (2.82) (2.80)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (2.84) (2.84)
================================================================================
Net Asset Value -- End of Period $ 8.41 $ 8.41
================================================================================
TOTAL RETURN(c) (25.24%)(d) (25.24%)(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 2,607 $ 67
Ratio of Expenses to Average Net Assets(e) 1.24%(f) 2.14%(f)
Ratio of Net Investment Loss to Average
Net Assets (0.74%)(f) (1.68%)(f)
Portfolio Turnover Rate 99%(g) 99%(g)
(a) From April 1, 2002, since inception of Class, to July 31, 2002.
(b) The per share information for each class was computed based on average
shares.
(c) The applicable sales charges for Class A or CDSC fees for Class B are not
included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian fees).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2002.
FINANCIAL HIGHLIGHTS
SMALL COMPANY GROWTH FUND -- CLASS C
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 12.54 $ 18.37 $ 20.68
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss(c) (0.18) (0.12) (0.00)
Net Losses on Securities
(Both Realized and Unrealized) (4.27) (4.78) (2.31)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (4.45) (4.90) (2.31)
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.93 0.00
================================================================================
Net Asset Value -- End of Period $ 8.09 $ 12.54 $ 18.37
================================================================================
TOTAL RETURN(d) (35.57%) (27.24%) (11.17%)(e)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 1,087 $ 2,034 $ 1,926
Ratio of Expenses to Average Net
Assets(f)(g) 2.25% 2.13% 1.83%(h)
Ratio of Net Investment Loss to Average
Net Assets(g) (1.81%) (1.12%) (0.91%)(h)
Portfolio Turnover Rate 99% 112% 186%(i)
(a) From February 15, 2000, since inception of Class, to July 31, 2000.
(b) The per share information was computed based on average shares for the year
ended July 31, 2002.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the
period ended July 31, 2000.
(d) The applicable CDSC fees are not included in the Total Return calculation.
(e) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(f) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(g) Various expenses of the Class were voluntarily absorbed by IFG for the year
ended July 31, 2002. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 2.70% and ratio of
net investment loss to average net assets would have been (2.26%).
(h) Annualized
(i) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2000.
FINANCIAL HIGHLIGHTS
SMALL COMPANY GROWTH FUND -- CLASS K
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
JULY 31
- --------------------------------------------------------------------------------
2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 11.76
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.05)
Net Losses on Securities (Both Realized and Unrealized) (3.28)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (3.33)
================================================================================
Net Asset Value -- End of Period $ 8.43
================================================================================
TOTAL RETURN (28.32%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 66,451
Ratio of Expenses to Average Net Assets(d) 1.17%(e)
Ratio of Net Investment Loss to Average Net Assets (0.80%)(e)
Portfolio Turnover Rate 99%(f)
(a) From December 17, 2001, since inception of Class, to July 31, 2002.
(b) The per share information was computed based on average shares.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian fees).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2002.
FINANCIAL HIGHLIGHTS
VALUE EQUITY FUND -- INVESTOR CLASS
- --------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED JULY 31 JULY 31 YEAR ENDED AUGUST 31
- --------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999(a) 1998 1997
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 21.19 $ 25.15 $ 29.61 $ 25.68 $ 28.30 $ 22.24
==========================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.11 0.11 0.11 0.17 0.26 0.35
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (4.29) (0.15) (1.96) 6.25 (0.43) 6.62
==========================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (4.18) (0.04) (1.85) 6.42 (0.17) 6.97
==========================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.78 3.92 2.61 2.49 2.45 0.91
==========================================================================================================================
Net Asset Value -- End of Period $ 16.23 $ 21.19 $ 25.15 $ 29.61 $ 25.68 $ 28.30
==========================================================================================================================
TOTAL RETURN (20.28%) 0.20% (6.52%) 25.41%(b) (1.06%) 32.04%
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 125,313 $ 198,905 $ 248,944 $ 369,982 $ 349,984 $ 369,766
Ratio of Expenses to Average Net
Assets(c)(d) 1.30% 1.31% 1.31% 1.27%(e) 1.15% 1.04%
Ratio of Net Investment Income to
Average Net Assets(d) 0.55% 0.48% 0.40% 0.63%(e) 0.86% 1.35%
Portfolio Turnover Rate 43% 54% 67% 22%(b) 48% 37%
(a) From September 1, 1998 to July 31, 1999.
(b) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any offset arrangements
(which may include custodian and transfer agent fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended July 31, 2002, 2001 and 2000, the period ended July 31, 1999
and the year ended August 31, 1998. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have
been 1.64%, 1.53%, 1.44%, 1.38% (annualized) and 1.19%, respectively, and
ratio of net investment income to average net assets would have been 0.21%,
0.26%, 0.27%, 0.52% (annualized) and 0.82%, respectively.
(e) Annualized
FINANCIAL HIGHLIGHTS
VALUE EQUITY FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
PERIOD PERIOD
ENDED ENDED
JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002(a) 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 20.20 $ 20.20
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss) 0.06 (0.01)
Net Losses on Securities (Both Realized
and Unrealized) (3.98) (3.86)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (3.92) (3.87)
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.19 0.15
================================================================================
Net Asset Value -- End of Period $ 16.09 $ 16.18
================================================================================
TOTAL RETURN(c) (19.46%)(d) (19.21%)(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 163 $ 242
Ratio of Expenses to Average Net Assets(e) 1.39%(f) 1.95%(f)
Ratio of Net Investment Income (Loss) to
Average Net Assets 0.51%(f) (0.22%)(f)
Portfolio Turnover Rate 43%(g) 43%(g)
(a) From April 1, 2002, since inception of Class, to July 31, 2002.
(b) The per share information for Class B was computed based on average shares.
(c) The applicable sales charges for Class A or CDSC fees for Class B are not
included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian fees).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2002.
FINANCIAL HIGHLIGHTS
VALUE EQUITY FUND -- CLASS C
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED JULY 31 JULY 31
- --------------------------------------------------------------------------------
2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 20.82 $ 24.90 $ 24.72
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.02) (0.06) (0.06)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (4.24) (0.14) 0.45
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (4.26) (0.20) 0.39
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.67 3.88 0.21
================================================================================
Net Asset Value -- End of Period $ 15.89 $ 20.82 $ 24.90
================================================================================
TOTAL RETURN(c) (20.98%) (0.49%) 1.52%(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 1,684 $ 1,024 $ 96
Ratio of Expenses to Average Net
Assets(e)(f) 2.05% 2.04% 2.13%(g)
Ratio of Net Investment Loss to Average
Net Assets(f) (0.12%) (0.23%) (0.49%)(g)
Portfolio Turnover Rate 43% 54% 67%(h)
(a) From February 15, 2000, since inception of Class, to July 31, 2000.
(b) The per share information was computed based on average shares for the
years ended July 31, 2002 and 2001.
(c) The applicable CDSC fees are not included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(f) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended July 31, 2002 and 2001 and the period ended July 31, 2000. If
such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 2.79%, 2.29% and 2.22% (annualized),
respectively, and ratio of net investment loss to average net assets would
have been (0.86%), (0.48%) and (0.58%) (annualized), respectively.
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2000.
OTHER INFORMATION
UNAUDITED
The table below provides information about each of the Independent and
Interested Directors. Their affiliations represent their principal occupations.
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
Fred A. Deering Vice Chairman of Formerly, Chairman of the Executive 47
1551 Larimer Street, #1701 the Board Committee and Chairman of the Board of
Denver, Colorado Security Life of Denver Insurance
Company and Director of ING American
Age: 74 Holdings Company and First ING Life
Insurance Company of New York.
Formerly, Trustee of INVESCO Global
Health Sciences Fund.
Victor L. Andrews, Ph.D. Director Professor Emeritus, Chairman Emeritus 47 Director of The
34 Seawatch Drive and Chairman and CFO of the Roundtable Sheffield Funds, Inc.
Savannah, Georgia of the Department of Finance of Georgia
State University; and President Andrews
Age: 72 Financial Associates, Inc. (consulting
firm). Formerly, member of the faculties
of the Harvard Business School; and the
Sloan School of Management of MIT.
Bob R. Baker Director Consultant (2000 to Present). Formerly, 47
37 Castle Pines Dr. N. President and Chief Executive Officer
Castle Rock, Colorado (1988 to 2000) of AMC Cancer Research
Center, Denver, Colorado (until Mid-
Age: 66 December 1988); Vice Chairman of the
Board of First Columbia Financial
Corporation, Englewood, Colorado; and
formerly, Chairman of the Board and
Chief Executive Officer of First
Columbia Financial Corporation.
Lawrence H. Budner Director Trust Consultant. Formerly, 47
7608 Glen Albens Circle Senior Vice President and Senior
Dallas, Texas Trust Officer of InterFirst Bank,
Dallas, Texas.
Age: 72
James T. Bunch Director Principal and Founder of Green, Manning 47
3600 Republic Plaza (since 2000) & Bunch Ltd., Denver, Colorado (1988 to
370 Seventeenth Street Present); Director and Secretary of
Denver, Colorado Green, Manning & Bunch Securities, Inc.;
and Director and Vice President of
Age: 59 Western Golf Association and Evans
Scholars Foundation. Formerly, General
Counsel and Director of Boettcher &
Company Denver, Colorado; and formerly
Chairman and Managing Partner of Davis,
Graham & Stubbs, Denver, Colorado.
OTHER INFORMATION
UNAUDITED
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis Director Chairman of Lawsuit Resolution Services, 47 Director of General
701 "B" Street (since 2000) San Diego, California (1987 to Present). Chemical Group, Inc.,
Suite 2100 Formerly, Associate Justice of the Hampdon, New
San Diego, California California Court of Appeals; and Hampshire (1996 to
of Counsel, Latham & Watkins, Present). Director of
Age: 69 San Diego, California (1987 to 1997). Wheelabrator
Technologies, Inc.;
Fisher Scientific, Inc;
Henley Manufacturing,
Inc.; and California
Coastal Properties, Inc.
John W. McIntyre Director Retired. Trustee of Gables Residential 47
Piedmont Center Suite 100 Trust. Trustee and Chairman of the J.M.
Atlanta, Georgia Tull Charitable Foundation; Director of
Kaiser Foundation Health Plans of
Age: 72 Georgia, Inc. Formerly, Vice Chairman of
the Board of Directors of The Citizens
and Southern Corporation and Chairman
of the Board and Chief Executive Officer
of The Citizens and Southern Georgia
Corporation and The Citizens and
Southern National Bank. Formerly,
Trustee of INVESCO Global Health
Sciences Fund and Trustee of Employee's
Retirement System of Georgia, Emory
University.
Larry Soll, Ph. D. Director Retired. Formerly, Chairman of the 47 Director of Synergen
2358 Sunshine Canyon Dr. (since 1997) Board (1987 to 1994), Chief Executive since incorporation
Boulder, Colorado Officer (1982 to 1989 and 1993 to 1994) in 1982; Director
and President (1982 to 1989) of Synergen of Isis Pharmaceuticals,
Age: 60 Inc.; and formerly Trustee of INVESCO Inc.
Global Health Sciences Fund.
OTHER INFORMATION
UNAUDITED
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS AND OFFICERS
These directors are "interested persons" of IFG as defined in the Act, and they are interested persons by virtue of the
fact that he/she is an officer or director of IFG, IDI or an affiliate of IFG.
Mark H. Williamson President(1998- Chief Executive Officer, Managed 47 Chairman of the
4350 South Monaco Street 2001); Chief Products Division, AMVESCAP PLC Board of INVESCO
Denver, Colorado Executive Officer (2001 to Present); Chief Executive Funds Group, Inc.
(1998-Present); Officer INVESCO Funds Group, Inc.; and INVESCO
Age: 51 and Chairman of and Chief Executive Officer INVESCO Distributors, Inc.
the Board (since Distributors, Inc. Formerly,
1999) President of INVESCO Funds Group,
Inc., President of INVESCO
Distributors, Inc., Chief Operating
Officer and Chairman of the Board of
INVESCO Global Health Sciences Fund;
Chairman and Chief Executive Officer
of NationsBanc Advisors, Inc.; and
Chairman of NationsBanc Investments,
Inc.
Raymond R. Cunningham Vice President President and Chief Operating Officer 47 Director of INVESCO
4350 South Monaco Street and Director of INVESCO Funds Group, Inc.; Funds Group, Inc.
Denver, Colorado (since 2001) President of INVESCO Distributors, and INVESCO
Inc. Formerly, Senior Vice President Distributors, Inc.
Age: 51 of INVESCO Funds Group, Inc., and
Senior Vice President of GT Global -
North America (1992 to 1998).
Richard W. Healey Director Senior Vice President of INVESCO 43 Director of INVESCO
4350 South Monaco Street (since 2000) Funds Group, Inc.; Senior Vice Funds Group, Inc.
Denver, Colorado President of INVESCO Distributors, and INVESCO
Inc. Formerly, Senior Vice President Distributors, Inc.
Age: 48 of GT Global - North America (1996 to
1998) and The Boston Company (1993
to 1996).
Glen A. Payne Secretary Senior Vice President, General
4350 South Monaco Street Counsel and Secretary of INVESCO
Denver, Colorado Funds Group, Inc.; Senior Vice
President, Secretary and General
Age: 55 Counsel of INVESCO Distributors, Inc.
Formerly, Secretary of INVESCO Global
Health Sciences Fund; General Counsel
of INVESCO Trust Company (1989 to
1998); and employee of a U.S.
regulatory agency, Washington,
D.C. (1973 to 1989).
OTHER INFORMATION
UNAUDITED
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald L. Grooms Chief Accounting Senior Vice President, and Treasurer Director of INVESCO
4350 South Monaco Street Officer, Chief INVESCO Funds Group, Inc.; and Senior Funds Group, Inc.
Denver, Colorado Financial Officer Vice President and Treasurer of INVESCO and INVESCO
and Treasurer Distributors, Inc. Formerly, Treasurer Distributors, Inc.
Age: 56 and Principal Financial and Accounting
Officer of INVESCO Global Health
Sciences Fund; and Senior Vice President
and Treasurer of INVESCO Trust Company
(1988 to 1998).
William J. Galvin, Jr. Assistant Secretary Senior Vice President and Assistant Director of INVESCO
4350 South Monaco Street Secretary INVESCO Funds Group, Inc.; and Funds Group, Inc.
Denver, Colorado Senior Vice President and Assistant and INVESCO
Secretary INVESCO Distributors, Inc. Distributors, Inc.
Age: 46 Formerly, Trust Officer of INVESCO Trust
Company (1995 to 1998).
Pamela J. Piro Assistant Treasurer Vice President and Assistant Treasurer
4350 South Monaco Street of INVESCO Funds Group, Inc.; and
Denver, Colorado Assistant Treasurer of INVESCO
Distributors, Inc. Formerly, Assistant
Age: 42 Vice President (1996 to 1997).
Tane T. Tyler Assistant Secretary Vice President and Assistant General
4350 South Monaco Street (since 2002) Counsel of INVESCO Funds Group, Inc.
Denver, Colorado
Age: 37
* Except as otherwise indicated, each individual has held the position(s) shown
for at least the last five years.
The Statement of Additional Information ("SAI") includes additional information
about Fund directors and is available, without charge, upon request. To obtain a
free copy of the current SAI, call 1-800-525-8085.
[INVESCO ICON] INVESCO(R)
1-800-525-8085
Personal Account Line: 1-800-424-8085
Advisor Services: 1-800-6-INVESCO
invescofunds.com
INVESCO Distributors, Inc. (SM), Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
This information must be preceded or accompanied
by a current prospectus.
AEQ 900374 9/02
APPENDIX III
JANUARY 31, 2003
SEMIANNUAL REPORT
INVESCO STOCK FUNDS, INC.
DYNAMICS FUND
GROWTH FUND
GROWTH & INCOME FUND
INVESCO ENDEAVOR FUND
S&P 500 INDEX FUND
SMALL COMPANY GROWTH FUND
VALUE EQUITY FUND
"...WE THINK THERE ARE REASONS TO BE OPTIMISTIC ABOUT STOCKS IN THE COMING
YEAR."
SEE PAGE 17
[INVESCO ICON] INVESCO(R)
[PHOTOGRAPH OF RAYMOND R. CUNNINGHAM OMMITED]
LESSONS LEARNED
FELLOW SHAREHOLDER:
After a relatively strong fourth quarter -- and an auspicious start to 2003 --
the stock market backed down in the second half of January. Once again, what had
initially seemed like the beginning of a sustained rebound turned out to be a
false start. You could almost hear the collective groan from investors, and,
admittedly, I joined in.
But then I stepped back for a view of the big picture. Has this market been
frustrating? Undeniably. However, it's also been instructive, and I believe that
those of us who pay attention to the downturn's lessons will come out ahead in
the long run.
The first lesson the bear market has reinforced is the importance of defining
and maintaining an investment plan. This plan should accommodate your risk
tolerance, time horizon, and long-term goals -- and it should be built to last.
That's not to say it doesn't need fine-tuning now and again. The lesson of
diversification always deserves review. As we've seen this past decade, a
variety of investments -- from Treasuries to aggressive growth stocks --
constantly vie for leadership, and there's never just one winner over time. The
last few years have also reinforced the lesson that adequate diversification
requires occasional rebalancing. Many investors made the mistake of letting
portfolios become overly stock-heavy during the late 1990s, and then came to
regret this lapse when bonds surged ahead in the new millennium.
Similarly, history says it would be a mistake to neglect stocks now. Don't
forget that, while the past few years have been tough on equities, they still
deserve a place in every long-term investor's portfolio. After all, stocks have
historically outpaced inflation by a far greater margin than bonds. For example,
in surveying the 50-year period ended December 31, 2002, stock returns exceeded
inflation by 7.16%, compared with 2.37% for bonds.*
Perhaps one of the greatest lessons we can learn from the current downturn is
that it's tough to go it alone. Now more than ever, it helps to have a trusted
financial advisor to turn to for advice and assistance.
It's not enough to recognize history's lessons -- we also need to put them to
good use so we're better prepared to meet tomorrow's challenges.
Sincerely,
/s/Ray Cunningham
Ray Cunningham
President and CEO, INVESCO Funds Group, Inc.
*PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. SOURCES: STANDARD &
POOR'S; FEDERAL RESERVE. STOCKS ARE REPRESENTED BY THE TOTAL RETURNS OF THE
S&P 500 INDEX, AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS (IN TERMS
OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET; BONDS BY LONG-TERM TREASURIES (10+
YEARS); INFLATION BY THE CONSUMER PRICE INDEX. TREASURY BILLS ARE GUARANTEED
BY THE FULL FAITH AND CREDIT OF THE U.S. GOVERNMENT AS TO THE TIMELY PAYMENT
OF PRINCIPAL AND INTEREST. STOCKS ARE NOT GUARANTEED. INVESTORS CANNOT INVEST
DIRECTLY IN ANY MARKET INDEX. INDEXES ARE UNMANAGED; THEREFORE, THEIR
PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED
WITH MUTUAL FUND INVESTING.
INVESCO STOCK FUNDS, INC.
TOTAL RETURN PERIODS ENDED 1/31/02*
Manager's
Cumulative 10 years+ or Report
Fund (Inception) 6 months 1 year 5 years+ Since Inception^ Page #
- -------------------------------------------------------------------------------------------------------------------------------
DYNAMICS FUND - CLASS A (4/02) WITH SALES CHANGE (7.24%) N/A N/A (34.34%)^** 3
- -------------------------------------------------------------------------------------------------------------------------------
DYNAMICS FUND - CLASS B (4/02) WITH CDSC (7.23%) N/A N/A (36.11%)^** 3
- -------------------------------------------------------------------------------------------------------------------------------
DYNAMICS FUND - CLASS C (2/00) WITH CDSC (3.36%) (33.73%) N/A (28.64%)^+ 3
- -------------------------------------------------------------------------------------------------------------------------------
DYNAMICS FUND - CLASS K (12/00) (1.86%) (32.18%) N/A (29.39%)^+ 3
- -------------------------------------------------------------------------------------------------------------------------------
DYNAMICS FUND - INVESTOR CLASS (9/67) (1.85%) (32.03%) (2.46%) 7.16% 3
- -------------------------------------------------------------------------------------------------------------------------------
DYNAMICS FUND - INSTITUTIONAL CLASS (5/00) (1.65%) (31.76%) N/A (26.09%)^+ 3
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH FUND - CLASS A (4/02) WITH SALES CHARGE (14.37%) N/A N/A (39.92%)^** 6
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH FUND - CLASS B (4/02) WITH CDSC (13.59%) N/A N/A (41.32%)^** 6
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH FUND - CLASS C (2/00) WITH CDSC (9.75%) (41.65%) N/A (40.57%)^+ 6
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH FUND - CLASS K (12/00) (8.67%) (40.43%) N/A (46.66%)^+ 6
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH FUND - INVESTOR CLASS (11/35) (8.54%) (40.24%) (15.50%) (0.99%) 6
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND - CLASS A (4/02) WITH SALES CHARGE (13.98%) N/A N/A (37.39%)^** 9
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND - CLASS B (4/02) WITH CDSC (14.35%) N/A N/A (39.19%)^** 9
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND - CLASS C (2/00) WITH CDSC (10.34%) (36.32%) N/A (31.65%)^+ 9
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND - CLASS K (12/00) (9.03%) (34.95%) N/A (36.37%)^+ 9
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME FUND - INVESTOR CLASS (7/98) (9.00%) (34.79%) N/A (8.25%)^+ 9
- -------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX FUND - INSTITUTIONAL CLASS (12/97) (5.47%) (23.76%) (1.74%) (0.86%)^+ 11
- -------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX FUND - INVESTOR CLASS (12/97) (5.61%) (23.80%) (1.76%) (0.72%)^+ 11
- -------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND - CLASS A (4/02) WITH SALES CHARGE (8.88%) N/A N/A (31.85%)^** 12
- -------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND - CLASS B (4/02) WITH CDSC (9.16%) N/A N/A (33.36%)^** 12
- -------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND - CLASS C (2/00) WITH CDSC (4.84%) (32.42%) N/A (26.56%)^+ 12
- -------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND - CLASS K (12/01) (3.91%) (30.23%) N/A (28.19%)^+ 12
- -------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND - INVESTOR CLASS (12/91) (3.69%) (30.23%) (0.45%) 7.06% 12
- -------------------------------------------------------------------------------------------------------------------------------
VALUE EQUITY FUND - CLASS A (4/02) WITH SALES CHARGE (10.70%) N/A N/A (28.08%)^** 14
- -------------------------------------------------------------------------------------------------------------------------------
VALUE EQUITY FUND - CLASS B (4/02) WITH CDSC (10.74%) N/A N/A (28.84%)^** 14
- -------------------------------------------------------------------------------------------------------------------------------
VALUE EQUITY FUND - CLASS C (2/00) WITH CDSC (6.80%) (22.64%) N/A (9.17%)^+ 14
- -------------------------------------------------------------------------------------------------------------------------------
VALUE EQUITY FUND - INVESTOR CLASS (5/86) (5.42%) (20.99%) (4.03%) 6.32% 14
- -------------------------------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER FROM THE PRSIDENT & CEO............1
FUND REPORTS............................. 3
AN INTERVIEW WITH TIM MILLER.............16
MARKET HEADLINES.........................18
INVESTMENT HOLDINGS......................19
FINANCIAL STATEMENTS.....................57
NOTES TO FINANCIAL STATEMENTS............72
OTHER INFORMATION........................80
FINANCIAL HIGHLIGHTS.....................81
*PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL VARY SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY BE
WORTH MORE OR LESS THAN WHEN PURCHASED. THE FUNDS' CLASS A PERFORMANCE REFLECTS
THE MAXIMUM SALES CHARGE OF 5.50%. THE FUNDS' CLASS B AND CLASS C PERFORMANCE
REFLECTS THE DEDUCTION OF THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE (CDSC)
FOR THE PERIODS SHOWN. THE CDSC ON CLASS B SHARES DECLINES FROM 5% BEGINNING AT
THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE SEVENTH YEAR. THE CDSC OF
CLASS C SHARES IS 1% FOR THE FIRST 13 MONTHS AFTER PURCHASE. THE PERFORMANCE OF
THE FUND'S INVESTOR CLASS, INSTITUTIONAL CLASS, CLASS A, CLASS B, CLASS C AND
CLASS K SHARES WILL DIFFER DUE TO THE DIFFERENT SALES CHARGE STRUCTURES AND
EXPENSES. INVESTOR CLASS SHARES ARE CLOSED TO NEW INVESTORS AND ARE OFFERED TO
INVESTORS GRANDFATHERED AS OF APRIL 1, 2002.
+AVERAGE ANNUALIZED
**NOT ANNUALIZED
^FOR FUNDS OR SHARE CLASSES INTRODUCED MORE RECENTLY
PERFORMANCE INFORMATION PROVIDED IN THIS REPORT DOES NOT REFLECT THE DEDUCTION
OF TAXES SHAREHOLDERS PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES.
THE INDUSTRIES AND/OR SECTORS USED FOR PORTFOLIO SECURITIES CLASSIFICATION THAT
MAY BE USED THROUGHOUT THIS REPORT ARE THE GLOBAL INDUSTRY CLASSIFICATION
STANDARD WHICH WAS DEVELOPED BY AND IS THE EXCLUSIVE PROPERTY AND A SERVICE MARK
OF MORGAN STANLEY CAPITAL INTERNATIONAL INC. AND STANDARD & POOR'S.
YOUR FUND'S REPORT
DYNAMICS FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
Volatility persisted during the past six months, with the market initially
rising in August, then declining through the first week of October, then rising
sharply through November, only to fall back again in December and January. Early
on, economic uncertainty and persistent worries about the threat of another war
with Iraq had investors on their heels. But stocks abruptly reversed course in
October, as investors apparently reasoned that the selling had become overdone.
Stocks rallied throughout November, as the Federal Reserve cut interest rates
again -- this time by 50 basis points. During the remainder of the period,
however, stocks essentially traded sideways, as optimism about the economy
competed for investor attention with anxieties relating to the growing
likelihood of war.
In this choppy period, the fund saw mixed absolute performance across its
holdings, and, as a result, for the six-month period ended January 31, 2003, the
value of Dynamics Fund-Investor Class shares declined by 1.85%. This return
modestly underperformed the Russell Midcap Growth Index, which declined 0.85%
during that same period. (Of course, past performance is not a guarantee of
future results.)(1),(2) For performance of other share classes, please see page
2.
- --------------------------------------------------------------------------------
DYNAMICS FUND --
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 1/31/03
- --------------------------------------------------------------------------------
Forest Laboratories..........................................3.39%
Lamar Advertising Class A Shrs...............................1.65%
Symantec Corp................................................1.65%
eBay Inc.....................................................1.59%
Alcon Inc....................................................1.47%
Varian Medical Systems.......................................1.46%
Teva Pharmaceutical Industries Ltd
Sponsored ADR Representing Ord Shares.....................1.43%
Zimmer Holdings..............................................1.42%
EchoStar Communications Class A Shrs.........................1.33%
CDW Computer Centers.........................................1.33%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
PORTFOLIO CHANGES SUPPORTED PERFORMANCE
Although we would prefer to see the fund's absolute performance in the black,
the fund's recent showing encourages us. During the late summer, we modified the
portfolio's composition, in an effort to ensure that it would fully participate
in the market's advance when the economy and investor sentiment improved. So
far, it appears that our tactics are working well, as the fund has outperformed
when stocks have rallied, while its underperformance has been modest when stocks
have been weak.
Our changes included decreasing the fund's technology exposure, while increasing
our weightings in the energy, industrial, and health care sectors.
In technology, we reduced the fund's exposure to semiconductors, a move that
paid off as the group underperformed during the period. Although semiconductor
stocks negatively affected the fund's performance somewhat, the damage could
have been much worse had we maintained the fund's original exposure to the
industry. Elsewhere within technology, the fund benefited from its exposure to
the software group, where companies, such as BEA Systems and Symantec Corp,
rallied sharply.
ADDITIONS TO ENERGY AND HEALTH CARE SECTORS WORKED WELL
Other portfolio tactics supported performance as well. For example, our decision
to increase the fund's energy weighting helped performance, as persistently high
energy prices supported the group. Our additions to the health care sector also
added value, particularly in the equipment industry, where Boston Scientific and
Alcon Inc recorded double-digit gains. The fund's top holding, Forest
Laboratories, also performed exceptionally well, rallying throughout the period
as the company's financial results continued to soundly beat consensus
expectations.
Our industrial and financial services holdings were not as successful. The
financial services sector underperformed the broader market during the period.
However, our losses in the group were mitigated somewhat by our stock selection,
as our holdings declined less than the rest of the sector. In particular,
diversified financials Legg Mason and SLM Corp handily outperformed the broader
market.
ECONOMIC SOFTNESS HURT INDUSTRIAL WEIGHTING
The fund's industrial exposure also did not perform as well as we had hoped.
Although several of the fund's additional investments in the sector, including
Career Education and Republic Services, performed well, poor results from a
number of existing holdings more than negated those gains. BISYS Group was the
most significant detractor, after the provider of back office services to the
financial services industry lowered earnings expectations. Robert Half
International also disappointed. The provider of temporary employment
underperformed in response to disappointing unemployment reports.
LINE GRAPH: INVESCO DYNAMICS FUND - INVESTOR CLASS GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Dynamics
Fund - Investor Class to the value of a $10,000 investment in the Russell Midcap
Growth Index(2), assuming in each case reinvestment of all dividends and capital
gain distributions, for the ten year period ended 1/31/03.
INVESCO DYNAMICS FUND - INVESTOR CLASS RUSSELL MIDCAP GROWTH INDEX(2)
1/93 $10,000 $10,000
1/94 $12,193 $11,273
1/95 $11,540 $10,882
1/96 $16,104 $14,660
1/97 $18,859 $17,673
1/98 $22,606 $20,366
1/99 $29,814 $25,176
1/00 $47,561 $36,974
1/01 $46,203 $34,500
1/02 $29,372 $25,213
1/03 $19,964 $18,731
LINE GRAPH: INVESCO DYNAMICS FUND - CLASS A & B GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Dynamics
Fund - Class A and the value of a $10,000 investment in INVESCO Dynamics Fund -
Class B to the value of a $10,000 investment in the Russell Midcap Growth
Index(2), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the cases of INVESCO Dynamics Fund - Class A and Class B,
inclusion of front-end sales charge and contingent deferred sales charge,
respectively, for the period since inception (4/02) through 1/31/03.
INVESCO DYNAMICS FUND - INVESCO DYNAMICS FUND - RUSSELL MIDCAP
CLASS A CLASS B GROWTH INDEX(2)
4/02 $10,000 $10,000 $10,000
1/03 $ 6,566 $ 6,389 $ 7,317
LINE GRAPH: INVESCO DYNAMICS FUND - CLASS C GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Dynamics
Fund - Class C to the value of a $10,000 investment in the Russell Midcap Growth
Index(2), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the case of INVESCO Dynamics Fund - Class C, inclusion of
contingent deferred sales charge, for the period since inception (2/00) through
1/31/03.
INVESCO DYNAMICS FUND - CLASS C RUSSELL MIDCAP GROWTH INDEX(2)
2/00 $10,000 $10,000
1/01 $ 8,667 $ 7,710
1/02 $ 5,468 $ 5,634
1/03 $ 3,678 $ 4,186
(1)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
(2)THE RUSSELL MIDCAP GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL
MIDCAP COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH
VALUES. THE INDEX IS NOT MANAGED; THEREFORE, ITS PERFORMANCE DOES NOT REFLECT
MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND INCLUDING FRONT-END
SALES CHARGES AND CDSC. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST
FUND MANAGEMENT
[PHOTOGRAPH OF TIMOTHY J. MILLER OMITTED]
TIMOTHY J. MILLER, CFA
CHIEF INVESTMENT OFFICER TIM MILLER IS MANAGER OF INVESCO DYNAMICS FUND. HE ALSO
LEADS INVESCO'S GROWTH INVESTMENT MANAGEMENT TEAM. PRIOR TO JOINING INVESCO
FUNDS GROUP, TIM WAS ASSOCIATED WITH MISSISSIPPI VALLEY ADVISORS FOR 13 YEARS,
WHERE HE WAS AN ANALYST AND PORTFOLIO MANAGER. HE HOLDS AN MBA FROM THE
UNIVERSITY OF MISSOURI (ST. LOUIS), A BSBA FROM ST. LOUIS UNIVERSITY, AND IS A
CHARTERED FINANCIAL ANALYST CHARTERHOLDER. TIM HAS MORE THAN 20 YEARS OF
INVESTMENT EXPERIENCE.
RECOVERY MAY AWAIT A RESOLUTION IN IRAQ
Going forward, we believe the fundamental groundwork has been laid for an
economic recovery. However, anxieties relating to tensions with Iraq continue to
keep investors nervous, consumer confidence shaky, and corporate capital
expenditures tempered. Until we see a resolution in the conflict, this
stagnation will likely persist.
Against this backdrop, we do not anticipate making any significant changes to
the portfolio's composition. We are pleased with the way the fund has performed
recently, outperforming in rallies while keeping pace with the market during
softer periods. We continue to trim our retail exposure on concerns that
consumer confidence could deteriorate. Instead, we are focusing on companies
that typically enjoy recurring revenues, such as cable companies, which are
likely to receive their subscription revenues even if consumer confidence slips.
We have also increased the fund's exposure to biotechnology companies, as
several recent positive rulings from the Food and Drug Administration have
rekindled our optimism about the group's growth potential.
LINE GRAPH: INVESCO DYNAMICS FUND - CLASS K GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Dynamics
Fund - Class K to the value of a $10,000 investment in the Russell Midcap Growth
Index(2), assuming in each case reinvestment of all dividends and capital gain
distributions, for the period since inception (12/00) through 1/31/03.
INVESCO DYNAMICS FUND - CLASS K RUSSELL MIDCAP GROWTH INDEX(2)
12/00 $10,000 $10,000
1/01 $10,920 $11,128
1/02 $ 6,930 $ 8,132
1/03 $ 4,700 $ 6,042
LINE GRAPH: INVESCO DYNAMICS FUND - INSTITUTIONAL CLASS GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Dynamics
Fund - Institutional Class to the value of a $10,000 investment in the Russell
Midcap Growth Index(2), assuming in each case reinvestment of all dividends and
capital gain distributions, for the period since inception (5/00) through
1/31/03.
INVESCO DYNAMICS FUND - INSTITUTIONAL CLASS RUSSELL MIDCAP GROWTH INDEX(2)
5/00 $10,000 $10,000
1/01 $10,171 $ 9,201
1/02 $ 6,487 $ 6,724
1/03 $ 4,427 $ 4,995
PIE CHART: DYNAMICS FUND
INDUSTRY BREAKDOWN
AS OF 1/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Application Software.................... 6.30%
Pharmaceuticals..........................6.19%
Health Care Equipment....................5.06%
Systems Software.........................4.35%
Broadcasting - Radio/TV..................4.04%
Semiconductors...........................3.77%
Banks.................... ...............3.58%
Oil & Gas Exploration,
Production & Transportation............3.12%
Computer Storage & Peripherals...........2.98%
Investment Adviser/ Broker
Dealer Services.......................2.79%
Other Industries........................57.14%
Net Cash Equivalents.....................0.68%
YOUR FUND'S REPORT
GROWTH FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
The stock market continued its slide during the six-month period ended January
31, 2003, with all of the major stock indexes finishing the period in negative
territory. Although the flurry of accounting scandals that soured investors'
mood during the first part of 2002 eased considerably, new troubles emerged --
namely, the fear that war with Iraq might erupt, as well as continued signs of a
sluggish economy. Escalating oil prices, disappointing holiday retail sales, and
North Korea's disclosure of unsanctioned nuclear capabilities also contributed
to unfavorable market conditions. Although the Federal Reserve attempted to
provide a spark with a 50 basis point interest rate cut in November, and the
Republican sweep of Congress brought talk of potential future tax cuts, a high
level of uncertainty ultimately overwhelmed rally attempts.
In this environment, Growth Fund-Investor Class shares posted a loss of 8.54%
during the six-month period ended January 31, 2003. In comparison, the fund's
benchmark, the Russell 1000 Growth Index, retreated by 6.02% during that same
period. (Of course, past performance is not a guarantee of future
results.)(3),(4) For performance of other share classes, please see page 2.
LACK OF EXPOSURE TO GOLD DULLS PERFORMANCE
One of the few areas to excel during the period was the gold sector, which
enjoyed impressive gains thanks to a surge in gold prices fueled by investors'
appetite for more defensive securities. With the U.S. dollar continuing to lose
value relative to other currencies, gold prices received an additional boost,
since gold is often used as a hedge against a weaker dollar. By the end of the
period, gold had spiked to $370 per ounce -- its highest price level in several
years. Since last spring, we have seen the commodity typically in the $320 to
$350 range.
Unfortunately, the fund was not positioned to capitalize on this trend, and our
lack of exposure to gold proved detrimental. Furthermore, when we attempted to
remedy matters by adding Freeport-McMoRan Copper & Gold to the portfolio, this
strategy backfired due to a terrorist attack in Indonesia (where Freeport is
based), which sent the company's stock down precipitously. We no longer hold
Freeport in the fund.
INDUSTRIALS AND HEALTH CARE SERVICES HOLDINGS DETRACT
Also weighing on the fund's performance were its holdings in the industrials and
health care sectors. Within industrials, our aerospace and defense stocks were
hindered by their exposure to airline bankruptcies, which dampened demand and
heightened uncertainty in the industry. For example, General Electric declined
when its airplane engine business fell victim to the airline bankruptcies. The
company battled credit concerns during the period as well. Although we reduced
our holding in GE in response to this negative news, the company's struggles
influenced performance nonetheless.
- --------------------------------------------------------------------------------
GROWTH FUND --
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 1/31/03
- --------------------------------------------------------------------------------
Microsoft Corp ....................................5.55%
Pfizer Inc.........................................4.28%
Citigroup Inc......................................3.53%
Johnson & Johnson..................................3.11%
Bank of America....................................3.10%
Amgen Inc..........................................2.91%
EchoStar Communications Class A Shrs...............2.88%
Cisco Systems ......... ...........................2.86%
Intel Corp...... ..................................2.54%
Wells Fargo & Co...................................2.37%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
Our health care holdings also detracted from performance. While hospital chains
Tenet Healthcare and HCA Inc were market leaders through most of 2002, in late
October these companies were suddenly faced with growing concern over the
sustainability of their pricing practices. As a result, their stocks turned down
sharply, taking a toll on fund performance. We have since sold Tenet and HCA,
shifting assets to biotechnology and large-cap pharmaceutical companies that we
believe have the strongest earnings and most promising product pipelines.
LINE GRAPH: INVESCO GROWTH FUND - INVESTOR CLASS GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Growth
Fund - Investor Class to the value of a $10,000 investment in the Russell 1000
Growth Index(4), assuming in each case reinvestment of all dividends and capital
gain distributions, for the ten year period ended 1/31/03.
INVESCO GROWTH FUND - INVESTOR CLASS RUSSELL 1000 GROWTH INDEX(4)
1/93 $10,000 $10,000
1/94 $11,735 $10,648
1/95 $10,256 $10,908
1/96 $13,647 $15,139
1/97 $17,307 $19,301
1/98 $21,002 $24,238
1/99 $30,726 $34,561
1/00 $39,487 $41,431
1/01 $34,209 $36,053
1/02 $15,143 $26,362
1/03 $ 9,050 $18,883
LINE GRAPH: INVESCO GROWTH FUND - CLASS A & B GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Growth
Fund - Class A and the value of a $10,000 investment in INVESCO Growth Fund -
Class B to the value of a $10,000 investment in the Russell 1000 Growth
Index(4), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the cases of INVESCO Growth Fund - Class A and Class B,
inclusion of front-end sales charge and contingent deferred sales charge,
respectively, for the period since inception (4/02) through 1/31/03.
INVESCO GROWTH FUND - INVESCO GROWTH FUND - RUSSELL 1000
CLASS A CLASS B GROWTH INDEX(4)
4/02 $10,000 $10,000 $10,000
1/03 $ 6,008 $ 5,868 $ 7,223
BRIGHT SPOTS IN TECH, FINANCIAL AND CONSUMER DISCRETIONARY STOCKS
Although the fund lost ground during the fiscal period, the new management
team's restructuring efforts helped keep losses in check, and also yielded some
areas of outperformance. For example, our technology holdings outpaced their
counterparts in the Russell 1000 Growth Index for the period, as our emphasis on
the software industry proved beneficial. Many companies in this sub-sector,
unlike semiconductor capital equipment firms, have endured a long down cycle. As
a result, they've had more time to work through cost issues, and their revenues
are now directly improving earnings. This, in turn, attracted investors to the
software industry during the period's brief rallies, and portfolio holdings like
Symantec Corp and BEA Systems enjoyed impressive gains.
We also had success with our positioning in the financial services sector. As
the period progressed, we moved from focusing on regional banks -- which did
well early on -- to emphasizing more diversified multi-national companies, and
the timing of this shift worked well for the fund.
Finally, our decisions in the consumer discretionary sector had a positive
affect on the fund's overall return. Although specialty retail stores endured
weak sales, advertising spending did increase, and broadcasters enjoyed
better-than-expected response to their fall television line-ups. In keeping with
these trends, we trimmed the fund's retail stocks, while broadening its exposure
to media companies. Standouts included EchoStar Communications and Omnicom
Group.
(3)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
(4)THE RUSSELL 1000 GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000
COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES.
THE INDEX IS NOT MANAGED; THEREFORE, ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT
FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND INCLUDING FRONT-END SALES
CHARGES AND CDSC. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
FUND MANAGEMENT
TEAM MANAGED
[PHOTOGRAPH OF TIMOTHY J. MILLER OMITTED]
TIMOTHY J. MILLER, CFA
CHIEF INVESTMENT OFFICER TIM MILLER LEADS INVESCO'S GROWTH INVESTMENT MANAGEMENT
TEAM. PRIOR TO JOINING INVESCO FUNDS GROUP, TIM WAS ASSOCIATED WITH MISSISSIPPI
VALLEY ADVISORS FOR 13 YEARS, WHERE HE WAS AN ANALYST AND PORTFOLIO MANAGER. HE
HOLDS AN MBA FROM THE UNIVERSITY OF MISSOURI (ST. LOUIS), A BSBA FROM ST. LOUIS
UNIVERSITY, AND IS A CHARTERED FINANCIAL ANALYST CHARTERHOLDER. TIM HAS MORE
THAN 20 YEARS OF INVESTMENT EXPERIENCE.
[PHOTGRAPH OF FRITZ MEYER OMITTED]
[PHOTOGRAPH OF PETER M. LOVELL OMITTED]
FRITZ MEYER
VICE PRESIDENT FRITZ MEYER IS A MEMBER OF THE INVESCO GROWTH INVESTMENT
MANAGEMENT TEAM. FRITZ RECEIVED HIS AB FROM DARTMOUTH COLLEGE WITH A DISTINCTION
IN ECONOMICS, AND HIS MBA FROM AMOS TUCK SCHOOL-DARTMOUTH COLLEGE. HE BEGAN HIS
INVESTMENT CAREER IN 1976 AND JOINED INVESCO FUNDS GROUP IN 1996.
PETER M. LOVELL
VICE PRESIDENT PETER M. LOVELL IS A MEMBER OF THE INVESCO GROWTH INVESTMENT
MANAGEMENT TEAM. PETE EARNED HIS BA AT COLORADO STATE UNIVERSITY AND HIS MBA
FROM REGIS UNIVERSITY. HE BEGAN HIS INVESTMENT CAREER IN 1992 AND JOINED INVESCO
IN 1994.
PATIENCE IN AWAITING RECOVERY
At the end of the period, the unresolved conflict with Iraq continued to
dominate the market along with economic news. On the positive side, the latest
economic numbers have been flat to slightly better, and consumer spending has
essentially held up through the downturn. We will be watching closely for any
signs of change on these fronts -- especially regarding consumer confidence,
which has kept the economy moving thus far. It will also be interesting to see
whether President Bush's proposal to eliminate the double taxation on dividends
becomes law. If it does, we could see both individual investors and corporations
benefit.
Regardless of how the President's stimulus plan fares, and how the geopolitical
hazards the market is facing are resolved, we realize that it takes time for the
economy to complete a full cycle. Therefore, we are exercising patience in
awaiting a gradual, sustained recovery.
LINE GRAPH: INVESCO GROWTH FUND - CLASS C GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Growth
Fund - Class C to the value of a $10,000 investment in the Russell 1000 Growth
Index(4), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the case of INVESCO Growth Fund - Class C, inclusion of
contingent deferred sales charge, for the period since inception (2/00) through
1/31/03.
INVESCO GROWTH FUND - CLASS C RUSSELL 1000 GROWTH INDEX(4)
2/00 $10,000 $10,000
1/01 $ 8,246 $ 8,296
1/02 $ 3,603 $ 6,066
1/03 $ 2,138 $ 4,345
LINE GRAPH: INVESCO GROWTH FUND - CLASS K GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Growth
Fund - Class K to the value of a $10,000 investment in the Russell 1000 Growth
Index(4), assuming in each case reinvestment of all dividends and capital gain
distributions, for the period since inception (12/00) through 1/31/03.
INVESCO GROWTH FUND - CLASS K RUSSELL 1000 GROWTH INDEX(4)
12/00 $10,000 $10,000
1/01 $10,536 $10,353
1/02 $ 4,292 $ 7,570
1/03 $ 2,557 $ 5,422
PIE CHART: GROWTH FUND
INDUSTRY BREAKDOWN
AS OF 1/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Pharmaceuticals..................... 12.92%
Systems Software......................9.39%
Banks.................................7.70%
Semiconductors....................... 6.29%
Diversified Financial Services........5.76%
Biotechnology.........................4.37%
General Merchandise Stores............3.59%
Aerospace & Defense...................3.50%
Industrial Conglomerates..............3.31%
Application Software..................3.21%
Other Industries.....................37.45%
Net Cash & Cash Equivalents...........2.51%
YOUR FUND'S REPORT
GROWTH & INCOME FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
The six-month period ended January 31, 2003, was fraught with volatility. Every
time investors dared to grow more optimistic, a geopolitical disruption or
economic obstacle surfaced, causing them to once again retreat. For example,
stocks initially rallied in August, the first month of the reporting period, as
investors' appetite for equities was whetted by attractive valuations and a
pause in the onslaught of corporate scandals that had weighed so heavily on the
market in previous months. Unfortunately, however, the rally was cut short when
questions about the economy's chances for recovery resurfaced and discussion of
a potential war with Iraq intensified.
LINE GRAPH: INVESCO GROWTH & INCOME FUND - INVESTOR CLASS GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Growth &
Income Fund - Investor Class to the value of a $10,000 investment in the Russell
1000 Growth Index(6), assuming in each case reinvestment of all dividends and
capital gain distributions, for the period since inception (7/98) through
1/31/03.
INVESCO GROWTH & INCOME FUND - INVESTOR CLASS RUSSELL 1000 GROWTH INDEX(6)
7/98 $10,000 $10,000
1/99 $15,191 $12,199
1/00 $19,821 $14,624
1/01 $18,678 $12,726
1/02 $10,328 $ 9,305
1/03 $ 6,735 $ 6,665
Similarly, after reaching a trough on October 9, stocks started climbing again,
rallying through November. Although this rebound was more substantial, the gains
logged were subsequently erased in December and January. Worries over Iraq
intensified, and North Korea's assertion that it would be producing nuclear
weapons -- on top of rapidly rising oil prices and conflicting economic data --
gave investors pause. Intermittent signs of a gradual economic recovery, such as
strong third-quarter gross domestic product growth and a significant gain in
December manufacturing activity, were simply not enough to trigger a sustained
upswing in stock prices.
LINE GRAPH: INVESCO GROWTH & INCOME FUND - CLASS A & B GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Growth &
Income Fund - Class A and the value of a $10,000 investment in INVESCO Growth &
Income Fund - Class B to the value of a $10,000 investment in the Russell 1000
Growth Index(6), assuming in each case reinvestment of all dividends and capital
gain distributions, and in the cases of INVESCO Growth & Income Fund - Class A
and Class B, inclusion of front-end sales charge and contingent deferred sales
charge, respectively, for the period since inception (4/02) through 1/31/03.
INVESCO GROWTH & INCOME INVESCO GROWTH & Income RUSSELL 1000
GROWTH FUND - CLASS A FUND - CLASS B INDEX(6)
4/02 $10,000 $10,000 $10,000
1/03 $ 6,261 $ 6,081 $ 7,223
Given the period's challenges, it was not surprising to see growth stocks
struggle. Over the course of the six-month period ended January 31, 2003, Growth
& Income Fund-Investor Class shares fell 9.00%. In comparison, the Russell 1000
Growth Index retreated 6.02% during that same period. (Of course, past
performance is not a guarantee of future results.)(5),(6) For performance of
other share classes, please see page 2.
WEAKNESS IN INDUSTRIALS, CONSUMER STAPLES
The industrials sector was faced with its share of obstacles during a period
rife with economic turmoil, and the fund's substantial weighting in this area
proved detrimental. Specifically, our exposure to General Electric hampered
performance, as credit concerns plagued the company throughout the period. In
addition, GE's aircraft engine business was hard-hit by commercial airline
bankruptcies that slowed already weak demand. Defense companies, with their ties
to the aerospace industry, also felt the negative impact of the airlines' woes.
Indeed, even though defense spending increased, holdings like Lockheed Martin
and L-3 Communications Holdings endured losses.
Another weak spot for the fund was its weighting in consumer staples. As
investors rotated into technology stocks in the fourth quarter, many staples
stocks lagged, as investors shunned their inherently defensive investment
profiles. For example, Coca-Cola Co declined considerably during the period.
Finally, our health care holdings took a toll on performance. In late October,
hospital chain Tenet Healthcare -- after having been one of the fund's strongest
performers through most of 2002 -- tumbled as investors questioned the company's
Medicare pricing tactics. We have since sold Tenet from the portfolio.
Unfortunately, our health care weighting was largely devoted to hospitals, drug
distributors, and dental distributors -- all of which fell hard in sympathy with
Tenet.
LINE GRAPH: INVESCO GROWTH & INCOME FUND - CLASS C GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Growth &
Income Fund - Class C to the value of a $10,000 investment in the Russell 1000
Growth Index(6), assuming in each case reinvestment of all dividends and capital
gain distributions, and in the case of INVESCO Growth & Income Fund - Class C,
inclusion of contingent deferred sales charge, for the period since inception
(2/00) through 1/31/03.
INVESCO GROWTH & INCOME FUND - CLASS C RUSSELL 1000 GROWTH INDEX(6)
2/00 $10,000 $10,000
1/01 $ 9,118 $ 8,296
1/02 $ 5,005 $ 6,066
1/03 $ 3,237 $ 4,345
- --------------------------------------------------------------------------------
GROWTH & INCOME FUND --
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 1/31/03
- --------------------------------------------------------------------------------
Pfizer Inc..............................4.62%
Microsoft Corp..........................4.61%
Johnson & Johnson.......................4.26%
Wal-Mart Stores.........................2.96%
Software HOLDRS Trust...................2.60%
Forest Laboratories.....................2.49%
Intel Corp..............................2.16%
Cisco Systems...........................2.07%
Nasdaq-100 Trust Series 1 Shrs..........1.99%
General Electric........................1.96%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
GAINS IN ENERGY AND FINANCIALS HELP OFFSET LOSSES
On a positive note, the fund was overweight relative to the Russell 1000 Growth
Index in the energy sector, an area that fared well during the period.
Fundamentals for oil and gas companies remained strong, with demand picking up
as many areas of the country endured brutal winter conditions in December and
January. At the same time, inventories were low, and commodity prices increased
dramatically during the period -- the result of oil strikes in Venezuela and the
rhetoric surrounding a possible U.S./Iraqi war.
LINE GRAPH: INVESCO GROWTH & INCOME FUND - CLASS K GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Growth &
Income Fund - Class K to the value of a $10,000 investment in the Russell 1000
Growth Index(6), assuming in each case reinvestment of all dividends and capital
gain distributions, for the period since inception (12/00) through 1/31/03.
INVESCO GROWTH & INCOME FUND - CLASS K RUSSELL 1000 GROWTH INDEX(6)
12/00 $10,000 $10,000
1/01 $10,434 $10,353
1/02 $ 5,763 $ 7,570
1/03 $ 3,749 $ 5,422
The fund's financial services holdings also benefited performance. Some of our
market-sensitive stocks proved resilient, bouncing off their lows as investors
recognized that many of these companies' valuations had become attractive
relative to their growth prospects. For example, SML Corp outperformed the broad
market, and Bank of America, a more defensive holding that has held up well all
year, continued to offer solid earnings.
ECONOMY SLOWLY MENDING
We believe the fundamental groundwork has been laid for a healthy economic
recovery in 2003. In our opinion, were it not for external factors -- namely the
uncertainty stemming from geopolitical events -- the recovery would be much
further along. Indeed, plenty of recent economic data supports this view, such
as the "real business fixed investment" component of the fourth quarter's gross
domestic product report, improvements in the manufacturing sector, and an
unexpected drop in the unemployment rate for the month of January. Overall, we
continue to expect corporate profits to rebound this year, although the timing
of the rebound might hinge on how quickly a resolution with Iraq is reached.
PIE CHART: GROWTH & INCOME FUND
INDUSTRY BREAKDOWN
AS OF 1/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Pharmaceuticals..........................17.05%
Systems Software..........................6.36%
General Merchandise Stores................3.65%
Consumer Finance..........................3.65%
Industrial Conglomerates..................3.57%
Health Care Equipment.....................3.55%
Computer Hardware.........................3.54%
Soft Drinks...............................3.32%
Application Software......................3.31%
Semiconductors ...........................2.98%
Other Industries.........................48.87%
Net Cash & Cash Equivalents...............0.15%
(5)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
(6)THE RUSSELL 1000 GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000
COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES.
THE INDEX IS NOT MANAGED; THEREFORE, ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT
FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND INCLUDING FRONT-END SALES
CHARGES AND CDSC. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
FUND MANAGEMENT
[PHOTOGRAPH OF FRITZ MEYER OMITTED]
FRITZ MEYER
VICE PRESIDENT FRITZ MEYER IS A MEMBER OF THE INVESCO GROWTH INVESTMENT
MANAGEMENT TEAM. FRITZ RECEIVED HIS AB FROM DARTMOUTH COLLEGE WITH A DISTINCTION
IN ECONOMICS, AND HIS MBA FROM AMOS TUCK SCHOOL-DARTMOUTH COLLEGE. HE BEGAN HIS
INVESTMENT CAREER IN 1976 AND JOINED INVESCO FUNDS GROUP IN 1996.
YOUR FUNDS REPORT
S&P 500 INDEX FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
A NOTE ABOUT INDEX FUNDS AT INVESCO
INVESCO S&P 500 Index Fund is designed to track the performance of the S&P 500
Index, an index comprised of common stocks of U.S. companies that is weighted to
companies with large market capitalizations. The fund seeks to attain its
objective by investing in the common stocks that comprise the index in
approximately the same proportions as they are represented in the S&P 500 Index.
For the six-month period ended January 31, 2003, the value of Institutional
Class shares fell 5.47%, while the value of Investor Class shares fell 5.61%.
These returns tracked those of the S&P 500 Index over that same period, which
declined 5.25%. (Of course, past performance is not a guarantee of future
results.)(7),(8)
PIE CHART: S&P 500 INDEX FUND
INDUSTRY BREAKDOWN
AS OF 1/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Pharmaceuticals......................10.28%
Banks ................................7.34%
Diversified Financial Services........4.39%
Integrated Oil & Gas..................4.31%
Systems Software .....................4.21%
Industrial Conglomerates..............3.86%
Integrated Telecommunication
Services..............................3.46%
Computer Hardware.....................3.23%
General Merchandise Stores............3.18%
Electric Utilities....................2.40%
Other Industries.....................49.63%
Net Cash & Cash Equivalents...........3.71%
LINE GRAPH: INVESCO S&P 500 INDEX FUND - INSTITUTIONAL CLASS & INVESTOR CLASS
GROWTH OF $10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO S&P 500
Index Fund - Institutional Class and the value of a $10,000 investment in
INVESCO S&P 500 Index Fund - Investor Class to the value of a $10,000 investment
in the S&P 500 Index(8), assuming in each case reinvestment of all dividends and
capital gain distributions, for the period since inception (12/97) through
1/31/03.
INVESCO S&P 500 INDEX INVESCO S&P 500 INDEX S&P 500 INDEX(10)
FUND - INVESTOR CLASS FUND - INSTITUTIONAL CLASS
12/97 $10,000 $10,000 $10,000
1/98 $10,530 $10,450 $10,110
1/99 $14,122 $14,005 $13,397
1/00 $15,466 $15,370 $14,782
1/01 $15,169 $15,102 $14,649
1/02 $12,646 $12,554 $12,285
1/03 $ 9,637 $ 9,571 $ 9,458
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND --
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 1/31/03
- --------------------------------------------------------------------------------
Microsoft Corp........................3.10%
General Electric......................2.81%
Exxon Mobil...........................2.81%
Wal-Mart Stores.......................2.58%
Pfizer Inc............................2.28%
Citigroup Inc.........................2.16%
Johnson & Johnson.....................1.94%
American International Group..........1.72%
International Business Machines.......1.62%
Merck & Co............................1.52%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
(7)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPH ILLUSTRATES THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS. THE CHARTS AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE
FUND'S OPERATING EXPENSES, BUT THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD
HAVE LOWERED ITS PERFORMANCE.
(8)THE S&P 500 INDEX IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS (IN
TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET. THE INDEX IS NOT MANAGED; THEREFORE,
ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED
WITH THE FUND. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET INDEX.
"STANDARD & POOR'S(R)", "S&P(R)", "S&P 500(R)", "STANDARD & POOR'S 500", AND
"500" ARE TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC. AND HAVE BEEN LICENSED
FOR USE BY INVESCO FUNDS GROUP, INC. AND INVESCO DISTRIBUTORS, INC. THE INVESCO
S&P 500 INDEX FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD &
POOR'S AND STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE ADVISABILITY
OF INVESTING IN THE INVESCO S&P 500 INDEX FUND.
YOUR FUNDS REPORT
SMALL COMPANY GROWTH FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
Stocks were volatile during the past six months, as investors struggled with
conflicting reports on the economy and the prospects of another war with Iraq.
The period started with stocks setting new lows in October. But equities soon
rebounded, as investors' optimism about the holiday shopping season and another
interest rate cut by the Federal Reserve encouraged the bulls. The final two
months of the period were choppy, however, with fears of war dominating
headlines, and stocks finished the period down slightly.
In another difficult environment for stocks overall, many of the fund's holdings
came under pressure as well. However, the period was not without encouraging
developments: For example, small-cap growth stocks outperformed small-cap value
shares. Even so, small-caps had a rough period, and, for the six-months ended
January 31, 2003, Small Company Growth Fund-Investor Class shares declined
3.69%, underperforming the 3.01% decline recorded by the fund's benchmark, the
Russell 2000 Growth Index. (Of course, past performance is not a guarantee of
future results.)(9),(10) For performance of other share classes, please see page
2.
HEALTH CARE, FINANCIAL SERVICES AND TECHNOLOGY HINDER PERFORMANCE
The fund's modest margin of underperformance can be attributed to any of three
sectors: health care, financial services or technology. In each of these groups,
the fund was underweight, and our holdings in each group collectively
underperformed their corresponding sector representation in the benchmark.
In health care, the fund's services stocks lagged, largely due to a sharp
decline in the share price of one health management organization that stole
nearly one percentage point from overall performance.
In financial services, the fund's bank stocks endured a difficult period.
Companies such as City National and Dime Community Bancshares, which had
supported performance throughout the bear market, declined sharply during
September with the rest of the market. Then, when investors rotated into
investments believed to possess a higher risk/reward profile, the banking sector
did not rebound as sharply. Meanwhile, the fund's technology holdings also
endured broad declines, particularly its software and semiconductor companies.
OVERWEIGHTED ENERGY AND STAPLES STOCKS SUPPORTED PERFORMANCE
On a brighter note, the fund saw several areas contribute positively to relative
and absolute performance. Most notable was the fund's overweight energy
exposure. Our stock selection in the group, which led us to emphasize energy
services companies, contributed positively to performance. Standouts in the
sector included Maverick Tube, Precision Drilling, and Patterson-UTI Energy, all
of which recorded double-digit gains during the period.
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND --
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 1/31/03
- --------------------------------------------------------------------------------
Nasdaq-100 Trust Series 1 Shrs.............1.96%
American Italian Pasta Class A Shrs.........1.37%
Varian Medical Systems......................1.27%
FTI Consulting..............................1.22%
Investors Financial Services................1.21%
Patterson-UTI Energy........................1.08%
Silicon Valley Banchshares..................1.06%
Precision Drilling..........................1.04%
Smith International.........................1.02%
NetScreen Technologies......................1.02%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
Industrials were another area of strength for us, especially commercial
services. In particular, the fund's education stocks, including University of
Phoenix Online and Corinthian Colleges, performed well, capitalizing on
corporations' growing focus on continuing education and employee training. The
consumer staples sector also contributed positively to results. Although the
broader sector declined during the period, our holdings in the group, led by
Whole Foods Market and United Natural Foods, actually advanced during this
difficult period.
LINE GRAPH: INVESCO SMALL COMPANY GROWTH FUND - INVESTOR CLASS GROWTH OF
$10,000(9)
This line graph compares the value of a $10,000 investment in INVESCO Small
Company Growth Fund - Investor Class to the value of a $10,000 investment in the
Russell 2000 Index(10), and to the value of a $10,000 investment in the Russell
2000 Growth Index(10), assuming in each case reinvestment of all dividends and
capital gain distributions, for the ten year period ended 1/31/03.
INVESCO SMALL COMPANY GROWTH RUSSELL 2000 GROWTH INDEX(10) RUSSELL 2000 INDEX(10)
FUND - INVESTOR CLASS
1/93 $10,000 $10,000 $10,000
1/94 $12,484 $11,497 $11,859
1/95 $11,675 $10,705 $11,146
1/96 $14,888 $14,200 $14,485
1/97 $18,195 $16,329 $17,229
1/98 $20,230 $17,752 $20,343
1/99 $23,758 $19,032 $20,410
1/00 $40,773 $25,819 $24,031
1/01 $37,816 $21,853 $24,917
1/02 $28,343 $17,699 $24,020
1/03 $19,774 $12,451 $18,767
GROUNDWORK HAS BEEN LAID FOR A FUNDAMENTAL RECOVERY
We believe that the situation with Iraq continues to hold back the economy. As
such, we do not anticipate significant improvement in business conditions until
the second half of the year. With this in mind, we have taken steps to
neutralize the portfolio by more closely aligning our sector weightings with
those of the benchmark, and will look to add value by finding companies
possessing the best fundamental growth prospects.
We will remain disciplined, trimming stocks when their prices have outrun their
corresponding fundamentals, while initiating or adding to positions that we
believe have been unduly punished by the market. That said, some areas represent
better opportunities than other areas. For example, we remain enthusiastic about
select energy and biotechnology companies. Meanwhile, our optimism about the
retail group has waned somewhat, considering several companies are facing
challenging earnings comparisons in the coming year, particularly against a
geopolitical backdrop that could undermine near-term consumer confidence.
PIE CHART: SMALL COMPANY GROWTH FUND
INDUSTRY BREAKDOWN
AS OF 1/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Banks ..................................6.66%
Health Care Equipment...................5.08%
Biotechnology ......................... 4.79%
IT Consulting & Services................4.16%
Application Software....................3.57%
Semiconductors..........................3.26%
Oil & Gas Equipment & Services..........3.25%
Health Care Distributors
& Services..............................2.94%
Oil & Gas Drilling......................2.91%
Electronic Equipment
& Instruments...........................2.80%
Other Industries.......................51.11%
Net Cash & Cash Equivalents ............9.47%
LINE GRAPH: INVESCO SMALL COMPANY GROWTH FUND - CLASS A & B GROWTH OF
$10,000(9)
This line graph compares the value of a $10,000 investment in INVESCO Small
Company Growth Fund - Class A and the value of a $10,000 investment in INVESCO
Small Company Growth Fund - Class B to the value of a $10,000 investment in the
Russell 2000 Growth Index(10), and to the value of a $10,000 investment in the
Russell 2000 Index(10), assuming in each case reinvestment of all dividends and
capital gain distributions, and in the cases of INVESCO Small Company Growth
Fund - Class A and Class B, inclusion of front-end sales charge and contingent
deferred sales charge, respectively, for the period since inception (4/02)
through 1/31/03.
INVESCO SMALL COMPANY INVESCO SMALL COMPANY RUSSELL 2000
GROWTH FUND - CLASS A GROWTH FUND - CLASS B GROWTH INDEX(10) RUSSELL 2000 INDEX(10)
4/02 $10,000 $10,000 $10,000 $10,000
1/03 $ 6,815 $ 6,664 $ 6,920 $ 7,435
LINE GRAPH: INVESCO SMALL COMPANY GROWTH FUND - CLASS C GROWTH OF $10,000(9)
This line graph compares the value of a $10,000 investment in INVESCO Small
Company Growth Fund - Class C to the value of a $10,000 investment in the
Russell 2000 Index(10), and to the value of a $10,000 investment in the Russell
2000 Growth Index(10), assuming in each case reinvestment of all dividends and
capital gain distributions, and in the case of INVESCO Small Company Growth Fund
- - Class C, inclusion of contingent deferred sales charge, for the period since
inception (2/00) through 1/31/03.
INVESCO SMALL COMPANY GROWTH FUND - CLASS C RUSSELL 2000 GROWTH INDEX(10) RUSSELL 2000 INDEX (10)
2/00 $10,000 $10,000 $10,000
1/01 $ 7,886 $ 6,866 $ 8,900
1/02 $ 5,840 $ 5,561 $ 8,580
1/03 $ 4,005 $ 3,912 $ 6,703
LINE GRAPH: INVESCO SMALL COMPANY GROWTH FUND - CLASS K GROWTH OF $10,000(9)
This line graph compares the value of a $10,000 investment in INVESCO Small
Company Growth Fund - Class K to the value of a $10,000 investment in the
Russell 2000 Index(10), and to the value of a $10,000 investment in the Russell
2000 Growth Index(10), assuming in each case reinvestment of all dividends and
capital gain distributions, for the period since inception (12/01) through
1/31/03.
INVESCO SMALL COMPANY GROWTH FUND - CLASS K RUSSELL 2000 GROWTH INDEX(10) RUSSELL 200 INDEX(10)
12/01 $10,000 $10,000 $10,000
1/02 $ 9,872 $10,015 $10,204
1/03 $ 6,888 $ 7,046 $ 7,972
(9)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEXES DO NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED THEIR PERFORMANCE.
(10)THE RUSSELL 2000 GROWTH INDEX COMPRISES SECURITIES IN THE RUSSELL 2000 INDEX
WITH A GREATER-THAN-AVERAGE GROWTH ORIENTATION. COMPANIES IN THIS INDEX TEND TO
EXHIBIT HIGHER PRICE-TO-BOOK AND PRICE-TO-EARNINGS RATIOS. THE RUSSELL 2000
INDEX MEASURES THE PERFORMANCE OF THE 2,000 SMALLEST COMPANIES IN THE RUSSELL
3000 INDEX. INVESTORS CANNOT INVEST DIRECTLY IN ANY INDEX. THE INDEXES ARE NOT
MANAGED; THEREFORE, THEIR PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER
EXPENSES ASSOCIATED WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC.
INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
FUND MANAGEMENT
[PHOTOGRAPH OF STACIE L. COWELL OMITTED]
STACIE L. COWELL, CFA
SENIOR VICE PRESIDENT STACIE COWELL IS THE LEAD MANAGER OF INVESCO SMALL COMPANY
GROWTH FUND. STACIE RECEIVED HER BA FROM COLGATE UNIVERSITY, AND HER MS IN
FINANCE FROM THE UNIVERSITY OF COLORADO AT DENVER. STACIE BEGAN HER INVESTMENT
CAREER IN 1989, AND SHE HAS MANAGED THIS FUND SINCE 1996. SHE IS A CHARTERED
FINANCIAL ANALYST CHARTERHOLDER.
[PHOTGRAPH OF CAMERON COOKE OMITTED]
CAMERON COOKE
CAMERON COOKE IS CO-PORTFOLIO MANAGER OF INVESCO SMALL COMPANY GROWTH FUND. HE
RECEIVED HIS BACHELOR'S DEGREE IN ECONOMICS FROM THE UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL, AND BEGAN HIS INVESTMENT CAREER IN 1996. HE JOINED
INVESCO IN 2000.
YOUR FUNDS REPORT
VALUE EQUITY FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
The six-month period ended January 31, 2003, was one of heightened volatility as
two key sources of uncertainty -- the economy and the geopolitical environment
- - -kept investors on edge. Although there were spurts of strong stock market
performance, such as in October and November when investors embarked on a
bargain-hunting spree, a sustained rebound failed to materialize. As a result,
all of the major stock indexes finished the period lower.
Spotty economic data fed investors' doubts. For example, the Institute for
Supply Management reported that manufacturing growth fell to 49.5% in September,
the first time it had dropped below 50% since January 2002. In addition, oil and
natural gas prices surged, triggering worries about the resiliency of the
consumer. On the other hand, gross domestic product growth was healthy in the
third fiscal quarter (though it subsequently lost momentum in the fourth
quarter), and the Federal Reserve's neutral stance and 50 basis point rate cut
in November helped keep interest rates at some of the lowest levels in recent
memory.
Meanwhile, talk of a possible war with Iraq, the emergence of North Korea as a
nuclear threat, the anniversary of 9/11, and the ongoing terrorist threat
clouded the market. Lingering skepticism toward corporate America, labor strikes
in Venezuela, and an autumn labor dispute on the West Coast that led to a port
lockout also contributed to the period's defensive mood.
TECH AND HEALTH CARE HOLDINGS MUSTER GAINS
In such a challenging period, gains were difficult to come by, and both growth-
and value-oriented securities struggled. In this environment, Value Equity
Fund-Investor Class shares declined 5.42% for the six-month period ended January
31, 2003, while the fund's benchmark, the S&P 500 Index, fell 5.25%. (Of course,
past performance is not a guarantee of future results.)(11), (12) For
performance of other share classes, please see page 2.
One of the few sectors in the S&P 500 to advance during the period was
technology, an area bolstered by a valuation-driven rally that began in early
October. Although the fund was underweight relative to the S&P 500 in
technology, its tech holdings posted a solid gain as a group, outperforming
their counterparts in the index. Particularly successful holdings included Nokia
Corp, International Business Machines, and Hewlett-Packard Co -- whose stock was
rewarded as investors gained confidence in the company's recent merger with
Compaq Computer and its efforts to mount a turnaround.
LINE GRAPH: INVESCO VALUE EQUITY FUND - INVESTOR CLASS GROWTH OF $10,000(11)
This line graph compares the value of a $10,000 investment in INVESCO Value
Equity Fund - Investor Class to the value of a $10,000 investment in the S&P 500
Index(12), assuming in each case reinvestment of all dividends and capital gain
distributions, for the ten-year period ended 1/31/03.
INVESCO VALUE EQUITY FUND - INVESTOR CLASS S&P 500 INDEX(12)
1/93 $10,000 $10,000
1/94 $11,264 $11,285
1/95 $11,688 $11,344
1/96 $15,195 $15,725
1/97 $18,239 $19,865
1/98 $22,660 $25,209
1/99 $25,882 $33,404
1/00 $24,788 $36,858
1/01 $25,378 $36,526
1/02 $23,354 $30,631
1/03 $18,451 $23,583
LINE GRAPH: INVESCO VALUE EQUITY FUND - CLASS A & B GROWTH OF $10,000(11)
This line graph compares the value of a $10,000 investment in INVESCO Value
Equity Fund - Class A and the value of a $10,000 investment in INVESCO Value
Equity Fund - Class B to the value of a $10,000 investment in the S&P 500
Index(12), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the cases of INVESCO Value Equity Fund - Class A and Class
B, inclusion of front-end sales charge and contingent deferred sales charge,
respectively, for the period since inception (4/02) through 1/31/03.
INVESCO VALUE EQUITY FUND - CLASS A INVESCO VALUE EQUITY FUND - CLASS B S&P 500 INDEX(12)
4/02 $10,000 $10,000 $10,000
1/03 $ 7,192 $ 7,116 $ 7,566
LINE GRAPH: INVESCO VALUE EQUITY FUND - CLASS C GROWTH OF $10,000(11)
This line graph compares the value of a $10,000 investment in INVESCO Value
Equity Fund - Class C to the value of a $10,000 investment in the S&P 500
Index(12), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the case of INVESCO Value Equity Fund - Class C, inclusion
of contingent deferred sales charge, for period since inception (2/00) through
1/31/03.
INVESCO VALUE EQUITY FUND - CLASS C S&P 500 INDEX(12)
2/00 $10,000 $10,000
1/01 $10,533 $10,101
1/02 $ 9,594 $ 8,471
1/03 $ 7,519 $ 6,522
Our health care holdings also managed to gain ground despite the difficult
market conditions -- even as the S&P 500's health care stocks retreated. This
was largely the result of a nimble positioning change we implemented within the
sector. Heading into the semiannual reporting period, the fund's health care
exposure focused on hospital stocks. These continued to do well for the fund
through the summer and early fall. However, we grew concerned that hospital
fundamentals were deteriorating as October progressed, and opted to sell those
at-risk companies -- a decision that proved beneficial, as hospitals were
hard-hit in the fourth quarter of 2002 over worries about their Medicare pricing
policies.
- --------------------------------------------------------------------------------
VALUE EQUITY FUND--
TOP 10 COMMON STOCK HOLDINGS
% OF TOTAL NET ASSETS AS OF 1/31/03
- --------------------------------------------------------------------------------
Citigroup Inc.............................................3.29%
Exxon Mobil...............................................3.27%
Bank of America...........................................3.13%
Wells Fargo & Co..........................................3.06%
Tsakos Energy Navigation Ltd..............................3.02%
Lehman Brothers Holdings..................................2.88%
McGraw-Hill Cos...........................................2.49%
Marsh & McLennan..........................................2.39%
BP PLC Sponsored ADR Representing 6 Ord Shrs..............2.31%
Merck & Co................................................2.31%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
Other positive contributors to performance could be found in the energy and
financial services sectors. Our energy holdings, led by Greek shipping company
Tsakos Energy Navigation Ltd outperformed. Tsakos posted an impressive gain,
thanks to tight capacity in the oil tanker market. Meanwhile, diversified
financial company Citigroup Inc, the fund's largest holding at the end of the
period, enjoyed a substantial bounce during the period. Bank of America also
provided a boost, as investors rewarded its consistently strong earnings.
INDUSTRIALS FALTER
A drain on the fund's performance was its overweight position in the industrials
sector -- which was the period's weakest area due to the sputtering economy. SPX
Corp fell on disappointing earnings, and General Electric was faced with a
headwind in the power business, as well as a severe decline in demand for its
aircraft engines. Additionally, Allmerica Financial, which is no longer a fund
holding, weighed on the fund's return as the company fell prey to weak
fundamentals and pressure on financial markets.
Looking ahead, we expect the stock market to remain volatile as long as the
conflict with Iraq is undermining investor confidence. Another development to
watch will be the reception of President Bush's proposed economic stimulus plan,
which he briefly outlined at the end of January in his State of the Union
address. If the President is successful in eliminating the individual tax on
dividends, many believe dividend-paying stocks could benefit considerably.
Regardless of what may unfold next, we will continue to maintain exposure to all
sectors of the S&P 500 Index and stay focused on stocks whose driving
fundamentals and earnings are strong.
PIE CHART: VALUE EQUITY FUND
INDUSTRY BREAKDOWN
AS OF 1/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Banks .................................11.11%
Pharmaceuticals ........................7.74%
Investment Adviser/Broker
Dealer Services ........................5.89%
Integrated Oil & Gas....................5.58%
Integrated Telecommunication
Services................................4.85%
Diversified Financial Services..........4.76%
Industrial Machinery....................3.84%
Publishing & Printing...................3.56%
Packaged Foods & Meats .................3.34%
Computer Hardware.......................3.11%
Other Industries ......................43.40%
Net Cash & Cash Equivalents.............2.82%
(11)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
(12)THE S&P 500 INDEX IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS (IN
TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET. THE INDEX IS NOT MANAGED; THEREFORE,
ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED
WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT
INVEST DIRECTLY IN ANY MARKET INDEX.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
FUND MANAGEMENT
[PHOTOGRAPH OF CHARLES P. MAYER OMITTED]
CHARLES P. MAYER
SENIOR VICE PRESIDENT AND DIRECTOR OF VALUE AND FIXED-INCOME INVESTMENTS CHARLES
P. MAYER LEADS THE TEAM MANAGING INVESCO VALUE EQUITY FUND. CHARLIE HAS MORE
THAN 30 YEARS OF EXPERIENCE MANAGING DIVERSIFIED EQUITY PORTFOLIOS. CHARLIE
EARNED HIS BA FROM ST. PETER'S COLLEGE AND AN MBA FROM ST. JOHN'S UNIVERSITY. HE
BEGAN HIS INVESTMENT CAREER IN 1969 AND JOINED INVESCO FUNDS GROUP IN 1993.
QUESTIONS & ANSWERS
AN INTERVIEW WITH TIM MILLER, CHIEF INVESTMENT OFFICER
[PHOTOGRAPH OF TIM MILLER OMITTED]
TIM MILLIER IS CHIEF INVESTMENT OFFICER FOR INVESCO AND LEADS INVESCO'S GROWTH
MANAGEMENT TEAM.
DESERT STORM RALLY REDUX?
TIM, WITH EACH PASSING DAY, ANOTHER WAR WITH IRAQ APPEARS MORE LIKELY. THE LAST
CONFLICT BACK IN 1990-91 MAY PROVIDE SOME PERSPECTIVE ON TODAY'S EVENTS. HOW DID
STOCKS PERFORM DURING THAT PERIOD?
TIM MILLER: Iraq invaded Kuwait on August 2, 1990. As expected, the market
reacted negatively to the uncertainty, and stocks declined steadily during the
buildup of Desert Storm before bottoming in mid-October. In all, the S&P 500
Index declined nearly 17% between Iraq's invasion of Kuwait and the October low.
From there, stocks moved steadily higher until Desert Shield transformed into
Desert Storm on January 16, 1991. Then, as the U.S. realized quick success in
the conflict, investors bid stocks sharply higher. Stocks continued to rally
after the official end of hostilities on February 28, 1991. On April 17, 1991 --
exactly three months after Desert Storm began -- the S&P 500 Index was an
impressive 32% higher than the October lows. And, of course, stocks stayed in
rally mode -- for the most part -- until the Internet and technology bubble
burst in 2000.
IF THE U.S. IS FORTUNATE ENOUGH TO REALIZE A QUICK RESOLUTION IN THIS CONFLICT,
CAN WE EXPECT THE SAME MARKET REACTION THIS TIME?
TIM MILLER: While it's possible, I doubt it. In fact, I think it would be a
mistake for investors to expect a stock market rally like we saw in the spring
of 1991. After all, today's economic environment is significantly different from
the situation in 1991.
HOW SO?
TIM MILLER: For starters, when Iraq invaded Kuwait, the target for the federal
funds rate, which is the interest rate that banks charge each other, was 8%.
Today, it's at 1.25%. Back then, the U.S. was entering recession, and the
Federal Reserve was beginning a campaign to lower interest rates. Today, our
economy appears to be slowly coming out of recession, and investors anticipate
that the next Fed intervention will be to raise rates rather than lower them.
Then there's the market's reaction to the threat of war. In 1990, many observers
believed the market's decline was in response to surging oil prices and
potential supply disruptions. Remember, inflation spiked alarmingly higher after
Iraq invaded Kuwait. This time, the market's swoon has been more in response to
fears of additional terrorist attacks, Iraq's weapons of mass destruction, and
the potential deterioration in the relations between the U.S. and the Arabic
world. Disruptions to the oil supply have been a secondary worry. Interestingly,
John Segner, who manages INVESCO Energy Fund, pointed out that in the early
1990s, we had roughly 18% excess capacity in crude oil. Today, it's much less
than that. The fact that rising energy prices have not been the primary impetus
for the market's decline, despite our current tight capacity, reflects how
drastically things have changed.
And there are other differences, too. In 1990, companies in most industries had
pricing power, and inventories were lower, while capacity utilization was much
higher. Today, companies have minimal pricing power, inventories are much
higher, and utilization remains quite low.
The fundamental differences between today's economic environment and that of the
Gulf War are legion. Investors must understand that times have changed -- stocks
might not follow the same trajectory today that they did during the first Gulf
War.
WHAT CAN INVESTORS EXPECT?
TIM MILLER: I think it's reasonable to believe that stocks will be higher this
December than they are today. The economy has remained remarkably resilient,
despite repeated shocks. And we believe that the tensions between the U.S. and
Iraq have kept a lid on economic growth.
That's not to say that once a resolution is achieved, the economy will go
gangbusters, and we'll see 6% gross domestic product growth. But this
uncertainty has to have affected consumer confidence and certainly played a role
in corporate investment decisions. Furthermore, if you're willing to believe
that the uncertainty has suppressed the expansion, then once that cloud is
lifted, it follows that consumer confidence will likely trend higher, and
corporations will loosen their purse strings.
From there, it's not much of a leap to believe stock prices would follow
corporate earnings higher, probably on the order of a gain in the high single
digits. Sure, some areas will perform better than others, and you'll have to
pick your spots. But we think there are reasons to be optimistic about stocks in
the coming year.
"INVESTORS MUST UNDERSTAND THAT TIMES HAVE CHANGED -- STOCKS MIGHT NOT FOLLOW
THE SAME TRAJECTORY TODAY THAT THEY DID DURING THE FIRST GULF WAR."
MARKET HEADLINES
MARKET OVERVIEW
AUGUST 2002 TO JANUARY 2003
Uncertainty persisted during the six-month period ended January 31, 2003, as
investors were fed a steady diet of unnerving developments. Early on, extreme
pessimism stemming from lackluster corporate profits, lingering skepticism
regarding corporate accounting practices, and the ever-present terrorist threat
kept investors on their heels. Then, as the period unfolded, the Bush
Administration began seeking support for an attack on Iraq, which only added to
the market's anxieties.
Stocks initially rallied in August, as investors' appetite for equities
increased, perhaps whetted by attractive valuations and a pause in the onslaught
of corporate scandals that had weighed so heavily on prices in previous months.
In fact, virtually all companies required to certify their financial statements
by August 14 managed to do so, possibly providing a psychological boost to
investors. However, by the end of the month, the rally had stalled in response
to a torrent of tepid economic data. Additionally, anxiety over the approaching
anniversary of 9/11 and increased press coverage of U.S. intentions toward Iraq
further dampened the mood.
The prevailing pessimism in the market spurred a broad "flight-to-quality," as
investors' appetite for risk withered. Consequently, bonds, as they have for
most of the past two years, continued to rally, particularly higher quality
bonds and those with shorter maturities. As a result of this rotation, interest
rates trended lower and the yield curve steepened. Many economists and market
observers called for the Federal Reserve, which had not lowered interest rates
since December of 2001, to ease liquidity again.
The gloom only deepened in September. Third-quarter pre-announcements of
earnings shortfalls were rampant, and forward-looking earnings projections were
also generally bleak. Meanwhile, economic news offered little respite from the
negative headlines. A labor dispute kept West Coast dockworkers from unloading
cargo, resulting in a port lockout and mild inventory disruptions. All the
while, the U.S.'s aggressive stance toward Iraq continued, fueling worries that
war could erupt soon. These developments only heightened the sense of
uncertainty that had persisted all year. September closed out the worst quarter
for the Dow Jones Industrial Average since 1987.
During October, stocks declined further, breaking through the lows set in July.
Then, on October 9, the market reversed course on the heels of several
stronger-than-expected corporate earnings reports. Interestingly, the month's
economic data was not clearly positive. The fact that investors chose to focus
on favorable developments rather than the negatives was significant, as it
marked a substantial change in the collective mood of investors. This
rediscovered optimism persisted into November, a month punctuated by a 50-basis
point Federal Reserve interest rate cut and the mid-term elections, which
resulted in a GOP-controlled Congress. Many investors embraced this news,
forecasting potential tax cuts and a pro-business fiscal agenda in the months
ahead.
Unfortunately, the rally stalled in December. Indeed, it was the worst December
performance for the Dow Jones Industrials since 1931. A number of factors
contributed to the month's decline, including lackluster holiday retail sales
and surging energy prices -- both of which caused investors to question whether
consumer spending could remain strong going forward. Meanwhile, the dollar
weakened significantly and the 10-year Treasury's yield dipped below 4%,
indicating a resurgence in risk aversion. Perhaps the biggest drain on stocks,
however, was the uncertainty spawned by geopolitical concerns. In addition to
continued tension between the U.S. and Iraq, the emergence of North Korea as a
potential nuclear threat rattled investors.
In January, the final month of the period, the market once again attempted a
rebound. The first two weeks of the month saw stocks advance sharply,
particularly technology shares. A mix of encouraging economic data, including
surprisingly strong corporate profits, positive manufacturing numbers, and the
third consecutive monthly improvement in the Index of Leading Economic
Indicators, fueled a short-lived upturn.
As the period ended, the market took on an increasingly negative tone. Although
disappointing fourth-quarter gross domestic product data, rising energy prices
and uninspiring corporate profit guidance deflated investor confidence, the
primary impetus for the market's reversal was uncertainty surrounding Iraq.
Between some unnerving discoveries by U.N. weapons inspectors and the
President's State of the Union address, war with Iraq grew increasingly likely,
making investors nervous. Indeed, as the past six months have demonstrated,
until this issue is resolved, it will be difficult to predict the market's next
move.
INVESTMENT HOLDINGS
STATEMENT OF INVESTMENT SECURITIES
INVESCO STOCK FUNDS, INC.
JANUARY 31, 2003
UNAUDITED
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
DYNAMICS FUND
99.26 COMMON STOCKS & WARRANTS
2.71 ADVERTISING
Lamar Advertising Class A Shrs(a) 1,628,300 $ 56,632,274
Omnicom Group 508,200 30,644,460
WPP Group PLC 801,434 5,611,771
================================================================================
92,888,505
0.99 AEROSPACE & DEFENSE
L-3 Communications Holdings(a) 746,000 33,398,420
Rockwell Collins 27,600 569,388
================================================================================
33,967,808
0.26 AGRICULTURAL PRODUCTS
Bunge Ltd 343,500 8,931,000
================================================================================
6.30 APPLICATION SOFTWARE
Amdocs Ltd(a) 2,142,500 27,831,075
BEA Systems(a) 3,145,200 36,043,992
Intuit Inc(a) 755,600 33,321,960
Mercury Interactive(a) 539,500 19,136,065
PeopleSoft Inc(a) 2,236,100 43,357,979
Quest Software(a) 429,700 4,357,158
Siebel Systems(a) 2,348,800 19,635,968
Software HOLDRs Trust(b)(c)(d) 850,375 23,725,462
TIBCO Software(a) 1,559,400 8,748,234
================================================================================
216,157,893
3.58 BANKS
Banknorth Group 808,200 18,329,976
M&T Bank 275,000 21,945,000
National Commerce Financial 702,000 16,630,380
Northern Trust 800,800 27,387,360
Synovus Financial 920,000 17,783,600
TCF Financial 472,000 20,579,200
================================================================================
122,655,516
2.67 BIOTECHNOLOGY
Biogen Inc(a) 231,100 8,839,575
Biotech HOLDRs Trust(b)(c) 307,100 27,239,770
Genzyme Corp - General Division(a) 154,000 4,972,660
Gilead Sciences(a) 1,191,200 41,572,880
IDEC Pharmaceuticals(a) 108,000 3,465,720
MedImmune Inc(a) 180,000 5,362,200
================================================================================
91,452,805
4.04 BROADCASTING -- RADIO/TV
Cox Radio Class A Shrs(a) 1,146,500 27,825,555
Entercom Communications(a) 822,050 40,148,922
Entravision Communications(a) 55,400 559,540
Fox Entertainment Group Class A Shrs(a) 107,000 2,956,410
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Grupo Televisa SA de CV Sponsored ADR
Representing Ord Participation Certificates(a) 37,300 $ 953,761
Univision Communications Class A Shrs(a)(b) 1,191,000 31,394,760
Westwood One(a) 936,500 34,940,815
================================================================================
138,779,763
2.68 CABLE & SATELLITE OPERATORS
CableVision Systems New York Group(a) 610,000 10,620,100
Cox Communications Class A Shrs(a) 1,236,500 35,784,310
EchoStar Communications Class A Shrs(a) 1,760,700 45,690,165
================================================================================
92,094,575
1.58 CASINOS & GAMING
Harrah's Entertainment(a) 864,400 31,360,432
Wynn Resorts Ltd(a) 1,665,700 22,903,375
================================================================================
54,263,807
1.33 COMPUTER & ELECTRONICS RETAIL
CDW Computer Centers(a) 1,032,200 45,509,698
================================================================================
2.98 COMPUTER STORAGE & PERIPHERALS
EMC Corp(a) 1,703,700 13,118,490
Emulex Corp(a) 1,668,100 34,913,333
Lexmark International Class A Shrs(a) 525,400 31,807,716
Network Appliance(a) 2,081,101 22,496,702
================================================================================
102,336,241
1.02 CONSUMER FINANCE
SLM Corp 329,800 35,034,654
================================================================================
1.75 DATA PROCESSING SERVICES
Fiserv Inc(a) 880,900 27,458,534
Paychex Inc 1,298,450 32,694,971
================================================================================
60,153,505
1.29 DIVERSIFIED COMMERCIAL SERVICES
ChoicePoint Inc(a) 539,000 19,404,000
H&R Block 339,300 12,856,077
Hewitt Associates(a) 137,500 4,195,125
Weight Watchers International(a) 189,600 7,877,880
================================================================================
44,333,082
1.41 DIVERSIFIED FINANCIAL SERVICES
A.G. Edwards 83,500 2,385,595
Ambac Financial Group 564,200 30,224,194
Moody's Corp 13,900 582,132
Neuberger Berman(b) 521,500 15,264,305
================================================================================
48,456,226
1.57 EDUCATION SERVICES
Apollo Group Class A Shrs(a) 596,950 26,540,397
Career Education(a) 580,600 27,230,140
================================================================================
53,770,537
1.34 ELECTRICAL COMPONENTS & EQUIPMENT
Molex Inc 1,025,662 21,528,645
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
SPX Corp(a) 654,400 $ 24,278,240
================================================================================
45,806,885
1.52 ELECTRONIC EQUIPMENT & INSTRUMENTS
Celestica Inc(a) 1,618,500 18,742,230
Tech Data(a) 1,340,900 33,482,273
================================================================================
52,224,503
1.91 EMPLOYMENT SERVICES
Manpower Inc 894,900 31,035,132
Robert Half International(a) 2,275,400 34,495,064
================================================================================
65,530,196
1.02 ENVIRONMENTAL SERVICES
Republic Services(a) 1,706,000 34,938,880
================================================================================
0.04 FOOD DISTRIBUTORS
Performance Food Group(a) 13,400 413,390
United Natural Foods(a) 42,400 889,552
================================================================================
1,302,942
0.06 FOOD RETAIL
Dean Foods(a) 44,300 1,719,726
Whole Foods Market(a) 6,100 310,002
================================================================================
2,029,728
0.23 GENERAL MERCHANDISE STORES
Ross Stores 205,000 7,997,050
================================================================================
0.75 HEALTH CARE DISTRIBUTORS & SERVICES
McKesson Corp 902,300 25,652,389
================================================================================
5.06 HEALTH CARE EQUIPMENT
Biomet Inc 190,000 5,308,790
Boston Scientific(a) 1,080,000 43,686,000
Guidant Corp(a) 247,000 8,304,140
Medtronic Inc 21,100 947,812
St Jude Medical(a) 260,600 11,354,342
Stryker Corp 85,000 5,120,400
Varian Medical Systems(a) 960,600 50,200,956
Zimmer Holdings(a) 1,190,000 48,790,000
================================================================================
173,712,440
1.65 HEALTH CARE FACILITIES
Health Management Associates Class A Shrs 515,000 9,537,800
Triad Hospitals(a) 781,100 21,714,580
Universal Health Services Class B Shrs(a) 546,900 25,474,602
================================================================================
56,726,982
1.70 HEALTH CARE SUPPLIES
Alcon Inc(a) 1,315,600 50,519,040
Smith & Nephew PLC 1,395,000 7,933,647
================================================================================
58,452,687
0.01 HOMEBUILDING
Lennar Corp 4,900 263,914
================================================================================
1.39 HOTELS & RESORTS
Expedia Inc(a)(b) 112,200 6,732,000
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Expedia Inc Warrants (Exp 2009)(a) 180,786 $ 5,532,052
Hilton Hotels 1,522,000 17,822,620
Hotels.com Class A Shrs(a)(b) 434,000 17,438,120
================================================================================
47,524,792
0.99 INDUSTRIAL GASES
Praxair Inc 624,000 34,032,960
================================================================================
2.50 INDUSTRIAL MACHINERY
Danaher Corp 344,000 21,125,040
Eaton Corp 161,000 11,443,880
Illinois Tool Works 511,900 31,133,758
ITT Industries 309,400 17,375,904
Parker-Hannifin Corp 119,000 4,796,890
================================================================================
85,875,472
1.10 INTEGRATED OIL & GAS
Murphy Oil 897,200 37,861,840
================================================================================
1.59 INTERNET RETAIL
eBay Inc(a) 724,505 54,453,796
================================================================================
2.79 INVESTMENT ADVISER/BROKER DEALER SERVICES
Bear Stearns 183,800 11,404,790
Eaton Vance 572,400 15,889,824
Federated Investors Class B Shrs 305,200 7,797,860
Legg Mason 822,400 41,152,896
Lehman Brothers Holdings 359,080 19,580,632
================================================================================
95,826,002
0.99 INVESTMENT COMPANIES
iShares Trust Russell Midcap Growth Index Fund 9,500 488,300
Nasdaq-100 Trust Series 1 Shrs(a) 1,363,800 33,303,996
================================================================================
33,792,296
2.20 IT CONSULTING & SERVICES
Affiliated Computer Services Class A Shrs(a) 787,500 42,698,250
BISYS Group(a) 1,642,100 25,945,180
SunGard Data Systems(a) 358,800 6,975,072
================================================================================
75,618,502
0.83 LEISURE PRODUCTS
Mattel Inc 1,423,100 28,462,000
================================================================================
0.94 LIFE & HEALTH INSURANCE
AFLAC Inc 20,700 670,473
Nationwide Financial Services Class A Shrs 1,148,000 31,627,400
================================================================================
32,297,873
1.43 MANAGED HEALTH CARE
First Health Group(a) 1,491,200 35,014,867
WellPoint Health Networks(a) 191,000 13,881,880
================================================================================
48,896,747
0.03 METAL & GLASS CONTAINERS
Ball Corp 22,200 1,165,500
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
0.02 MOTORCYCLE MANUFACTURERS
Harley-Davidson Inc 20,300 $ 848,134
================================================================================
0.55 MOVIES & ENTERTAINMENT
Metro-Goldwyn-Mayer Inc(a) 1,831,000 18,859,300
================================================================================
0.67 OIL & GAS DRILLING
Nabors Industries Ltd(a) 220,450 8,123,583
Noble Corp(a) 429,500 14,723,260
================================================================================
22,846,843
2.52 OIL & GAS EQUIPMENT & SERVICES
BJ Services(a) 228,200 6,976,074
Cooper Cameron(a) 840,495 40,738,793
FMC Technologies(a) 38,700 751,167
Smith International(a) 1,198,200 38,150,688
================================================================================
86,616,722
3.12 OIL & GAS EXPLORATION, PRODUCTION &
TRANSPORTATION
Apache Corp 710,017 44,312,161
EOG Resources 251,600 9,752,016
Kerr-McGee Corp 615,200 25,696,904
Pioneer Natural Resources(a) 1,117,500 27,132,900
================================================================================
106,893,981
0.20 PACKAGED FOODS & MEATS
Hershey Foods 105,000 6,772,500
================================================================================
0.66 PERSONAL PRODUCTS
Dial Corp 1,215,000 22,720,500
================================================================================
6.19 PHARMACEUTICALS
AmerisourceBergen Corp 742,789 43,230,320
Barr Laboratories(a) 46,400 3,667,920
Forest Laboratories(a) 2,248,400 116,354,700
Teva Pharmaceutical Industries Ltd Sponsored ADR
Representing Ord Shrs 1,280,170 49,158,528
================================================================================
212,411,468
0.23 PROPERTY & CASUALTY INSURANCE
SAFECO Corp 205,000 7,349,250
St Paul 11,600 378,624
================================================================================
7,727,874
0.02 PUBLISHING & PRINTING
Knight-Ridder Inc 3,900 264,108
Scholastic Corp(a) 13,800 491,542
================================================================================
755,650
1.66 RESTAURANTS
CBRL Group 1,300,000 41,470,000
P.F. Chang's China Bistro(a) 6,800 239,700
Starbucks Corp(a) 670,600 15,236,032
================================================================================
56,945,732
2.38 SEMICONDUCTOR EQUIPMENT
KLA-Tencor Corp(a) 993,800 32,437,632
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Lam Research(a) 1,400,750 $ 16,374,768
Novellus Systems(a) 1,114,400 32,819,080
================================================================================
81,631,480
3.77 SEMICONDUCTORS
Altera Corp(a) 990,200 10,872,396
Analog Devices(a) 417,200 9,983,596
Linear Technology 1,120,800 29,286,504
Maxim Integrated Products 845,700 26,343,555
Microchip Technology 1,544,715 34,122,754
National Semiconductor(a) 584,000 7,708,800
Semiconductor HOLDRs Trust(a)(c) 295,175 6,346,263
Xilinx Inc(a) 241,200 4,773,348
================================================================================
129,437,216
1.16 SPECIALTY STORES
Office Depot(a) 1,545,700 20,635,095
Tiffany & Co 827,000 19,227,750
================================================================================
39,862,845
4.35 SYSTEMS SOFTWARE
Adobe Systems 803,300 21,223,186
BMC Software(a) 1,375,200 24,244,776
Networks Associates(a) 1,298,200 19,823,514
Symantec Corp(a) 1,210,400 56,501,472
VERITAS Software(a) 1,513,200 27,618,926
================================================================================
149,411,874
1.55 TELECOMMUNICATIONS EQUIPMENT
Alcatel SA Sponsored ADR Representing Ord Shrs 2,056,600 14,930,916
Comverse Technology(a) 1,491,800 14,201,936
Lucent Technologies(a) 2,939,900 5,468,214
Nortel Networks(a) 2,990,900 7,088,433
Tellabs Inc(a) 1,466,400 11,423,256
================================================================================
53,112,755
0.36 TRADING COMPANIES & DISTRIBUTORS
Fastenal Co 373,100 12,357,072
================================================================================
0.62 TRUCKING
Arkansas Best(a) 873,000 21,135,330
================================================================================
1.00 WIRELESS TELECOMMUNICATION SERVICES
AT&T Wireless Services(a) 75,600 458,892
Nextel Communications Class A Shrs(a) 1,747,000 22,047,140
Nextel Partners Class A Shrs(a) 2,258,350 11,856,337
================================================================================
34,362,369
TOTAL COMMON STOCKS & WARRANTS
(COST $3,250,857,360) 3,405,941,636
================================================================================
0.00 PREFERRED STOCKS -- NETWORKING EQUIPMENT
Calient Networks, Pfd, Series D Shrs(a)(j)
(Cost $648,058) 89,696 51,520
================================================================================
0.06 FIXED INCOME SECURITIES -- AGRICULTURAL PRODUCTS
Bunge Ltd Finance, Conv Sr Notes(e), 3.750%,
11/15/2022 (Cost $2,000,000) $ 2,000,000 2,160,000
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
0.44 SHORT-TERM INVESTMENTS -- REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 1/31/2003 due 2/3/2003 at 1.220%,
repurchased at $14,949,520 (Collateralized by
Federal Home Loan Bank, Bonds, due 11/14/2003
at 2.500%, value $8,571,177 and Sallie Mae, Notes,
due 7/15/2004 at 3.375%, value $6,598,395)
(Cost $14,948,000) $ 14,948,000 $ 14,948,000
================================================================================
99.76 TOTAL INVESTMENTS AT VALUE
(COST $3,268,453,416) 3,423,101,156
================================================================================
0.24 OTHER ASSETS LESS LIABILITIES 8,153,190
================================================================================
100.00 NET ASSETS AT VALUE $ 3,431,254,346
================================================================================
GROWTH FUND
97.49 COMMON STOCKS
0.72 ADVERTISING
Omnicom Group 50,600 $ 3,051,180
================================================================================
3.50 AEROSPACE & DEFENSE
Lockheed Martin 101,900 5,201,995
United Technologies 152,900 9,721,382
================================================================================
14,923,377
0.83 ALUMINUM
Alcoa Inc 179,200 3,542,784
================================================================================
3.21 APPLICATION SOFTWARE
BEA Systems(a) 387,050 4,435,593
Software HOLDRs Trust(c) 330,600 9,223,740
================================================================================
13,659,333
7.70 BANKS
Bank of America 188,700 13,218,435
Bank One 178,300 6,509,733
Fifth Third Bancorp 55,900 2,982,265
Wells Fargo & Co 213,400 10,108,758
================================================================================
32,819,191
4.37 BIOTECHNOLOGY
Amgen Inc(a) 243,300 12,398,568
Biotech HOLDRs Trust(c) 24,400 2,164,280
Gilead Sciences(a) 115,600 4,034,440
================================================================================
18,597,288
0.80 BREWERS
Anheuser-Busch Cos 72,300 3,432,081
================================================================================
0.90 BROADCASTING -- RADIO/TV
Fox Entertainment Group Class A Shrs(a) 138,600 3,829,518
================================================================================
2.88 CABLE & SATELLITE OPERATORS
EchoStar Communications Class A Shrs(a) 472,170 12,252,812
================================================================================
1.03 COMPUTER HARDWARE
Hewlett-Packard Co 251,400 4,376,874
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
1.34 DATA PROCESSING SERVICES
Fiserv Inc(a) 183,200 $ 5,710,527
================================================================================
5.76 DIVERSIFIED FINANCIAL SERVICES
Citigroup Inc 437,921 15,055,724
Goldman Sachs Group 50,000 3,405,000
JP Morgan Chase & Co 259,800 6,063,732
================================================================================
24,524,456
1.42 ELECTRICAL COMPONENTS & EQUIPMENT
SPX Corp(a) 162,700 6,036,170
================================================================================
0.77 ELECTRONIC EQUIPMENT & INSTRUMENTS
Flextronics International Ltd(a) 405,800 3,270,748
================================================================================
3.59 GENERAL MERCHANDISE STORES
Target Corp 232,300 6,553,183
Wal-Mart Stores 182,800 8,737,840
================================================================================
15,291,023
2.80 HEALTH CARE EQUIPMENT
Boston Scientific(a) 179,600 7,264,820
Medtronic Inc 103,500 4,649,220
================================================================================
11,914,040
3.31 INDUSTRIAL CONGLOMERATES
General Electric 349,890 8,096,455
3M Co 48,200 6,003,310
================================================================================
14,099,765
1.78 INDUSTRIAL MACHINERY
Danaher Corp 123,600 7,590,276
================================================================================
2.15 INTEGRATED OIL & GAS
Exxon Mobil 268,000 9,152,200
================================================================================
1.09 INVESTMENT ADVISER/BROKER DEALER SERVICES
Merrill Lynch & Co 133,000 4,657,660
================================================================================
2.84 INVESTMENT COMPANIES
DIAMONDS Trust Series 1 Shrs 66,000 5,335,440
Nasdaq-100 Trust Series 1 Shrs(a) 276,900 6,761,898
================================================================================
12,097,338
0.54 IT CONSULTING & SERVICES
Affiliated Computer Services Class A Shrs(a) 42,400 2,298,928
================================================================================
2.39 MOVIES & ENTERTAINMENT
AOL Time Warner(a) 312,700 3,646,082
Viacom Inc Class B Shrs(a) 170,000 6,553,500
================================================================================
10,199,582
1.77 MULTI-LINE INSURANCE
American International Group 139,100 7,528,092
================================================================================
2.86 NETWORKING EQUIPMENT
Cisco Systems(a) 910,140 12,168,572
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
1.09 OIL & GAS EQUIPMENT & SERVICES
Weatherford International Ltd(a) 124,700 $ 4,633,852
================================================================================
1.99 OIL & GAS EXPLORATION, PRODUCTION &
TRANSPORTATION
Anadarko Petroleum 57,600 2,655,936
Apache Corp 93,300 5,822,853
================================================================================
8,478,789
1.07 PAPER PRODUCTS
International Paper 128,100 4,573,170
================================================================================
0.58 PERSONAL PRODUCTS
Gillette Co 82,300 2,460,770
================================================================================
12.92 PHARMACEUTICALS
Abbott Laboratories 185,300 7,063,636
AmerisourceBergen Corp 78,800 4,586,160
Johnson & Johnson 246,800 13,230,948
Merck & Co 136,600 7,566,274
Pfizer Inc 601,000 18,246,360
Wyeth 111,200 4,340,136
================================================================================
55,033,514
0.81 RAILROADS
Norfolk Southern 175,000 3,447,500
================================================================================
1.74 SEMICONDUCTOR EQUIPMENT
Applied Materials(a) 383,740 4,593,368
KLA-Tencor Corp(a) 86,800 2,833,152
================================================================================
7,426,520
6.29 SEMICONDUCTORS
Intel Corp 690,700 10,816,362
Microchip Technology 184,800 4,082,232
Semiconductor HOLDRs Trust(a)(b)(c) 218,800 4,704,200
Texas Instruments 453,080 7,203,972
================================================================================
26,806,766
9.39 SYSTEMS SOFTWARE
Microsoft Corp(a)(d) 497,840 23,627,486
Networks Associates(a) 238,900 3,648,003
Oracle Corp(a) 341,045 4,102,771
Symantec Corp(a) 79,900 3,729,732
VERITAS Software(a) 268,400 4,898,837
================================================================================
40,006,829
0.45 TELECOMMUNICATIONS EQUIPMENT
Nokia Corp Sponsored ADR Representing Ord Shrs 134,260 1,932,001
================================================================================
0.81 WIRELESS TELECOMMUNICATION SERVICES
AT&T Wireless Services(a) 566,200 3,436,834
================================================================================
TOTAL COMMON STOCKS (COST $436,952,702) 415,260,360
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
2.89 SHORT-TERM INVESTMENTS
2.82 Commercial Paper -- Consumer Finance
American General Finance, 1.280%, 2/3/2003
(Cost $12,000,000) $ 12,000,000 $ 12,000,000
================================================================================
0.07 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 1/31/2003 due 2/3/2003 at 1.220%,
repurchased at $316,032 (Collateralized by
Sallie Mae, Notes, due 7/15/2004 at 3.375%,
value $323,501) (Cost $316,000) $ 316,000 316,000
================================================================================
TOTAL SHORT-TERM INVESTMENTS
(COST $12,316,000) 12,316,000
================================================================================
100.38 TOTAL INVESTMENTS AT VALUE
(COST $449,268,702) 427,576,360
================================================================================
(0.38) OTHER ASSETS LESS LIABILITIES (1,619,548)
================================================================================
100.00 NET ASSETS AT VALUE $425,956,812
================================================================================
GROWTH & INCOME FUND
97.06 COMMON STOCKS
0.60 ADVERTISING
Omnicom Group 3,830 $ 230,949
================================================================================
1.06 AEROSPACE & DEFENSE
L-3 Communications Holdings(a) 4,700 210,419
Lockheed Martin 3,900 199,095
================================================================================
409,514
0.79 AGRICULTURAL PRODUCTS
Bunge Ltd 11,800 306,800
================================================================================
0.53 APPAREL RETAIL
TJX Cos 11,100 203,796
================================================================================
3.31 APPLICATION SOFTWARE
Intuit Inc(a) 4,100 180,810
Siebel Systems(a) 11,100 92,796
Software HOLDRs Trust(c) 36,100 1,007,190
================================================================================
1,280,796
2.71 BANKS
Bank of America 6,200 434,310
Bank One 8,400 306,684
Wells Fargo & Co 6,500 307,905
================================================================================
1,048,899
2.21 BIOTECHNOLOGY
Amgen Inc(a) 8,800 448,448
Biotech HOLDRs Trust(c) 4,600 408,020
================================================================================
856,468
0.76 BREWERS
Anheuser-Busch Cos 6,200 294,314
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
0.86 BROADCASTING -- RADIO/TV
Fox Entertainment Group Class A Shrs(a) 12,100 $ 334,323
================================================================================
0.59 CABLE & SATELLITE OPERATORS
Comcast Corp Special Class A Shrs(a) 8,900 227,662
================================================================================
0.56 COMPUTER & ELECTRONICS RETAIL
Best Buy(a) 8,300 216,547
================================================================================
3.54 COMPUTER HARDWARE
Dell Computer(a) 22,800 544,008
Hewlett-Packard Co 14,200 247,222
International Business Machines 7,400 578,902
================================================================================
1,370,132
3.65 CONSUMER FINANCE
Fannie Mae 6,200 401,140
Freddie Mac 3,100 173,538
MBNA Corp 11,950 201,119
SLM Corp 6,000 637,380
================================================================================
1,413,177
1.35 DATA PROCESSING SERVICES
First Data 15,240 524,256
================================================================================
2.07 DIVERSIFIED FINANCIAL SERVICES
Ambac Financial Group 3,900 208,923
Citigroup Inc 8,800 302,544
Goldman Sachs Group 2,800 190,680
Moody's Corp 2,400 100,512
================================================================================
802,659
0.56 DRUG RETAIL
Walgreen Co 7,500 217,500
================================================================================
0.63 FOOD RETAIL
Dean Foods(a) 6,300 244,566
================================================================================
3.65 GENERAL MERCHANDISE STORES
Target Corp 9,500 267,995
Wal-Mart Stores 24,000 1,147,200
================================================================================
1,415,195
1.60 HEALTH CARE DISTRIBUTORS & SERVICES
Henry Schein(a) 7,400 299,922
Patterson Dental(a) 7,800 321,204
================================================================================
621,126
3.55 HEALTH CARE EQUIPMENT
DENTSPLY International 9,400 315,652
Medtronic Inc 15,200 682,784
Zimmer Holdings(a) 9,200 377,200
================================================================================
1,375,636
1.56 HEALTH CARE FACILITIES
HCA Inc 14,140 604,344
================================================================================
0.50 HOME IMPROVEMENT RETAIL
Home Depot 9,200 192,280
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
0.25 HOTELS & RESORTS
Hilton Hotels 8,100 $ 94,851
================================================================================
2.17 HOUSEHOLD PRODUCTS
Colgate-Palmolive Co 4,000 203,640
Procter & Gamble 7,420 634,929
================================================================================
838,569
0.73 HOUSEWARES & SPECIALTIES
Newell Rubbermaid 10,200 284,070
================================================================================
3.57 INDUSTRIAL CONGLOMERATES
General Electric 32,800 758,992
3M Co 5,000 622,750
================================================================================
1,381,742
0.52 INDUSTRIAL MACHINERY
Danaher Corp 3,300 202,653
================================================================================
0.78 INSURANCE BROKERS
Marsh & McLennan 7,080 301,820
================================================================================
0.81 INTEGRATED OIL & GAS
Murphy Oil 7,400 312,280
================================================================================
0.70 INTERNET RETAIL
eBay Inc(a) 3,610 271,328
================================================================================
1.21 INVESTMENT ADVISER/BROKER DEALER SERVICES
Lehman Brothers Holdings 5,405 294,735
Merrill Lynch & Co 5,000 175,100
================================================================================
469,835
1.99 INVESTMENT COMPANIES
Nasdaq-100 Trust Series 1 Shrs(a) 31,600 771,672
================================================================================
0.60 LEISURE PRODUCTS
Mattel Inc 11,700 234,000
================================================================================
0.59 MANAGED HEALTH CARE
UnitedHealth Group 2,600 228,540
================================================================================
0.51 MOTORCYCLE MANUFACTURERS
Harley-Davidson Inc 4,700 196,366
================================================================================
1.03 MOVIES & ENTERTAINMENT
AOL Time Warner(a) 15,200 177,232
Viacom Inc Class B Shrs(a) 5,760 222,048
================================================================================
399,280
1.73 MULTI-LINE INSURANCE
American International Group 12,357 668,761
================================================================================
2.07 NETWORKING EQUIPMENT
Cisco Systems(a) 60,085 803,336
================================================================================
0.93 OIL & GAS DRILLING
Nabors Industries Ltd(a) 3,000 110,550
Noble Corp(a) 7,300 250,244
================================================================================
360,794
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
1.24 OIL & GAS EXPL0RATION, PRODUCTION &
TRANSPORTATION
Apache Corp 4,500 $ 280,845
Pioneer Natural Resources(a) 8,200 199,096
================================================================================
479,941
0.76 PACKAGED FOODS & MEATS
Sysco Corp 10,000 293,700
================================================================================
0.45 PERSONAL PRODUCTS
Gillette Co 5,800 173,420
================================================================================
17.05 PHARMACEUTICALS
AmerisourceBergen Corp 4,805 279,651
Eli Lilly & Co 8,300 499,992
Forest Laboratories(a) 18,650 965,137
Johnson & Johnson 30,800 1,651,188
Merck & Co 12,600 697,914
Pfizer Inc 59,000 1,791,240
Teva Pharmaceutical Industries Ltd Sponsored ADR
Representing Ord Shrs 6,200 238,080
Wyeth 12,300 480,069
================================================================================
6,603,271
1.14 PROPERTY & CASUALTY INSURANCE
SAFECO Corp 12,300 440,955
================================================================================
1.47 PUBLISHING & PRINTING
Gannett Co 4,500 326,970
Tribune Co 5,000 242,000
================================================================================
568,970
0.55 RAILROADS
Norfolk Southern 10,800 212,760
================================================================================
0.50 RESTAURANTS
Starbucks Corp(a) 8,580 194,938
================================================================================
0.48 SEMICONDUCTOR EQUIPMENT
Applied Materials(a) 15,400 184,338
================================================================================
2.98 SEMICONDUCTORS
Intel Corp 53,305 834,756
Semiconductor HOLDRs Trust(a)(c) 14,900 320,350
================================================================================
1,155,106
3.32 SOFT DRINKS
Coca-Cola Co 14,600 590,716
PepsiCo Inc 17,200 696,256
================================================================================
1,286,972
6.36 SYSTEMS SOFTWARE
Microsoft Corp(a) 37,600 1,784,496
Oracle Corp(a) 36,360 437,411
Symantec Corp(a) 5,200 242,736
================================================================================
2,464,643
1.19 TELECOMMUNICATIONS EQUIPMENT
Nokia Corp Sponsored ADR Representing Ord Shrs 16,800 241,752
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
QUALCOMM Inc(a) 5,800 $ 218,428
================================================================================
460,180
2.74 WIRELESS TELECOMMUNICATION SERVICES
AT&T Wireless Services(a) 47,000 285,290
Sprint Corp-PCS Group Series 1 Shrs(a) 38,600 145,136
Vodafone Group PLC Sponsored ADR Representing
10 Ord Shrs 13,700 258,245
Wireless HOLDRs Trust(c) 10,900 372,780
================================================================================
1,061,451
TOTAL COMMON STOCKS (COST $39,709,434) 37,591,481
================================================================================
1.58 FIXED INCOME SECURITIES -- CORPORATE BONDS
1.58 MULTI-UTILITIES
Aquila Inc, Sr Notes(e), 14.375%(f), 7/1/2012 $ 500,000 385,000
Utilicorp United, Sr Notes, 6.875%, 10/1/2004 $ 300,000 227,998
================================================================================
TOTAL FIXED INCOME SECURITIES
(AMORTIZED COST $650,323) 612,998
================================================================================
1.21 SHORT-TERM INVESTMENTS -- CORPORATE BONDS
1.21 ELECTRIC UTILITIES
CMS Energy, Sr Notes, Series B, 6.750%,
1/15/2004 (AMORTIZED COST $430,038) $ 500,000 470,000
================================================================================
99.85 TOTAL INVESTMENTS AT VALUE
(COST $40,789,795) 38,674,479
================================================================================
0.15 OTHER ASSETS LESS LIABILITIES 57,933
================================================================================
100.00 NET ASSETS AT VALUE $38,732,412
================================================================================
S&P 500 INDEX FUND
96.29 COMMON STOCKS(g)
0.22 ADVERTISING
Interpublic Group of Cos 6,736 $ 86,692
Omnicom Group 3,343 201,583
TMP Worldwide(a) 2,000 22,100
================================================================================
310,375
1.80 AEROSPACE & DEFENSE
Boeing Co 14,756 466,142
General Dynamics 3,534 233,739
Goodrich Corp 2,010 34,572
Honeywell International 14,436 352,816
Lockheed Martin 7,956 406,154
Northrop Grumman 3,152 288,124
Raytheon Co 7,147 215,053
Rockwell Collins 3,237 66,779
United Technologies 8,306 528,095
================================================================================
2,591,474
0.06 AGRICULTURAL PRODUCTS
Monsanto Co 4,570 80,661
================================================================================
1.02 AIR FREIGHT & COURIERS
FedEx Corp 5,232 275,203
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
United Parcel Service Class B Shrs 19,600 $ 1,182,468
================================================================================
1,457,671
0.14 AIRLINES
AMR Corp(a) 2,720 7,888
Delta Air Lines 2,198 20,090
Southwest Airlines 13,566 177,036
================================================================================
205,014
0.20 ALUMINUM
Alcoa Inc 14,800 292,596
================================================================================
0.14 APPAREL, ACCESSORIES & LUXURY GOODS
Jones Apparel Group(a) 2,300 75,164
Liz Claiborne 1,900 54,568
VF Corp 1,917 67,536
================================================================================
197,268
0.36 APPAREL RETAIL
Gap Inc 15,494 226,677
Limited Brands 9,158 115,299
TJX Cos 9,292 170,601
================================================================================
512,577
0.37 APPLICATION SOFTWARE
Autodesk Inc 2,000 29,880
Citrix Systems(a) 3,000 41,400
Compuware Corp(a) 6,600 23,100
Intuit Inc(a) 3,600 158,760
Mercury Interactive(a) 1,500 53,205
Parametric Technology(a) 4,536 10,886
PeopleSoft Inc(a) 5,447 105,617
Rational Software(a) 3,400 35,360
Siebel Systems(a) 8,500 71,060
================================================================================
529,268
0.19 AUTO PARTS & EQUIPMENT
Dana Corp 2,607 28,077
Delphi Corp 9,830 83,752
Johnson Controls 1,512 122,124
Snap-On Inc 1,000 25,500
Visteon Corp 2,242 15,403
================================================================================
274,856
0.45 AUTOMOBILE MANUFACTURERS
Ford Motor 32,217 293,497
General Motors 9,864 358,359
================================================================================
651,856
7.34 BANKS
AmSouth Bancorp 6,250 128,062
Bank of America 26,289 1,841,544
Bank of New York 13,494 341,398
Bank One 20,443 746,374
BB&T Corp 8,380 281,233
Charter One Financial 3,963 114,570
Comerica Inc 3,103 125,672
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Fifth Third Bancorp 10,150 $ 541,503
First Tennessee National 2,200 82,500
FleetBoston Financial 18,410 480,685
Golden West Financial 2,645 194,487
Huntington Bancshares 4,141 78,555
KeyCorp 7,488 180,086
Marshall & Ilsley 3,800 102,980
Mellon Financial 7,584 173,446
National City 10,780 299,684
North Fork Bancorp 2,800 90,804
Northern Trust 3,900 133,380
PNC Financial Services Group 5,000 220,200
Regions Financial 3,900 127,842
SouthTrust Corp 6,100 158,966
SunTrust Banks 4,938 279,738
Synovus Financial 5,286 102,178
Union Planters 3,500 98,770
US Bancorp 33,630 709,593
Wachovia Corp 23,890 859,323
Washington Mutual 16,641 573,282
Wells Fargo & Co 29,666 1,405,278
Zions Bancorp 1,600 66,272
================================================================================
10,538,405
1.18 BIOTECHNOLOGY
Amgen Inc(a) 22,532 1,148,231
Applera Corp-Applied Biosystems Group 3,700 64,935
Biogen Inc(a) 2,600 99,450
Chiron Corp(a) 3,300 123,816
Genzyme Corp-General Division(a) 3,800 122,702
MedImmune Inc(a) 4,400 131,076
================================================================================
1,690,210
0.52 BREWERS
Adolph Coors Class B Shrs 600 36,120
Anheuser-Busch Cos 15,044 714,139
================================================================================
750,259
0.37 BROADCASTING -- RADIO/TV
Clear Channel Communications(a) 10,703 428,976
Univision Communications Class A Shrs(a) 3,970 104,649
================================================================================
533,625
0.18 BUILDING PRODUCTS
American Standard(a) 1,300 86,658
Crane Co 1,050 16,926
Masco Corp 8,616 156,725
================================================================================
260,309
0.75 CABLE & SATELLITE OPERATORS
Comcast Corp Class A Shrs(a) 40,542 1,079,633
================================================================================
0.13 CASINOS & GAMING
Harrah's Entertainment(a) 1,914 69,440
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
International Game Technology(a) 1,500 $ 118,305
================================================================================
187,745
0.03 COMMERCIAL PRINTING
R.R. Donnelley & Sons 2,020 43,531
================================================================================
0.16 COMPUTER & ELECTRONICS RETAIL
Best Buy(a) 5,600 146,104
Circuit City Stores 3,728 22,331
RadioShack Corp 2,928 58,414
================================================================================
226,849
3.23 COMPUTER HARDWARE
Apple Computer(a) 6,336 90,985
Dell Computer(a) 45,412 1,083,530
Gateway Inc(a) 5,700 14,934
Hewlett-Packard Co 53,514 931,679
International Business Machines 29,676 2,321,553
NCR Corp(a) 1,700 32,793
Sun Microsystems(a) 54,616 168,763
================================================================================
4,644,237
0.34 COMPUTER STORAGE & PERIPHERALS
EMC Corp(a) 38,604 297,251
Lexmark International Class A Shrs(a) 2,200 133,188
Network Appliance(a) 5,900 63,779
================================================================================
494,218
0.03 CONSTRUCTION & ENGINEERING
Fluor Corp 1,412 41,993
McDermott International(a) 1,100 4,444
================================================================================
46,437
0.40 CONSTRUCTION MACHINERY, FARM
MACHINERY & HEAVY TRUCKS
Caterpillar Inc 6,044 265,815
Cummins Inc 700 17,290
Deere & Co 4,166 175,805
Navistar International(a) 1,100 26,477
PACCAR Inc 2,000 86,640
================================================================================
572,027
0.04 CONSTRUCTION MATERIALS
Vulcan Materials 1,800 61,290
================================================================================
2.07 CONSUMER FINANCE
Capital One Financial 3,900 121,095
Countrywide Financial 2,215 122,179
Fannie Mae 17,497 1,132,056
Freddie Mac 12,156 680,493
Household International 8,352 228,093
MBNA Corp 22,414 377,228
Providian Financial(a) 5,038 32,193
SLM Corp 2,700 286,821
================================================================================
2,980,158
0.17 CRUISE LINES
Carnival Corp 10,300 $ 248,230
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
0.88 DATA PROCESSING SERVICES
Automatic Data Processing 10,484 363,480
Concord EFS(a) 8,900 130,474
First Data 13,220 454,768
Fiserv Inc(a) 3,350 104,423
Paychex Inc 6,600 166,188
Sabre Holdings(a) 2,537 45,514
================================================================================
1,264,847
0.56 DEPARTMENT STORES
Dillard's Inc Class A Shrs 1,515 22,725
Federated Department Stores(a) 3,438 89,457
J.C. Penney Holding 4,664 90,435
Kohl's Corp(a) 5,900 308,983
May Department Stores 5,028 103,074
Nordstrom Inc 2,400 43,296
Sears Roebuck & Co 5,557 146,983
================================================================================
804,953
0.05 DISTILLERS & VINTNERS
Brown-Forman Corp Class B Shrs 1,200 74,568
================================================================================
0.87 DIVERSIFIED CHEMICALS
Dow Chemical 16,007 465,163
E.I. du Pont de Nemours & Co 17,422 659,771
Rohm & Haas 3,876 119,575
================================================================================
1,244,509
0.40 DIVERSIFIED COMMERCIAL SERVICES
Cintas Corp 3,000 123,900
Convergys Corp(a) 3,000 38,250
Deluxe Corp 1,111 44,707
Ecolab Inc 2,300 113,390
Equifax Inc 2,521 53,975
H&R Block 3,130 118,596
IMS Health 4,912 82,767
================================================================================
575,585
4.39 DIVERSIFIED FINANCIAL SERVICES
Ambac Financial Group 1,900 101,783
American Express 23,015 817,723
Citigroup Inc 90,108 3,097,913
Franklin Resources 4,600 153,364
Goldman Sachs Group 8,400 572,040
JP Morgan Chase & Co 35,003 816,970
MBIA Inc 2,518 103,188
Moody's Corp 2,624 109,893
Prudential Financial 9,900 314,523
State Street 5,712 226,138
================================================================================
6,313,535
0.07 DIVERSIFIED METALS & MINING
Freeport McMoRan Copper & Gold Class B Shrs(a) 2,527 47,432
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Phelps Dodge(a) 1,589 $ 54,900
================================================================================
102,332
0.47 DRUG RETAIL
CVS Corp 6,926 156,666
Walgreen Co 17,946 520,434
================================================================================
677,100
0.10 EDUCATION SERVICES
Apollo Group Class A Shrs(a) 3,100 137,826
================================================================================
2.40 ELECTRIC UTILITIES
Allegheny Energy 2,200 18,480
Ameren Corp 2,714 106,742
American Electric Power 5,903 139,429
Calpine Corp(a) 6,600 21,516
CenterPoint Energy 5,340 37,220
Cinergy Corp 2,922 92,627
CMS Energy 2,500 14,175
Consolidated Edison 3,754 149,860
Constellation Energy Group 2,921 80,766
Dominion Resources 5,357 290,296
DTE Energy 2,920 122,406
Duke Energy 15,672 266,894
Edison International(a) 5,753 70,934
Entergy Corp 3,934 174,866
Exelon Corp 5,657 288,111
FirstEnergy Corp 5,205 162,396
FPL Group 3,219 187,957
Mirant Corp(a) 7,075 12,452
NiSource Inc 4,301 76,429
PG&E Corp(a) 7,061 97,442
Pinnacle West Capital 1,600 49,840
PPL Corp 2,923 102,305
Progress Energy 4,114 166,247
Public Service Enterprise Group 3,932 138,721
Southern Co 12,496 352,012
TECO Energy 3,100 42,873
TXU Corp 5,662 103,898
Xcel Energy 7,040 77,581
================================================================================
3,444,475
0.44 ELECTRICAL COMPONENTS & EQUIPMENT
American Power Conversion(a) 3,400 52,904
Cooper Industries Ltd Class A Shrs 1,617 57,290
Emerson Electric 7,391 346,860
Molex Inc 3,375 70,841
Power-One Inc(a) 1,400 6,888
Rockwell Automation 3,237 74,613
Thomas & Betts(a) 1,000 16,880
================================================================================
626,276
0.30 ELECTRONIC EQUIPMENT & INSTRUMENTS
Agilent Technologies(a) 8,159 134,460
Jabil Circuit(a) 3,500 54,635
Millipore Corp(a) 800 25,848
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
PerkinElmer Inc 2,200 $ 17,160
Sanmina-SCI Corp(a) 9,300 34,038
Solectron Corp(a) 14,500 52,055
Symbol Technologies 4,050 34,142
Tektronix Inc(a) 1,500 24,750
Thermo Electron(a) 2,821 51,258
================================================================================
428,346
0.03 EMPLOYMENT SERVICES
Robert Half International(a) 3,000 45,480
================================================================================
0.19 ENVIRONMENTAL SERVICES
Allied Waste Industries(a) 3,500 34,230
Waste Management 10,653 244,912
================================================================================
279,142
0.02 FOOD DISTRIBUTORS
SUPERVALU Inc 2,300 34,224
================================================================================
0.39 FOOD RETAIL
Albertson's Inc 6,666 143,319
Kroger Co(a) 13,534 204,228
Safeway Inc(a) 7,700 182,490
Winn-Dixie Stores 2,421 33,894
================================================================================
563,931
0.17 FOOTWEAR
NIKE Inc Class B Shrs 4,691 208,937
Reebok International Ltd(a) 1,100 33,264
================================================================================
242,201
0.19 FOREST PRODUCTS
Louisiana-Pacific Corp(a) 1,815 13,250
Plum Creek Timber 3,200 69,824
Weyerhaeuser Co 3,831 184,080
================================================================================
267,154
0.16 GAS UTILITIES
KeySpan Corp 2,700 91,800
Nicor Inc 800 25,160
People's Energy 600 22,086
Sempra Energy 3,618 87,194
================================================================================
226,240
3.18 GENERAL MERCHANDISE STORES
Big Lots(a) 2,029 25,362
Costco Wholesale(a) 7,980 230,383
Dollar General 5,797 65,274
Family Dollar Stores 3,000 90,360
Target Corp 15,972 450,570
Wal-Mart Stores 77,460 3,702,588
================================================================================
4,564,537
0.14 GOLD
Newmont Mining 7,022 203,287
================================================================================
0.18 HEALTH CARE DISTRIBUTORS & SERVICES
McKesson Corp 5,086 144,595
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Quest Diagnostics(a) 1,700 $ 91,426
Quintiles Transnational(a) 2,100 26,691
================================================================================
262,712
1.80 HEALTH CARE EQUIPMENT
Baxter International 10,368 292,170
Becton Dickinson & Co 4,534 148,715
Biomet Inc 4,561 127,439
Boston Scientific(a) 7,156 289,460
C.R. Bard 900 51,012
Guidant Corp(a) 5,394 181,346
Medtronic Inc 21,416 962,007
St Jude Medical(a) 3,126 136,200
Stryker Corp 3,500 210,840
Waters Corp(a) 2,300 53,015
Zimmer Holdings(a) 3,410 139,810
================================================================================
2,592,014
0.47 HEALTH CARE FACILITIES
HCA Inc 8,990 384,233
Health Management Associates Class A Shrs 4,200 77,784
HEALTHSOUTH Corp(a) 6,955 26,638
Manor Care(a) 1,700 32,674
Tenet Healthcare(a) 8,550 153,814
================================================================================
675,143
0.02 HEALTH CARE SUPPLIES
Bausch & Lomb 900 29,925
================================================================================
0.05 HOME FURNISHINGS
Leggett & Platt 3,400 68,680
================================================================================
0.97 HOME IMPROVEMENT RETAIL
Home Depot 40,790 852,511
Lowe's Cos 13,660 466,899
Sherwin-Williams Co 2,624 69,903
================================================================================
1,389,313
0.10 HOMEBUILDING
Centex Corp 1,100 58,212
KB HOME 800 35,768
Pulte Homes 1,078 53,878
================================================================================
147,858
0.34 HOTELS & RESORTS
Cendant Corp(a) 18,179 201,423
Hilton Hotels 6,635 77,696
Marriott International Class A Shrs 4,168 130,042
Starwood Hotels & Resorts Worldwide Paired
Certificates SBI 3,500 82,075
================================================================================
491,236
0.13 HOUSEHOLD APPLIANCES
Black & Decker 1,413 51,772
Maytag Corp 1,413 35,707
Stanley Works 1,512 40,249
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Whirlpool Corp 1,200 $ 62,364
================================================================================
190,092
2.08 HOUSEHOLD PRODUCTS
Clorox Co 3,836 146,612
Colgate-Palmolive Co 9,488 483,034
Kimberly-Clark Corp 8,976 415,768
Procter & Gamble 22,782 1,949,456
================================================================================
2,994,870
0.19 HOUSEWARES & SPECIALTIES
American Greetings Class A Shrs(a) 1,110 15,429
Fortune Brands 2,624 115,640
Newell Rubbermaid 4,653 129,586
Tupperware Corp 1,000 15,460
================================================================================
276,115
3.86 INDUSTRIAL CONGLOMERATES
General Electric 174,547 4,039,018
Textron Inc 2,408 92,852
3M Co 6,868 855,409
Tyco International Ltd 35,023 560,718
================================================================================
5,547,997
0.22 INDUSTRIAL GASES
Air Products & Chemicals 3,944 163,479
Praxair Inc 2,822 153,912
================================================================================
317,391
0.69 INDUSTRIAL MACHINERY
Danaher Corp 2,700 165,807
Dover Corp 3,546 92,799
Eaton Corp 1,211 86,078
Illinois Tool Works 5,387 327,637
Ingersoll-Rand Co Class A Shrs 2,923 114,757
ITT Industries 1,617 90,811
Pall Corp 2,118 32,850
Parker-Hannifin Corp 2,116 85,296
================================================================================
996,035
0.35 INSURANCE BROKERS
Aon Corp 5,415 102,506
Marsh & McLennan 9,436 402,257
================================================================================
504,763
4.31 INTEGRATED OIL & GAS
Amerada Hess 1,613 76,134
ChevronTexaco Corp 18,718 1,205,439
ConocoPhillips 11,834 570,280
Exxon Mobil 118,070 4,032,091
Marathon Oil 5,489 114,720
Occidental Petroleum 6,647 194,159
================================================================================
6,192,823
3.46 INTEGRATED TELECOMMUNICATION SERVICES
ALLTEL Corp 5,470 256,379
AT&T Corp 13,519 263,350
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
BellSouth Corp 32,602 $ 742,674
CenturyTel Inc 2,500 75,825
Citizens Communications(a) 5,000 48,950
Qwest Communications International(a) 29,737 134,411
SBC Communications 58,272 1,424,168
Sprint Corp 15,664 190,161
Verizon Communications 48,015 1,838,014
================================================================================
4,973,932
0.28 INTERNET RETAIL
eBay Inc(a) 5,400 405,864
================================================================================
0.13 INTERNET SOFTWARE & SERVICES
Yahoo! Inc(a) 10,400 189,280
================================================================================
1.33 INVESTMENT ADVISER/BROKER DEALER SERVICES
Bear Stearns 1,650 102,382
Charles Schwab 23,583 217,435
Janus Capital Group 3,900 49,491
Lehman Brothers Holdings 4,200 229,026
Merrill Lynch & Co 15,138 530,133
Morgan Stanley 19,078 723,056
T. Rowe Price Group 2,100 56,154
================================================================================
1,907,677
0.27 IT CONSULTING & SERVICES
Computer Sciences(a) 3,002 91,861
Electronic Data Systems 8,400 142,380
SunGard Data Systems(a) 5,000 97,200
Unisys Corp(a) 5,725 53,357
================================================================================
384,798
0.25 LEISURE PRODUCTS
Brunswick Corp 1,614 31,425
Electronic Arts(a) 2,500 129,525
Hasbro Inc 3,077 36,924
Mattel Inc 7,691 153,820
================================================================================
351,694
0.89 LIFE & HEALTH INSURANCE
AFLAC Inc 9,100 294,749
Jefferson-Pilot Corp 2,522 97,097
John Hancock Financial Services 5,100 139,281
Lincoln National 3,134 101,072
MetLife Inc 12,300 329,271
Principal Financial Group 5,900 168,740
Torchmark Corp 2,120 76,108
UnumProvident Corp 4,230 73,898
================================================================================
1,280,216
0.67 MANAGED HEALTH CARE
Aetna Inc 2,598 112,987
Anthem Inc(a) 2,500 155,200
Humana Inc(a) 2,823 28,061
UnitedHealth Group 5,348 470,089
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
WellPoint Health Networks(a) 2,600 $ 188,968
================================================================================
955,305
0.04 METAL & GLASS CONTAINERS
Ball Corp 1,000 52,500
================================================================================
0.15 MOTORCYCLE MANUFACTURERS
Harley-Davidson Inc 5,300 221,434
================================================================================
1.90 MOVIES & ENTERTAINMENT
AOL Time Warner(a) 78,454 914,774
Viacom Inc Class B Shrs(a) 30,906 1,191,426
Walt Disney 35,829 627,008
================================================================================
2,733,208
2.10 MULTI-LINE INSURANCE
American International Group 45,719 2,474,312
CIGNA Corp 2,447 106,860
Cincinnati Financial 2,845 101,823
Hartford Financial Services Group 4,456 185,726
Loews Corp 3,252 143,153
================================================================================
3,011,874
0.02 MULTI-UTILITIES
AES Corp(a) 9,500 32,965
================================================================================
0.16 NATURAL GAS PIPELINES
Dynegy Inc Class A Shrs 6,550 12,249
El Paso 10,485 88,493
Kinder Morgan 2,100 94,731
Williams Cos 9,063 29,364
================================================================================
224,837
1.19 NETWORKING EQUIPMENT
Avaya Inc(a) 6,358 16,022
Cisco Systems(a) 126,764 1,694,835
================================================================================
1,710,857
0.08 OFFICE ELECTRONICS
Xerox Corp(a) 12,928 114,413
================================================================================
0.17 OFFICE SERVICES & SUPPLIES
Avery Dennison 1,914 114,055
Pitney Bowes 4,190 136,343
================================================================================
250,398
0.23 OIL & GAS DRILLING
Nabors Industries Ltd(a) 2,500 92,125
Noble Corp(a) 2,300 78,844
Rowan Cos 1,612 33,256
Transocean Inc 5,640 128,423
================================================================================
332,648
0.55 OIL & GAS EQUIPMENT & SERVICES
Baker Hughes 5,894 178,352
BJ Services(a) 2,700 82,539
Halliburton Co 7,696 144,377
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Schlumberger Ltd 10,225 $ 385,483
================================================================================
790,751
0.64 OIL & GAS EXPLORATION, PRODUCTION &
TRANSPORTATION
Anadarko Petroleum 4,380 201,962
Apache Corp 2,574 160,643
Burlington Resources 3,525 155,453
Devon Energy 2,718 123,125
EOG Resources 2,000 77,520
Kerr-McGee Corp 1,716 71,677
Unocal Corp 4,542 126,495
================================================================================
916,875
0.05 OIL & GAS REFINING & MARKETING
Ashland Inc 1,200 33,288
Sunoco Inc 1,300 40,716
================================================================================
74,004
1.57 PACKAGED FOODS & MEATS
Archer-Daniels-Midland Co 11,306 136,237
Campbell Soup 7,200 172,584
ConAgra Foods 9,466 232,201
General Mills 6,408 287,911
Hershey Foods 2,394 154,413
H.J. Heinz 6,141 198,416
Kellogg Co 7,170 239,478
Sara Lee 13,630 271,782
SYSCO Corp 11,548 339,165
Wm.Wrigley Jr 3,952 219,415
================================================================================
2,251,602
0.14 PAPER PACKAGING
Bemis Inc 900 39,258
Pactiv Corp(a) 2,824 57,638
Sealed Air(a) 1,519 57,297
Temple-Inland Inc 930 40,195
================================================================================
194,388
0.33 PAPER PRODUCTS
Boise Cascade 1,000 23,910
Georgia-Pacific Corp 4,432 68,164
International Paper 8,392 299,594
MeadWestvaco Corp 3,489 83,910
================================================================================
475,578
0.57 PERSONAL PRODUCTS
Alberto-Culver Co Class B Shrs 1,000 50,730
Avon Products 4,174 208,700
Gillette Co 18,536 554,226
================================================================================
813,656
10.28 PHARMACEUTICALS
Abbott Laboratories 27,404 1,044,640
Allergan Inc 2,300 139,541
AmerisourceBergen Corp 1,900 110,580
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Bristol-Myers Squibb 34,006 $ 802,202
Cardinal Health 7,728 450,774
Eli Lilly & Co 19,728 1,188,415
Forest Laboratories(a) 6,400 331,200
Johnson & Johnson 52,102 2,793,188
King Pharmaceuticals(a) 4,266 62,625
Merck & Co 39,374 2,180,926
Pfizer Inc 108,098 3,281,855
Pharmacia Corp 22,669 946,884
Schering-Plough Corp 25,762 466,550
Watson Pharmaceuticals(a) 1,900 57,532
Wyeth 23,254 907,604
================================================================================
14,764,516
0.11 PHOTOGRAPHIC PRODUCTS
Eastman Kodak 5,113 154,924
================================================================================
1.16 PROPERTY & CASUALTY INSURANCE
ACE Ltd 4,600 135,470
Allstate Corp 12,364 435,089
Chubb Corp 2,959 158,957
MGIC Investment 1,775 76,556
Progressive Corp 3,857 186,447
SAFECO Corp 2,420 86,757
St Paul 3,982 129,972
Travelers Property Casualty Class B Shrs(a) 17,578 285,818
XL Capital Ltd Class A Shrs 2,350 176,391
================================================================================
1,671,457
0.78 PUBLISHING & PRINTING
Dow Jones & Co 1,413 57,029
Gannett Co 4,686 340,485
Knight-Ridder Inc 1,412 95,621
McGraw-Hill Cos 3,428 203,006
Meredith Corp 900 37,971
New York Times Class A Shrs 2,626 128,254
Tribune Co 5,334 258,166
================================================================================
1,120,532
0.46 RAILROADS
Burlington Northern Santa Fe 6,609 171,636
CSX Corp 3,743 104,916
Norfolk Southern 6,853 135,004
Union Pacific 4,462 254,602
================================================================================
666,158
0.28 REAL ESTATE INVESTMENT TRUSTS
Equity Office Properties Trust 7,200 172,368
Equity Residential SBI 4,800 117,312
Simon Property Group 3,300 107,910
================================================================================
397,590
0.50 RESTAURANTS
Darden Restaurants 2,981 64,688
McDonald's Corp 22,304 317,609
Starbucks Corp(a) 6,800 154,496
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Wendy's International 2,018 $ 54,789
Yum! Brands(a) 5,142 119,192
================================================================================
710,774
0.39 SEMICONDUCTOR EQUIPMENT
Applied Materials(a) 28,904 345,981
KLA-Tencor Corp(a) 3,324 108,495
Novellus Systems(a) 2,600 76,570
Teradyne Inc(a) 3,200 33,248
================================================================================
564,294
2.32 SEMICONDUCTORS
Advanced Micro Devices(a) 6,040 31,650
Altera Corp(a) 6,700 73,566
Analog Devices(a) 6,400 153,152
Applied Micro Circuits(a) 5,300 19,186
Broadcom Corp Class A Shrs(a) 4,800 64,992
Intel Corp 116,196 1,819,629
Linear Technology 5,500 143,715
LSI Logic(a) 6,540 28,841
Maxim Integrated Products 5,621 175,094
Micron Technology(a) 10,660 87,519
National Semiconductor(a) 3,223 42,544
NVIDIA Corp(a) 2,700 27,864
PMC-Sierra Inc(a) 2,900 15,950
QLogic Corp(a) 1,600 53,248
Texas Instruments 30,324 482,152
Xilinx Inc(a) 5,900 116,761
================================================================================
3,335,863
2.29 SOFT DRINKS
Coca-Cola Co 43,524 1,760,981
Coca-Cola Enterprises 7,900 174,037
Pepsi Bottling Group 4,900 124,215
PepsiCo Inc 30,299 1,226,504
================================================================================
3,285,737
0.26 SPECIALTY CHEMICALS
Eastman Chemical 1,311 44,876
Englehard Corp 2,220 45,976
Great Lakes Chemical 900 20,007
Hercules Inc(a) 1,913 15,859
International Flavors & Fragrances 1,615 51,309
PPG Industries 3,017 147,320
Sigma-Aldrich Corp 1,214 54,472
================================================================================
379,819
0.41 SPECIALTY STORES
AutoZone Inc(a) 1,721 113,087
Bed Bath & Beyond(a) 5,100 171,003
Office Depot(a) 5,400 72,090
Staples Inc(a) 8,300 142,511
Tiffany & Co 2,600 60,450
Toys "R" Us(a) 3,710 33,538
================================================================================
592,679
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
0.08 STEEL
Allegheny Technologies 1,462 $ 6,681
Nucor Corp 1,412 56,353
United States Steel 1,812 26,002
Worthington Industries 1,514 22,967
================================================================================
112,003
4.21 SYSTEMS SOFTWARE
Adobe Systems 4,140 109,379
BMC Software(a) 4,100 72,283
Computer Associates International 10,076 134,716
Microsoft Corp(a) 93,770 4,450,324
Novell Inc(a) 6,349 20,571
Oracle Corp(a) 93,964 1,130,387
VERITAS Software(a) 7,200 131,414
================================================================================
6,049,074
0.91 TELECOMMUNICATIONS EQUIPMENT
ADC Telecommunications(a) 14,000 32,200
Andrew Corp(a) 1,713 15,828
CIENA Corp(a) 7,600 44,080
Comverse Technology(a) 3,300 31,416
Corning Inc(a) 20,105 82,028
JDS Uniphase(a) 24,800 67,208
Lucent Technologies(a) 60,199 111,970
Motorola Inc 40,408 322,456
QUALCOMM Inc(a) 13,800 519,708
Scientific-Atlanta Inc 2,722 30,214
Tellabs Inc(a) 7,238 56,384
================================================================================
1,313,492
0.03 TIRES & RUBBER
Cooper Tire & Rubber 1,311 18,747
Goodyear Tire & Rubber 3,103 16,446
================================================================================
35,193
1.06 TOBACCO
Altria Group 36,292 1,374,378
R.J. Reynolds Tobacco Holdings 1,500 63,540
UST Inc 2,926 90,413
================================================================================
1,528,331
0.12 TRADING COMPANIES & DISTRIBUTORS
Genuine Parts 3,025 89,238
W.W. Grainger 1,626 76,910
================================================================================
166,148
0.02 TRUCKING
Ryder System 1,100 24,783
================================================================================
0.40 WIRELESS TELECOMMUNICATION SERVICES
AT&T Wireless Services(a) 47,491 288,270
Nextel Communications Class A Shrs(a) 16,900 213,278
Sprint Corp-PCS Group Series 1 Shrs(a) 17,482 65,732
================================================================================
567,280
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $175,558,631) $138,349,695
================================================================================
3.20 SHORT-TERM INVESTMENTS
0.42 US GOVERNMENT OBLIGATIONS
US Treasury Bills, 2/27/2003(h)(Amortized
Cost $609,274) $ 610,000 609,530
================================================================================
2.78 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 1/31/2003 due 2/3/2003 at 1.220%,
repurchased at $3,986,405 (Collateralized by
Federal Home Loan Bank, Bonds, due 11/14/2003
at 2.500%, value $4,031,721)
(Cost $3,986,000) $3,986,000 3,986,000
================================================================================
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $4,595,274) 4,595,530
================================================================================
99.49 TOTAL INVESTMENTS AT VALUE
(COST $180,153,905) 142,945,225
================================================================================
0.51 OTHER ASSETS LESS LIABILITIES 733,628
================================================================================
100.00 NET ASSETS AT VALUE $143,678,853
================================================================================
SMALL COMPANY GROWTH FUND
90.53 COMMON STOCKS
0.73 AEROSPACE & DEFENSE
Alliant Techsystems(a) 108,500 $ 5,898,060
================================================================================
0.51 AIR FREIGHT & COURIERS
UTI Worldwide(b) 171,400 4,079,320
================================================================================
0.98 AIRLINES
JetBlue Airways(a)(b) 279,450 7,908,435
================================================================================
0.62 APPAREL, ACCESSORIES & LUXURY GOODS
Coach Inc(a)(b) 157,300 5,025,735
================================================================================
0.50 APPAREL RETAIL
Gymboree Corp(a)(b) 285,000 4,064,100
================================================================================
3.57 APPLICATION SOFTWARE
Cerner Corp(a)(b) 192,600 7,100,969
Cognos Inc(a)(b) 305,500 6,962,345
Jack Henry & Associates(b) 503,480 6,223,013
Quest Software(a)(b) 563,600 5,714,904
TIBCO Software(a) 487,410 2,734,370
================================================================================
28,735,601
0.48 AUTO PARTS & EQUIPMENT
Advance Auto Parts(a)(b) 88,000 3,841,200
================================================================================
6.66 BANKS
City National(b) 133,680 6,125,218
Commerce Bancorp(b) 100,200 4,397,778
Cullen/Frost Bankers(b) 187,600 5,828,732
Dime Community Bancshares(b) 362,700 7,156,071
Greater Bay Bancorp(b) 230,200 3,934,118
Investors Financial Services(b) 348,600 9,736,398
New York Community Bancorp(b) 268,000 7,911,360
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Silicon Valley Bancshares(a)(b) 496,900 $ 8,571,525
================================================================================
53,661,200
4.79 BIOTECHNOLOGY
Biotech HOLDRs Trust(b)(c) 72,700 6,448,490
Charles River Laboratories International(a)(b) 68,600 2,042,908
Enzon Pharmaceuticals(a) 162,700 2,845,623
Gen-Probe Inc(a) 181,800 4,906,782
IDEXX Laboratories(a)(b) 96,500 3,340,830
Medicines Co(a)(b) 272,000 4,466,240
NPS Pharmaceuticals(a)(b) 179,300 3,994,804
Scios Inc(a)(b) 117,400 3,850,720
Techne Corp(a)(b) 87,800 2,003,596
Trimeris Inc(a)(b) 111,200 4,700,424
================================================================================
38,600,417
1.97 BROADCASTING -- RADIO/TV
Cumulus Media Class A Shrs(a) 295,700 4,429,586
Lin TV Corp Class A Shrs(a)(b) 229,300 5,588,041
Radio One Class D Shrs(a)(b) 382,000 5,836,960
================================================================================
15,854,587
1.20 CASINOS & GAMING
Alliance Gaming(a)(b) 435,100 6,870,229
Mandalay Resort Group(a)(b) 108,600 2,789,934
================================================================================
9,660,163
0.27 CONSUMER FINANCE
iDine Rewards Network(a) 213,700 2,143,411
================================================================================
1.00 DIVERSIFIED COMMERCIAL SERVICES
Corporate Executive Board(a)(b) 261,400 8,100,786
================================================================================
2.19 EDUCATION SERVICES
Career Education(a)(b) 131,200 6,153,280
Corinthian Colleges(a) 198,200 7,224,390
University of Phoenix Online(a) 119,933 4,296,000
================================================================================
17,673,670
1.38 ELECTRICAL COMPONENTS & EQUIPMENT
Aeroflex Inc(a)(b) 956,860 7,654,880
Benchmark Electronics(a)(b) 107,900 3,506,750
================================================================================
11,161,630
2.80 ELECTRONIC EQUIPMENT & INSTRUMENTS
Cognex Corp(a)(b) 303,144 6,447,873
MKS Instruments(a) 418,100 5,661,074
OSI Systems(a)(b) 365,900 7,094,801
Plexus Corp(a) 379,800 3,335,024
================================================================================
22,538,772
2.16 EMPLOYMENT SERVICES
FTI Consulting(a)(b) 239,500 9,855,425
Heidrick & Struggles International(a)(b) 580,850 7,510,390
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
0.77 ENVIRONMENTAL SERVICES
Waste Connections(a)(b) 179,530 $ 6,238,667
================================================================================
1.64 FOOD DISTRIBUTORS
Performance Food Group(a)(b) 196,200 6,052,770
United Natural Foods(a)(b) 342,500 7,185,650
================================================================================
13,238,420
0.76 FOOD RETAIL
Whole Foods Market(a)(b) 120,200 6,108,564
================================================================================
1.37 GENERAL MERCHANDISE STORES
Big Lots(a)(b) 79,000 987,500
Fred's Inc Class A Shrs 168,600 4,528,765
Ross Stores(b) 95,700 3,733,257
Tuesday Morning(a)(b) 104,100 1,790,520
================================================================================
11,040,042
2.94 HEALTH CARE DISTRIBUTORS & SERVICES
Accredo Health(a) 195,862 7,346,784
Covance Inc(a)(b) 175,500 4,734,990
DaVita Inc(a) 169,700 4,089,770
Pharmaceutical Product Development(a)(b) 118,200 3,528,270
Renal Care Group(a)(b) 137,800 3,982,420
================================================================================
23,682,234
5.08 HEALTH CARE EQUIPMENT
Advanced Neuromodulation Systems(a)(b) 115,800 4,445,794
Bio-Rad Laboratories Class A Shrs(a)(b) 129,400 4,580,760
Biosite Inc(a)(b) 91,200 3,260,482
CTI Molecular Imaging(a)(b) 278,300 7,330,700
Integra LifeSciences Holdings(a)(b) 205,200 3,381,696
Mentor Corp 146,200 2,592,126
Varian Medical Systems(a)(b) 195,100 10,195,926
Wilson Greatbatch Technologies(a)(b) 176,000 4,484,480
Zoll Medical(a) 16,100 643,034
================================================================================
40,914,998
0.74 HEALTH CARE SUPPLIES
Cooper Cos(b) 233,700 5,985,057
================================================================================
0.77 HOMEBUILDING
Toll Brothers(a)(b) 307,500 6,186,900
================================================================================
0.76 INDUSTRIAL MACHINERY
Kennametal Inc(b) 193,500 6,126,210
================================================================================
2.00 INTERNET SOFTWARE & SERVICES
Overture Services(a) 232,000 5,389,360
PEC Solutions(a)(b) 116,200 3,578,960
RSA Security(a) 673,830 3,712,803
Websense Inc(a)(b) 216,700 3,404,357
================================================================================
16,085,480
2.68 INVESTMENT ADVISER/BROKER DEALER SERVICES
Affiliated Managers Group(a) 129,500 6,013,980
Eaton Vance(b) 283,700 7,875,512
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Raymond James Financial 301,600 $ 7,690,800
================================================================================
21,580,292
1.96 INVESTMENT COMPANIES
Nasdaq-100 Trust Series 1 Shrs(a)(b) 645,600 15,765,552
================================================================================
4.16 IT CONSULTING & SERVICES
Anteon International(a) 80,300 1,814,780
BISYS Group(a)(b) 411,900 6,508,020
Cognizant Technology Solutions Class A Shrs(a)(b) 64,800 3,906,792
Manhattan Associates(a)(b) 148,000 3,572,720
MAXIMUS Inc(a)(b) 150,900 3,605,001
SI International(a) 227,300 2,543,487
SRA International Class A Shrs(a) 171,099 4,455,418
Tier Technologies Class B Shrs(a)(b) 506,780 7,125,327
================================================================================
33,531,545
0.62 LEISURE FACILITIES
Intrawest Corp 432,200 4,978,944
================================================================================
1.00 MANAGED HEALTH CARE
First Health Group(a) 166,700 3,914,283
Mid Atlantic Medical Services(a)(b) 121,400 4,178,588
================================================================================
8,092,871
0.68 METAL & GLASS CONTAINERS
Crown Cork & Seal(a)(b) 794,400 5,505,192
================================================================================
1.37 MOVIES & ENTERTAINMENT
Pixar Inc(a)(b) 105,200 5,784,948
Regal Entertainment Group Class A Shrs 273,900 5,264,358
================================================================================
11,049,306
1.72 NETWORKING EQUIPMENT
Foundry Networks(a)(b) 682,900 5,668,070
NetScreen Technologies(a) 415,800 8,187,102
================================================================================
13,855,172
0.56 OFFICE ELECTRONICS
Zebra Technologies Class A Shrs(a)(b) 80,500 4,496,730
================================================================================
2.91 OIL & GAS DRILLING
Patterson-UTI Energy(a)(b) 286,300 8,735,013
Precision Drilling(a) 246,000 8,383,680
Pride International(a) 453,400 6,347,600
================================================================================
23,466,293
3.25 OIL & GAS EQUIPMENT & SERVICES
FMC Technologies(a) 218,900 4,248,849
Maverick Tube(a) 442,000 6,780,280
National-Oilwell Inc(a)(b) 337,600 6,897,168
Smith International(a)(b) 258,400 8,227,456
================================================================================
26,153,753
2.38 OIL & GAS EXPLORATION, PRODUCTION &
TRANSPORTATION
Evergreen Resources(a) 154,400 6,680,888
Forest Oil(a)(b) 248,500 5,964,000
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Spinnaker Exploration(a) 330,200 $ 6,561,074
================================================================================
19,205,962
1.37 PACKAGED FOODS & MEATS
American Italian Pasta Class A Shrs(a)(b) 281,200 11,051,160
================================================================================
0.45 PERSONAL PRODUCTS
NBTY Inc(a)(b) 197,900 3,603,759
================================================================================
1.32 PHARMACEUTICALS
Atrix Laboratories(a)(b) 90,300 1,029,420
Connetics Corp(a)(b) 309,500 4,020,405
Neurocrine Biosciences(a)(b) 128,200 5,560,034
================================================================================
10,609,859
1.13 PUBLISHING & PRINTING
Getty Images(a) 138,700 4,056,975
McClatchy Co Class A Shrs 89,100 5,020,785
================================================================================
9,077,760
0.54 REINSURANCE
RenaissanceRe Holdings Ltd 109,900 4,315,773
================================================================================
1.95 RESTAURANTS
California Pizza Kitchen(a)(b) 238,800 5,814,780
P.F. Chang's China Bistro(a)(b) 143,000 5,040,750
Panera Bread Class A Shrs(a)(b) 166,900 4,910,198
================================================================================
15,765,728
1.69 SEMICONDUCTOR EQUIPMENT
ATMI Inc(a)(b) 296,400 5,267,028
Cymer Inc(a)(b) 132,400 4,092,484
Varian Semiconductor Equipment Associates(a)(b) 163,800 4,248,972
================================================================================
13,608,484
3.26 SEMICONDUCTORS
Cree Inc(a)(b) 244,400 4,389,424
Exar Corp(a)(b) 607,660 7,869,197
OmniVision Technologies(a)(b) 261,000 3,557,430
QLogic Corp(a)(b) 88,700 2,951,936
Semtech Corp(a)(b) 314,700 4,191,804
Skyworks Solutions(a)(b) 470,900 3,277,464
================================================================================
26,237,255
2.34 SPECIALTY STORES
Hollywood Entertainment(a)(b) 438,400 5,848,256
Linens 'n Things(a)(b) 313,400 7,305,354
Pier 1 Imports(b) 335,500 5,686,725
================================================================================
18,840,335
1.80 TELECOMMUNICATIONS EQUIPMENT
ADTRAN Inc(a)(b)(i) 110,200 3,708,230
Advanced Fibre Communications(a)(b) 227,400 3,840,786
Anaren Inc(a)(b) 142,600 1,105,150
Tekelec(a)(b) 680,700 5,813,178
================================================================================
14,467,344
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
2.31 TRUCKING
Arkansas Best(a)(b) 214,300 $ 5,188,203
J.B. Hunt Transport Services(a)(b) 277,100 7,656,273
Yellow Corp(a)(b) 245,900 5,744,716
================================================================================
18,589,192
0.44 WIRELESS TELECOMMUNICATION SERVICES
Boston Communications Group(a)(b) 280,800 3,574,584
================================================================================
TOTAL COMMON STOCKS (COST $741,553,703) 729,342,319
================================================================================
9.21 SHORT-TERM INVESTMENTS
4.72 COMMERCIAL PAPER -- CONSUMER RECEIVABLES
New Center Asset Trust, Series 1, Discount
Notes 1.310%, 2/3/2003 (Amortized Cost
$37,997,234) $ 38,000,000 37,997,234
================================================================================
4.35 INVESTMENT COMPANIES
INVESCO Treasurer's Series Money Market
Reserve Fund(d) 1.203% (Cost $35,025,120) 35,025,120 35,025,120
================================================================================
0.14 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 1/31/2003 due 2/3/2003 at 1.220%,
repurchased at $1,135,115 (Collateralized
by Federal Home Loan Bank, Bonds, due
11/14/2003 at 2.500%, value $1,151,202)
(Cost $1,135,000) $ 1,135,000 1,135,000
================================================================================
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $74,157,354) 74,157,354
================================================================================
99.74 TOTAL INVESTMENTS AT VALUE
(COST $815,711,057) 803,499,673
================================================================================
0.26 OTHER ASSETS LESS LIABILITIES 2,113,720
================================================================================
100.00 NET ASSETS AT VALUE $805,613,393
================================================================================
VALUE EQUITY FUND
97.18 COMMON STOCKS
2.95 AEROSPACE & DEFENSE
L-3 Communications Holdings(a) 11,100 $ 496,947
Lockheed Martin 20,000 1,021,000
United Technologies 19,700 1,252,526
================================================================================
2,770,473
1.21 AGRICULTURAL PRODUCTS
Bunge Ltd 43,600 1,133,600
================================================================================
1.22 ALUMINUM
Alcoa Inc 58,000 1,146,660
================================================================================
11.11 BANKS
Bank of America 41,964 2,939,578
Bank One 40,800 1,489,608
Mellon Financial 65,300 1,493,411
Wachovia Corp 45,400 1,633,038
Wells Fargo & Co 60,600 2,870,622
================================================================================
10,426,257
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
2.31 BREWERS
Anheuser-Busch Cos 45,600 $ 2,164,632
================================================================================
3.11 COMPUTER HARDWARE
Hewlett-Packard Co 88,100 1,533,821
International Business Machines 17,700 1,384,671
================================================================================
2,918,492
2.13 DIVERSIFIED CHEMICALS
Dow Chemical 35,000 1,017,100
Olin Corp 61,000 983,320
================================================================================
2,000,420
4.75 DIVERSIFIED FINANCIAL SERVICES
Citigroup Inc 89,926 3,091,656
JP Morgan Chase & Co 58,800 1,372,392
================================================================================
4,464,048
3.07 ELECTRIC UTILITIES
Dominion Resources 19,400 1,051,286
FPL Group 17,000 992,630
NiSource Inc 47,000 835,190
================================================================================
2,879,106
1.07 ELECTRICAL COMPONENTS & EQUIPMENT
SPX Corp(a) 27,000 1,001,700
================================================================================
1.25 ENVIRONMENTAL SERVICES
Waste Management 50,900 1,170,191
================================================================================
1.56 GENERAL MERCHANDISE STORES
Target Corp 52,000 1,466,920
================================================================================
0.82 HOUSEHOLD PRODUCTS
Procter & Gamble 9,000 770,130
================================================================================
1.74 INDUSTRIAL CONGLOMERATES
General Electric 70,700 1,635,998
================================================================================
1.23 INDUSTRIAL GASES
Praxair Inc 21,100 1,150,794
================================================================================
3.84 INDUSTRIAL MACHINERY
Danaher Corp 17,000 1,043,970
Illinois Tool Works 22,515 1,369,362
ITT Industries 21,200 1,190,592
================================================================================
3,603,924
2.39 INSURANCE BROKERS
Marsh & McLennan 52,700 2,246,601
================================================================================
5.58 INTEGRATED OIL & GAS
BP PLC Sponsored ADR Representing 6 Ord Shrs 55,700 2,172,857
Exxon Mobil 89,800 3,066,670
================================================================================
5,239,527
4.85 INTEGRATED TELECOMMUNICATION SERVICES
BellSouth Corp 50,000 1,139,000
SBC Communications 57,602 1,407,793
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
Verizon Communications 52,500 $ 2,009,700
================================================================================
4,556,493
5.89 INVESTMENT ADVISER/BROKER DEALER SERVICES
Janus Capital Group 71,600 908,604
Lehman Brothers Holdings 49,500 2,699,235
Merrill Lynch & Co 55,000 1,926,100
================================================================================
5,533,939
1.64 IT CONSULTING & SERVICES
Accenture Ltd(a) 38,100 630,555
Veridian Corp(a) 42,900 905,190
================================================================================
1,535,745
3.02 MARINE
Tsakos Energy Navigation Ltd 191,400 2,838,462
================================================================================
0.97 OIL & GAS DRILLING
Noble Corp(a) 26,500 908,420
================================================================================
1.35 OIL & GAS EXPLORATION, PRODUCTION &
TRANSPORTATION
Kerr-McGee Corp 30,400 1,269,808
================================================================================
3.34 PACKAGED FOODS & MEATS
Hershey Foods 14,500 935,250
H.J. Heinz 34,100 1,101,771
Kellogg Co 32,900 1,098,860
================================================================================
3,135,881
2.08 PAPER PRODUCTS
Bowater Inc 29,000 1,178,850
International Paper 21,600 771,120
================================================================================
1,949,970
7.74 PHARMACEUTICALS
Bristol-Myers Squibb 41,600 981,344
Eli Lilly & Co 16,000 963,840
Merck & Co 39,200 2,171,288
Pfizer Inc 70,000 2,125,200
Pharmacia Corp 24,600 1,027,542
================================================================================
7,269,214
0.99 PROPERTY & CASUALTY INSURANCE
St Paul 28,600 933,504
================================================================================
3.56 PUBLISHING & PRINTING
Gannett Co 13,800 1,002,708
McGraw-Hill Cos 39,500 2,339,190
================================================================================
3,341,898
1.44 RAILROADS
Union Pacific 23,700 1,352,322
================================================================================
1.16 REAL ESTATE INVESTMENT TRUSTS
iStar Financial 38,800 1,086,012
================================================================================
0.53 SEMICONDUCTOR EQUIPMENT
Applied Materials(a) 41,500 496,755
================================================================================
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
3.07 SEMICONDUCTORS
Analog Devices(a) 16,400 $ 392,452
Intel Corp 75,300 1,179,198
Texas Instruments 82,500 1,311,750
================================================================================
2,883,400
1.38 SPECIALTY CHEMICALS
Potash Corp of Saskatchewan 21,500 1,293,655
================================================================================
2.09 TELECOMMUNICATIONS EQUIPMENT
General Motors Class H Shrs(a) 53,600 546,720
Nokia Corp Sponsored ADR Representing Ord Shrs 98,300 1,414,537
================================================================================
1,961,257
0.74 TOBACCO
Altria Group 18,400 696,808
================================================================================
TOTAL COMMON STOCKS (COST $92,137,110) 91,233,016
================================================================================
2.62 SHORT-TERM INVESTMENTS
2.13 INVESTMENT COMPANIES
INVESCO Treasurer's Series Money Market Reserve
Fund(d) 1.203% (Cost $2,000,066) 2,000,066 2,000,066
================================================================================
0.49 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 1/31/2003 due 2/3/2003 at 1.220%,
repurchased at $461,047 (Collateralized by
Freddie Mac, Reference Notes, due 11/15/2004
at 3.250%, value $475,613) (Cost $461,000) $ 461,000 461,000
================================================================================
TOTAL SHORT-TERM INVESTMENTS
(COST $2,461,066) 2,461,066
================================================================================
99.80 TOTAL INVESTMENTS AT VALUE
(COST $94,598,176) 93,694,082
================================================================================
0.20 OTHER ASSETS LESS LIABILITIES 183,253
================================================================================
100.00 NET ASSETS AT VALUE $93,877,335
================================================================================
(a) Security is non-income producing.
(b) Loaned security, a portion or all of the security is on loan at January 31,
2003.
(c) HOLDRs - Holding Company Depositary Receipts.
(d) Security is an affiliated company (Note 5).
(e) Securities acquired pursuant to Rule 144A. The Fund deems such securities
to be "liquid" because an institutional market exists.
(f) Security contains an adjustable rate feature. Rate shown reflects current
rate which may change at a future date.
(g) All common stock securities have been designated as collateral for futures
contracts.
(h) Security has been designated as collateral for variation margin of futures
contracts.
(i) Security or a portion of the security has been designated as collateral for
written options.
(j) The following is a restricted security at January 31, 2003:
SCHEDULE OF RESTRICTED AND ILLIQUID
SECURITIES
% OF
ACQUISITION ACQUISITION NET ASSETS
DESCRIPTION DATE COST AT VALUE
- --------------------------------------------------------------------------------
DYNAMICS FUND
Calient Networks, Pfd, Series D Shrs 12/8/00 $ 648,056 0.00%
================================================================================
FUTURES CONTRACTS
OPEN AT JANUARY 31, 2003
NUMBER OF FACE MARKET
POSITION CONTRACTS AMOUNT VALUE
- --------------------------------------------------------------------------------
S&P 500 Index Fund
S&P 500 Index
(Expires March 2003) Long 20 $ 5,000 $ 4,273,500
================================================================================
OPTION CONTRACTS
NUMBER OF EXPIRATION EXERCISE PREMIUM MARKET
CONTRACTS DATE PRICE RECEIVED VALUE
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
OPTIONS WRITTEN
CALLS
ADTRAN Inc (481) 2/22/03 $ 40 $ 123,613 $ (8,417)
================================================================================
See Notes to Financial Statements
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
INVESCO STOCK FUNDS, INC.
JANUARY 31, 2003
UNAUDITED
DYNAMICS GROWTH
FUND FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 3,268,453,416 $ 449,268,702
================================================================================
At Value(a) $ 3,423,101,156 $ 427,576,360
Cash 517 0
Receivables:
Investment Securities Sold 31,826,405 4,958,945
Fund Shares Sold 18,346,431 827,819
Dividends and Interest 539,044 263,943
Other Investments (Note 6) 23,830,047 207,000
Prepaid Expenses and Other Assets 756,881 112,394
================================================================================
TOTAL ASSETS 3,498,400,481 433,946,461
================================================================================
LIABILITIES
Payables:
Custodian 0 107
Investment Securities Purchased 26,425,560 6,394,962
Fund Shares Repurchased 15,675,700 1,134,508
Securities Loaned 23,830,047 207,000
Accrued Distribution Expenses
Investor Class 738,373 92,005
Class A 2,375 184
Class B 676 32
Class C 12,556 2,601
Class K 14,277 908
Accrued Expenses and Other Payables 446,571 157,342
================================================================================
TOTAL LIABILITIES 67,146,135 7,989,649
================================================================================
NET ASSETS AT VALUE $ 3,431,254,346 $ 425,956,812
================================================================================
NET ASSETS
Paid-in Capital(b) $ 7,568,553,441 $2,036,052,090
Accumulated Undistributed Net Investment
Loss (15,021,500) (1,968,436)
Accumulated Undistributed Net Realized
Loss on Investment Securities and Foreign
Currency Transactions (4,276,925,335) (1,586,434,500)
Net Appreciation (Depreciation) of
Investment Securities and Foreign
Currency Transactions 154,647,740 (21,692,342)
================================================================================
NET ASSETS AT VALUE, Applicable to Shares
Outstanding $ 3,431,254,346 $ 425,956,812
================================================================================
NET ASSETS AT VALUE:
Institutional Class $ 27,813,616 --
================================================================================
Investor Class $ 3,344,048,183 $ 421,368,272
================================================================================
Class A $ 9,151,696 $ 182,528
================================================================================
Class B $ 823,297 $ 27,579
================================================================================
Class C $ 12,330,267 $ 2,747,084
================================================================================
Class K $ 37,087,287 $ 1,631,349
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO STOCK FUNDS, INC.
JANUARY 31, 2003
UNAUDITED
DYNAMICS GROWTH
FUND FUND
(CONTINUED) (CONTINUED)
- --------------------------------------------------------------------------------
Shares Outstanding
Institutional Class 2,597,729 --
Investor Class 315,169,562 280,421,301
Class A 860,973 122,415
Class B 78,072 18,490
Class C 1,192,021 1,883,166
Class K 3,513,025 1,188,370
================================================================================
NET ASSET VALUE PER SHARE:
Institutional Class, Offering and Redemption
Price per Share $ 10.71 --
Investor Class, Offering and Redemption Price
per Share $ 10.61 $ 1.50
Class A
Redemption Price per Share $ 10.63 $ 1.49
Offering Price per Share (Maximum sales
charge of 5.50%) $ 11.25 $ 1.58
Class B, Offering and Redemption Price
per Share $ 10.55 $ 1.49
Class C, Offering and Redemption Price
per Share $ 10.34 $ 1.46
Class K, Offering and Redemption Price
per Share $ 10.56 $ 1.37
================================================================================
(a) Investment securities at cost and value at January 31, 2003 include
repurchase agreements of $14,948,000 and $316,000 for Dynamics and Growth
Funds, respectively.
(b) The INVESCO Stock Funds, Inc. have 10 billion authorized shares of common
stock, par value of $0.01 per share. Of such shares, 2.4 billion have been
allocated to Dynamics Fund and 2.6 billion to Growth Fund: 200 million to
Dynamics Fund - Institutional Class, 1 billion to Dynamics Fund - Investor
Class, 300 million to each addiional class of Dynamics Fund, 1 billion to
Growth Fund - Investor Class and 400 million to each additional class of
Growth Fund.
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO STOCK FUNDS, INC.
JANUARY 31, 2003
UNAUDITED
GROWTH & S&P 500
INCOME FUND INDEX FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 40,789,795 $ 180,153,905
================================================================================
At Value(a) $ 38,674,479 $ 142,945,225
Receivables:
Investment Securities Sold 501,376 46
Fund Shares Sold 68,958 809,003
Dividends and Interest 38,115 175,361
Variation Margin on Futures Contracts 0 72,295
Prepaid Expenses and Other Assets 26,723 57,301
================================================================================
TOTAL ASSETS 39,309,651 144,059,231
================================================================================
LIABILITIES
Payables:
Custodian 62,885 98,284
Distributions to Shareholders 0 6,430
Investment Securities Purchased 468,750 0
Fund Shares Repurchased 26,205 223,330
Accrued Distribution Expenses
Investor Class 8,134 30,674
Class A 208 --
Class B 41 --
Class C 816 --
Class K 39 --
Accrued Expenses and Other Payables 10,161 21,660
================================================================================
TOTAL LIABILITIES 577,239 380,378
================================================================================
NET ASSETS AT VALUE $ 38,732,412 $ 143,678,853
================================================================================
NET ASSETS
Paid-in Capital(b) $ 135,485,370 $ 198,497,696
Accumulated Undistributed Net Investment
Income (Loss) (90,933) 15,288
Accumulated Undistributed Net Realized Loss on
Investment Securities and Futures Contracts (94,546,709) (17,319,196)
Net Depreciation of Investment Securities and
Futures Contracts (2,115,316) (37,514,935)
================================================================================
NET ASSETS AT VALUE, Applicable to Shares
Outstanding $ 38,732,412 $ 143,678,853
================================================================================
NET ASSETS AT VALUE:
Institutional Class -- $ 284,962
================================================================================
Investor Class $ 37,388,038 $ 143,393,891
================================================================================
Class A $ 234,820 --
================================================================================
Class B $ 53,674 --
================================================================================
Class C $ 947,326 --
================================================================================
Class K $ 108,554 --
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO STOCK FUNDS, INC.
JANUARY 31, 2003
UNAUDITED
GROWTH & S&P 500
INCOME FUND INDEX FUND
(CONTINUED) (CONTINUED)
- --------------------------------------------------------------------------------
Shares Outstanding
Institutional Class -- 32,950
Investor Class 6,606,706 15,926,669
Class A 41,452 --
Class B 9,546 --
Class C 171,251 --
Class K 19,243 --
================================================================================
NET ASSET VALUE PER SHARE:
Institutional Class, Offering and Redemption
Price per Share -- $ 8.65
Investor Class, Offering and Redemption Price
per Share $ 5.66 $ 9.00
Class A
Redemption Price per Share $ 5.66 --
Offering Price per Share (Maximum sales
charge of 5.50%) $ 5.99 --
Class B, Offering and Redemption Price per
Share $ 5.62 --
Class C, Offering and Redemption Price per
Share $ 5.53 --
Class K, Offering and Redemption Price per
Share $ 5.64 --
================================================================================
(a) Investment securities at cost and value at January 31, 2003 includes a
repurchase agreement of $3,986,000 for S&P 500 Index Fund.
(b) The INVESCO Stock Funds, Inc. have 10 billion authorized shares of common
stock, par value of $0.01 per share. Of such shares, 500 million have been
allocated to Growth & Income Fund and 200 million have been allocated to
S&P 500 Index Fund: 100 million to each class.
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO STOCK FUNDS, INC.
JANUARY 31, 2003
UNAUDITED
SMALL VALUE
COMPANY EQUITY
GROWTH FUND FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 815,711,057 $ 94,598,176
================================================================================
At Value(a) $ 803,499,673 $ 93,694,082
Cash 705 810
Receivables:
Investment Securities Sold 10,190,200 0
Fund Shares Sold 7,848,289 195,124
Dividends and Interest 140,105 138,082
Other Investments (Note 6) 109,046,829 0
Prepaid Expenses and Other Assets 162,707 40,949
================================================================================
TOTAL ASSETS 930,888,508 94,069,047
================================================================================
LIABILITIES
Options Written at Value (Premiums Received
$123,613 and $0, respectively) 8,417 0
Payables:
Distributions to Shareholders 0 4,009
Investment Securities Purchased 14,633,875 0
Fund Shares Repurchased 1,276,990 122,951
Securities Loaned 109,046,829 0
Accrued Distribution Expenses
Investor Class 158,010 20,135
Class A 1,010 57
Class B 187 220
Class C 2,809 1,001
Class K 26,110 --
Accrued Expenses and Other Payables 120,878 43,339
================================================================================
TOTAL LIABILITIES 125,275,115 191,712
================================================================================
NET ASSETS AT VALUE $ 805,613,393 $ 93,877,335
================================================================================
NET ASSETS
Paid-in Capital(b) $1,596,707,398 $ 100,590,347
Accumulated Undistributed Net Investment Loss (4,860,901) (21,427)
Accumulated Undistributed Net Realized Loss on
Investment Securities and Option Contracts (774,136,916) (5,787,491)
Net Depreciation of Investment Securities
and Option Contracts (12,096,188) (904,094)
================================================================================
NET ASSETS AT VALUE, Applicable to Shares
Outstanding $ 805,613,393 $ 93,877,335
================================================================================
NET ASSETS AT VALUE:
Investor Class $ 733,253,307 $ 91,815,917
================================================================================
Class A $ 3,478,333 $ 674,106
================================================================================
Class B $ 218,725 $ 248,919
================================================================================
Class C $ 1,089,468 $ 1,138,393
================================================================================
Class K $ 67,573,560 --
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO STOCK FUNDS, INC.
JANUARY 31, 2003
UNAUDITED
SMALL VALUE
COMPANY EQUITY
GROWTH FUND FUND
(CONTINUED) (CONTINUED)
- --------------------------------------------------------------------------------
Shares Outstanding
Investor Class 90,516,889 6,011,778
Class A 428,837 44,629
Class B 27,122 16,340
Class C 140,104 76,118
Class K 8,336,983 --
================================================================================
NET ASSET VALUE PER SHARE:
Investor Class, Offering and Redemption Price
per Share $ 8.10 $ 15.27
Class A
Redemption Price per Share $ 8.11 $ 15.10
Offering Price per Share (Maximum sales
charge of 5.50%) $ 8.58 $ 15.98
Class B, Offering and Redemption Price
per Share $ 8.06 $ 15.23
Class C, Offering and Redemption Price per
Share $ 7.78 $ 14.96
Class K, Offering and Redemption Price per
Share $ 8.11 --
================================================================================
(a) Investment securities at cost and value at January 31, 2003 include
repurchase agreements of $1,135,000 and $461,000 for Small Company Growth
and Value Equity Funds, respectively.
(b) The INVESCO Stock Funds, Inc. have 10 billion authorized shares of common
stock, par value of $0.01 per share. Of such shares,1.3 billion have been
allocated to Small Company Growth Fund and 500 million have been allocated
to the Value Equity Fund: 500 million to Small Company Growth Fund -
Investor Class, 200 million to each additional class of Small Company
Growth Fund and 100 million to each class of Value Equity Fund.
See Notes to Financial Statements
STATEMENT OF OPERATIONS
INVESCO STOCK FUNDS, INC.
SIX MONTHS ENDED JANUARY 31, 2003 (NOTE 1)
UNAUDITED
DYNAMICS GROWTH
FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 6,503,240 $ 2,563,991
Interest 919,735 227,152
Securities Loaned Income 185,771 11,209
Foreign Taxes Withheld (38,441) 0
================================================================================
TOTAL INCOME 7,570,305 2,802,352
================================================================================
EXPENSES
Investment Advisory Fees 9,124,154 1,435,400
Distribution Expenses 4,718,888 627,841
Transfer Agent Fees 12,735,077 2,063,354
Administrative Services Fees 840,744 115,224
Custodian Fees and Expenses 269,480 46,572
Directors' Fees and Expenses 141,324 27,188
Interest Expenses 27,308 505
Professional Fees and Expenses 95,952 27,221
Registration Fees and Expenses - Institutional Class 5,338 --
Registration Fees and Expenses - Investor Class 285,842 118,461
Registration Fees and Expenses - Class A 425 425
Registration Fees and Expenses - Class B 425 425
Registration Fees and Expenses - Class C 1,723 594
Registration Fees and Expenses - Class K 1,471 1,313
Reports to Shareholders 462,821 274,866
Other Expenses 116,395 16,785
================================================================================
TOTAL EXPENSES 28,827,367 4,756,174
Fees and Expenses Absorbed/Reimbursed by
Investment Adviser (6,262,959) (48,668)
Fees and Expenses Paid Indirectly (226,877) (38,542)
================================================================================
NET EXPENSES 22,337,531 4,668,964
================================================================================
NET INVESTMENT LOSS (14,767,226) (1,866,612)
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on:
Investment Securities (597,235,174) (101,133,334)
Foreign Currency Transactions (20,282) 0
================================================================================
Total Net Realized Loss (597,255,456) (101,133,334)
================================================================================
Change in Net Appreciation/Depreciation of:
Investment Securities 567,222,441 60,100,506
Foreign Currency Transactions 438,040 0
================================================================================
Total Change in Net Appreciation/Depreciation 567,660,481 60,100,506
================================================================================
NET LOSS ON INVESTMENT SECURITIES
AND FOREIGN CURRENCY TRANSACTIONS (29,594,975) (41,032,828)
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS $ (44,362,201) $ (42,899,440)
================================================================================
See Notes to Financial Statements
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO STOCK FUNDS, INC.
SIX MONTHS ENDED JANUARY 31, 2003
UNAUDITED
GROWTH & S&P 500
INCOME FUND INDEX FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 199,239 $ 1,213,434
Interest 50,496 45,660
Foreign Taxes Withheld (192) 0
================================================================================
TOTAL INCOME 249,543 1,259,094
================================================================================
EXPENSES
Investment Advisory Fees 165,732 174,097
Distribution Expenses 59,529 173,682
Transfer Agent Fees 267,145 268,263
Administrative Services Fees 14,944 36,337
Custodian Fees and Expenses 7,776 18,218
Directors' Fees and Expenses 9,396 10,777
Interest Expenses 665 0
Professional Fees and Expenses 13,265 13,813
Registration Fees and Expenses - Institutional Class -- 4,768
Registration Fees and Expenses - Investor Class 8,629 12,599
Registration Fees and Expenses - Class A 425 --
Registration Fees and Expenses - Class B 425 --
Registration Fees and Expenses - Class C 593 --
Registration Fees and Expenses - Class K 1,337 --
Reports to Shareholders 71,146 48,301
Other Expenses 2,091 4,179
================================================================================
TOTAL EXPENSES 623,098 765,034
Fees and Expenses Absorbed/Reimbursed by
Investment Adviser (287,312) (312,663)
Fees and Expenses Paid Indirectly (37) (216)
================================================================================
NET EXPENSES 335,749 452,155
================================================================================
NET INVESTMENT INCOME (LOSS) (86,206) 806,939
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on:
Investment Securities (9,635,967) (858,606)
Futures Contracts 0 (247,327)
================================================================================
Total Net Realized Loss (9,635,967) (1,105,933)
================================================================================
Change in Net Appreciation/Depreciation of:
Investment Securities 5,686,886 (8,351,326)
Futures Contracts 0 (314,550)
================================================================================
Total Change in Net Appreciation/Depreciation 5,686,886 (8,665,876)
================================================================================
NET LOSS ON INVESTMENT SECURITIES AND
FUTURES CONTRACTS (3,949,081) (9,771,809)
================================================================================
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (4,035,287) $ (8,964,870)
================================================================================
See Notes to Financial Statements
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO STOCK FUNDS, INC.
SIX MONTHS ENDED JANUARY 31, 2003
UNAUDITED
SMALL VALUE
COMPANY EQUITY
GROWTH FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 948,406 $ 1,155,740
Dividends from Affiliated Investment Companies 25,121 66
Interest 720,889 46,122
Securities Loaned Income 74,531 0
Foreign Taxes Withheld (6,711) (6,069)
================================================================================
TOTAL INCOME 1,762,236 1,195,859
================================================================================
EXPENSES
Investment Advisory Fees 2,907,870 392,837
Distribution Expenses 1,165,882 136,803
Transfer Agent Fees 3,760,892 335,387
Administrative Services Fees 199,609 28,570
Custodian Fees and Expenses 69,876 11,540
Directors' Fees and Expenses 38,924 11,827
Interest Expenses 0 1,061
Professional Fees and Expenses 33,080 14,190
Registration Fees and Expenses - Investor Class 77,626 13,036
Registration Fees and Expenses - Class A 428 427
Registration Fees and Expenses - Class B 425 428
Registration Fees and Expenses - Class C 605 650
Registration Fees and Expenses - Class K 535 --
Reports to Shareholders 134,401 47,081
Other Expenses 27,592 4,121
================================================================================
TOTAL EXPENSES 8,417,745 997,958
Fees and Expenses Absorbed/Reimbursed by
Investment Adviser (1,849,270) (311,107)
Fees and Expenses Paid Indirectly (1,125) (77)
================================================================================
NET EXPENSES 6,567,350 686,774
================================================================================
NET INVESTMENT INCOME (LOSS) (4,805,114) 509,085
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on:
Investment Securities (96,054,291) (3,802,697)
Option Contracts (145,589) 0
================================================================================
Total Net Realized Loss (96,199,880) (3,802,697)
================================================================================
Change in Net Appreciation/Depreciation of:
Investment Securities 67,164,835 (3,059,425)
Option Contracts 115,196 0
================================================================================
Total Change in Net Appreciation/Depreciation 67,280,031 (3,059,425)
================================================================================
NET LOSS ON INVESTMENT SECURITIES AND
OPTION CONTRACTS (28,919,849) (6,862,122)
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS $ (33,724,963) $ (6,353,037)
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
DYNAMICS FUND
SIX MONTHS
ENDED YEAR ENDED
JANUARY 31 JULY 31
- ---------------------------------------------------------------------------------------
2003 2002
(Note 1) (Note 1)
UNAUDITED
OPERATIONS
Net Investment Loss $ (14,767,226) $ (47,390,082)
Net Realized Loss (597,255,456) (2,394,287,069)
Change in Net Appreciation/Depreciation 567,660,481 62,507,291
=======================================================================================
NET DECREASE IN NET ASSETS FROM OPERATIONS (44,362,201) (2,379,169,860)
=======================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Institutional Class 0 (14,953)
Investor Class 0 (8,421,070)
Class C 0 (80,624)
Class K 0 (84,604)
=======================================================================================
TOTAL DISTRIBUTIONS 0 (8,601,251)
=======================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Institutional Class 8,081,137 35,692,949
Investor Class 6,618,774,711 14,256,183,765
Class A 46,957,718 8,734,823
Class B 476,132 500,161
Class C 259,550,061 1,220,215,124
Class K 10,578,202 80,446,673
Reinvestment of Distributions
Institutional Class 0 14,947
Investor Class 0 8,219,289
Class C 0 52,260
Class K 0 81,490
Net Assets Received from Acquisition of INVESCO
Endeavor Fund (Note 3)
Investor Class 47,634,088 --
Class A 507,690 --
Class B 12,735 --
Class C 838,403 --
Class K 985 --
=======================================================================================
6,993,411,862 15,610,141,481
Amounts Paid for Repurchases of Shares
Institutional Class (5,144,824) (9,426,772)
Investor Class (6,970,188,721) (14,785,336,080)
Class A (39,712,804) (6,288,847)
Class B (40,973) (4,882)
Class C (259,341,024) (1,229,382,393)
Class K (17,292,717) (20,987,745)
=======================================================================================
(7,291,721,063) (16,051,426,719)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (298,309,201) (441,285,238)
=======================================================================================
TOTAL DECREASE IN NET ASSETS (342,671,402) (2,829,056,349)
NET ASSETS
Beginning of Period 3,773,925,748 6,602,982,097
=======================================================================================
End of Period (Including Accumulated Undistributed
Net Investment Loss of ($15,021,500) and
($254,274), respectively) $ 3,431,254,346 $ 3,773,925,748
=======================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
GROWTH FUND
SIX MONTHS
ENDED YEAR ENDED
JANUARY 31 JULY 31
- ---------------------------------------------------------------------------------------
2003 2002
UNAUDITED (Note 1)
OPERATIONS
Net Investment Loss $ (1,866,612) $ (10,389,125)
Net Realized Loss (101,133,334) (937,036,510)
Change in Net Appreciation/Depreciation 60,100,506 425,195,008
=======================================================================================
NET DECREASE IN NET ASSETS FROM OPERATIONS (42,899,440) (522,230,627)
=======================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class 0 (8,433,763)
Class C 0 (67,169)
Class K 0 (37,778)
=======================================================================================
TOTAL DISTRIBUTIONS 0 (8,538,710)
=======================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 206,131,709 682,767,593
Class A 658,853 117,396
Class B 30,426 48,462
Class C 1,350,797 6,388,175
Class K 577,223 8,562,546
Reinvestment of Distributions
Investor Class 0 7,887,172
Class C 0 63,610
Class K 0 37,714
========================================================================================
208,749,008 705,872,668
Amounts Paid for Repurchases of Shares
Investor Class (267,842,209) (891,104,786)
Class A (523,760) (2,256)
Class B (37,718) 0
Class C (1,944,441) (7,911,299)
Class K (1,592,384) (4,195,177)
========================================================================================
(271,940,512) (903,213,518)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (63,191,504) (197,340,850)
========================================================================================
TOTAL DECREASE IN NET ASSETS (106,090,944) (728,110,187)
NET ASSETS
Beginning of Period 532,047,756 1,260,157,943
========================================================================================
End of Period (Including Accumulated Undistributed
Net Investment Loss of ($1,968,436) and
($101,824), respectively) $ 425,956,812 $ 532,047,756
========================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
GROWTH & Income Fund
SIX MONTHS
ENDED YEAR ENDED
JANUARY 31 JULY 31
- ---------------------------------------------------------------------------------------
2003 2002
UNAUDITED (Note 1)
OPERATIONS
Net Investment Loss $ (86,206) $ (702,505)
Net Realized Loss (9,635,967) (50,203,808)
Change in Net Appreciation/Depreciation 5,686,886 17,515,562
=======================================================================================
NET DECREASE IN NET ASSETS FROM OPERATIONS (4,035,287) (33,390,751)
=======================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class 0 (870,866)
Class C 0 (20,943)
Class K 0 (149)
=======================================================================================
TOTAL DISTRIBUTIONS 0 (891,958)
=======================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 23,868,952 63,165,278
Class A 803,722 54,987
Class B 50,794 5,991
Class C 1,736,692 2,714,384
Class K 73,196 70,795
Reinvestment of Distributions
Investor Class 0 841,595
Class C 0 20,675
Class K 0 148
=======================================================================================
26,533,356 66,873,853
Amounts Paid for Repurchases of Shares
Investor Class (26,632,239) (74,932,736)
Class A (571,083) (207)
Class C (1,905,757) (2,855,444)
Class K (15,235) (5,264)
=======================================================================================
(29,124,314) (77,793,651)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (2,590,958) (10,919,798)
=======================================================================================
TOTAL DECREASE IN NET ASSETS (6,626,245) (45,202,507)
NET ASSETS
Beginning of Period 45,358,657 90,561,164
=======================================================================================
End of Period (Including Accumulated Undistributed
Net Investment Loss of ($90,933) and ($4,727),
respectively) $ 38,732,412 $ 45,358,657
=======================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
S&P 500 INDEX FUND
SIX MONTHS
ENDED YEAR ENDED
JANUARY 31 JULY 31
- ---------------------------------------------------------------------------------------
2003 2002
UNAUDITED
OPERATIONS
Net Investment Income $ 806,939 $ 1,121,152
Net Realized Loss (1,105,933) (4,776,216)
Change in Net Appreciation/Depreciation (8,665,876) (33,132,274)
=======================================================================================
NET DECREASE IN NET ASSETS FROM OPERATIONS (8,964,870) (36,787,338)
=======================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Institutional Class (2,661) (6,932)
Investor Class (797,156) (1,112,643)
=======================================================================================
TOTAL DISTRIBUTIONS (799,817) (1,119,575)
=======================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Institutional Class 72,833 60,055
Investor Class 43,694,900 113,976,490
Reinvestment of Distributions
Institutional Class 2,661 6,932
Investor Class 779,817 1,086,073
=======================================================================================
44,550,211 115,129,550
Amounts Paid for Repurchases of Shares
Institutional Class (108,875) (153,889)
Investor Class (26,913,630) (58,005,970)
=======================================================================================
(27,022,505) (58,159,859)
NET INCREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 17,527,706 56,969,691
=======================================================================================
TOTAL INCREASE IN NET ASSETS 7,763,019 19,062,778
NET ASSETS
Beginning of Period 135,915,834 116,853,056
=======================================================================================
End of Period (Including Accumulated Undistributed
Net Investment Income of $15,288 and $8,166,
respectively) $ 143,678,853 $ 135,915,834
=======================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
SMALL COMPANY GROWTH FUND
SIX MONTHS
ENDED YEAR ENDED
JANUARY 31 JULY 31
- ---------------------------------------------------------------------------------------
2003 2002
UNAUDITED (Note 1)
OPERATIONS
Net Investment Loss $ (4,805,114) $ (11,838,207)
Net Realized Loss (96,199,880) (343,900,434)
Change in Net Appreciation/Depreciation 67,280,031 (118,826,648)
=======================================================================================
NET DECREASE IN NET ASSETS FROM OPERATIONS (33,724,963) (474,565,289)
=======================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 587,061,433 1,668,964,619
Class A 13,375,701 5,175,121
Class B 158,442 83,804
Class C 173,663,901 242,988,367
Class K 7,637,004 97,590,130
=======================================================================================
781,896,481 2,014,802,041
Amounts Paid for Repurchases of Shares
Investor Class (624,219,013) (1,817,548,640)
Class A (12,294,168) (2,036,706)
Class C (172,982,513) (242,505,249)
Class K (3,794,336) (4,561,049)
=======================================================================================
(813,290,030) (2,066,651,644)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (31,393,549) (51,849,603)
=======================================================================================
TOTAL DECREASE IN NET ASSETS (65,118,512) (526,414,892)
NET ASSETS
Beginning of Period 870,731,905 1,397,146,797
=======================================================================================
End of Period (Including Accumulated Undistributed
Net Investment Loss of ($4,860,901) and
($55,787), respectively) $ 805,613,393 $ 870,731,905
=======================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
VALUE EQUITY FUND
SIX MONTHS
ENDED YEAR ENDED
JANUARY 31 JULY 31
- ---------------------------------------------------------------------------------------
2003 2002
UNAUDITED (Note 1)
OPERATIONS
Net Investment Income $ 509,085 $ 961,063
Net Realized Loss (3,802,697) (276,900)
Change in Net Appreciation/Depreciation (3,059,425) (36,981,073)
=======================================================================================
NET DECREASE IN NET ASSETS FROM OPERATIONS (6,353,037) (36,296,910)
=======================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (508,798) (7,145,493)
Class A (3,246) (1,496)
Class B (331) (1,972)
Class C (1,364) (40,643)
=======================================================================================
TOTAL DISTRIBUTIONS (513,739) (7,189,604)
=======================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 49,082,437 234,949,185
Class A 515,953 194,149
Class B 33,514 294,702
Class C 2,618,704 15,133,201
Reinvestment of Distributions
Investor Class 498,920 7,004,884
Class A 919 1,049
Class B 313 1,907
Class C 1,235 38,509
=======================================================================================
52,751,995 257,617,586
Amounts Paid for Repurchases of Shares
Investor Class (76,327,097) (272,467,187)
Class A (121) (2,898)
Class B (11,086) (5,125)
Class C (3,070,994) (14,183,369)
=======================================================================================
(79,409,298) (286,658,579)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (26,657,303) (29,040,993)
=======================================================================================
TOTAL DECREASE IN NET ASSETS (33,524,079) (72,527,507)
NET ASSETS
Beginning of Period 127,401,414 199,928,921
=======================================================================================
End of Period (Including Accumulated Undistributed
Net Investment Loss of ($21,427) and ($16,773),
respectively) $ 93,877,335 $ 127,401,414
=======================================================================================
See Notes to Financial Statements
NOTES TO FINANCIAL
STATEMENTS
INVESCO STOCK FUNDS, INC.
UNAUDITED
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Stock Funds,
Inc. is incorporated in Maryland and presently consists of eight separate Funds:
Basic Value Fund, Dynamics Fund, Growth Fund, Growth & Income Fund, Mid-Cap
Growth Fund, S&P 500 Index Fund, Small Company Growth Fund and Value Equity Fund
(individually the "Fund" and collectively, the "Funds"). Basic Value Fund and
Mid-Cap Growth Fund are presented in separate reports to shareholders. The
investment objectives of the Funds are: to seek long-term capital growth for
Dynamics, Growth and Small Company Growth Funds; to seek a high rate of total
return from capital appreciation plus income on investments for Growth & Income
Fund; to provide both price performance and income comparable to the Standard &
Poor's 500 Composite Stock Price Index for the S&P 500 Index Fund; and to
achieve a high total return on investments from capital appreciation and current
income for Value Equity Fund. INVESCO Stock Funds, Inc. is registered under the
Investment Company Act of 1940 (the "Act") as a diversified, open-end management
investment company.
At a special meeting held on August 7, 2002, shareholders of Mid-Cap Growth Fund
approved an Agreement and Plan of Conversion and Termination providing for the
conversion of Mid-Cap Growth Fund from a separate series of INVESCO Counselor
Series Funds, Inc. to a newly-created separate series of INVESCO Stock Funds,
Inc., effective November 30, 2002. Effective May 1, 2003, the Fund's fiscal year
end will change from April 30 to July 31.
At a special meeting held on January 29, 2003, shareholders of INVESCO Endeavor
Fund approved an Agreement and Plan of Reorganization and Termination under
which Dynamics Fund would acquire all of the assets of INVESCO Endeavor Fund in
exchange solely for shares of equal value of corresponding classes of Dynamics
Fund and the assumption by Dynamics Fund of all of INVESCO Endeavor Fund's
liabilities, followed by distribution of those shares to shareholders of INVESCO
Endeavor Fund, effective January 31, 2003.
Effective April 1, 2002, Dynamics, Growth, Growth & Income, Small Company Growth
and Value Equity Funds began offering two additional classes of shares, referred
to as Class A and Class B shares. Effective December 17, 2001, Small Company
Growth Fund began offering an additional class of shares, referred to as Class K
shares. Value Equity Fund's Class K shares were effective August 31, 2001.
Income, expenses (other than those attributable to a specific class) and
realized and unrealized gains and losses are allocated daily to each class of
shares based on the relative proportion of net assets represented by such class.
Operating expenses directly attributable to a specific class are charged against
operations of that class. Class A shares are sold with a front-end sales charge
ranging from 5.50% to 2.00% of the offering price on purchases of less than
$1,000,000. Class B shares and Class C shares are subject to a contingent
deferred sales charge paid by the redeeming shareholder. Class B shares convert
to Class A shares after eight years along with a pro rata portion of its
reinvested dividends and distributions.
Effective April 1, 2002, the Investor Class shares are offered only to
grandfathered investors who have established and maintained an account in any of
the funds managed and distributed by INVESCO Funds Group, Inc. ("IFG") in
Investor Class shares prior to April 1, 2002.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
A. SECURITY VALUATION -- Domestic (U.S.) equity securities and futures contracts
traded on national securities exchanges or in the over-the-counter market are
valued at the last sales price at the close of the regular trading day on the
exchange (generally 4:00 p.m. Eastern time) where such securities are primarily
traded. If last sales prices are not available, securities are valued at the
closing bid price for the regular trading day as obtained from one or more
dealers making a market for such securities or by a pricing service approved by
the Fund's board of directors.
Foreign equity securities are valued at the closing price. The closing price is
designated by the principal stock exchange in the country in which the
securities are traded. In the event that closing prices are not available for
foreign securities, a snapshot of prices will be obtained from the principal
stock exchange at or prior to the close of the New York Stock Exchange. Foreign
currency exchange rates are determined daily prior to the close of the New York
Stock Exchange.
Debt securities are valued at evaluated bid prices as determined by a pricing
service approved by the Fund's board of directors. If evaluated bid prices are
not available, debt securities are valued by averaging the bid prices obtained
from one or more dealers making a market for such securities.
Option contracts are valued at the average of the closing bid and ask prices
from the exchange with the highest trading volume on that particular day.
Investments in shares of investment companies are valued at the net asset value
of the respective fund as calculated each day.
If market quotations or pricing service valuations are not readily available, or
events or circumstances that may affect the value of portfolio securities are
identified between the closing of their principal markets and the time that the
net asset value per share is determined, securities are valued at fair value as
determined in good faith under procedures established by the Fund's board of
directors. Restricted and illiquid securities are valued in accordance with
procedures established by the Fund's board of directors.
Short-term securities are stated at amortized cost (which approximates market
value) if maturity is 60 days or less at the time of purchase, or market value
if maturity is greater than 60 days.
Assets and liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the date of valuation.
B. FUTURES CONTRACTS -- The Funds may enter into futures contracts for
non-speculative purposes. Upon entering into a contract, the Fund deposits and
maintains initial margin deposits as required by the broker upon entering into
futures contracts. The Fund agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in the value of the contract. Such
receipts or payments are known as "variation margin" and are recorded by the
Fund as variation margin receivable or payable on futures contracts. During the
period the futures contracts are open, changes in the value of the contracts are
recognized on a daily basis to reflect the market value of the contracts at the
end of each day's trading and are recorded as unrealized gain or loss. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The Fund's use of futures contracts may subject
it to certain risks as a result of unanticipated movements in the market. In
addition, there can be no assurance that a liquid secondary market will exist
for any contract purchased or sold. Securities designated as collateral for
market value on futures contracts are noted in the Statement of Investment
Securities.
C. REPURCHASE AGREEMENTS -- Repurchase agreements held by the Fund are fully
collateralized by securities issued by the U.S. Government, its agencies or
instrumentalities and such collateral is in the possession of the Fund's
custodian. The collateral is evaluated daily to ensure its market value exceeds
the current market value of the repurchase agreements including accrued
interest. In the event of default on the obligation to repurchase, the Fund has
the right to liquidate the collateral and apply the proceeds in satisfaction of
the obligation.
D. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Interest income, which may be comprised of stated coupon rate,
market discount, original issue discount or amortized premium, is recorded on
the accrual basis. Discounts or premiums on debt securities purchased are
amortized over the life of the respective security as adjustments to interest
income. Cost is determined on the specific identification basis. Certain
dividends from foreign securities will be recorded as soon as the Fund is
informed of the dividend if such information is obtained subsequent to the
ex-dividend date. Investment income received from foreign sources may be subject
to foreign withholding taxes. Dividend and interest income is shown gross of
foreign withholding taxes in the accompanying financial statements. Income and
expenses on foreign securities are translated into U.S. dollars at rates of
exchange prevailing when accrued. The cost of foreign securities is translated
into U.S. dollars at the rates of exchange prevailing when such securities are
acquired.
Each Fund may invest in securities issued by other INVESCO investment companies
that invest in short-term debt securities and seek to maintain a net asset value
of one dollar per share. During the six months ended January 31, 2003, Small
Company Growth and Value Equity Funds invested in INVESCO Treasurer's Series
Money Market Reserve Fund. During that same period there were no such
investments by Dynamics, Growth, Growth & Income and S&P 500 Index Fund. The
income from this investment is recorded in the Statement of Operations.
The Fund may have elements of risk due to investments in specific industries or
foreign issuers located in a specific country. Such investments may subject the
Fund to additional risks resulting from future political or economic conditions
and/or possible impositions of adverse foreign governmental laws or currency
exchange restrictions. Net realized and unrealized gain or loss from investment
securities includes fluctuations from currency exchange rates and fluctuations
in market value.
The Fund's use of short-term forward foreign currency contracts may subject it
to certain risks as a result of unanticipated movements in foreign exchange
rates. The Fund does not hold short-term forward foreign currency contracts for
trading purposes. The Fund may hold foreign currency in anticipation of settling
foreign security transactions and not for investment purposes.
Restricted securities held by a Fund may not be sold except in exempt
transactions or in a public offering registered under the Securities Act of
1933. The risk of investing in such securities is generally greater than the
risk of investing in the securities of widely held, publicly traded companies.
Lack of a secondary market and resale restrictions may result in the inability
of a Fund to sell a security at a fair price and may substantially delay the
sale of the security which each Fund seeks to sell. In addition, these
securities may exhibit greater price volatility than securities for which
secondary markets exist.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded by the Fund on the ex-dividend/distribution date. The
Fund distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers.
F. TAX INFORMATION -- The Fund has complied, and continues to comply, with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and, accordingly, has made or intends to make sufficient distributions
of net investment income and net realized capital gains, if any, to relieve it
from all federal and state income taxes and federal excise taxes.
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal income tax purposes, taxable
as ordinary income to shareholders. The tax composition of distributions from
ordinary income, long-term capital gains and of the ordinary income
distributions declared for the year ended July 31, 2002, amounts qualifying for
the dividends received deduction available to the Fund's corporate shareholders
were as follows:
SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, 2003 JULY 31, 2002 JULY 31, 2002 JULY 31, 2002
ORDINARY INCOME ORDINARY INCOME LONG-TERM CAPITAL QUALIFYING
FUND DISTRIBUTIONS DISTRIBUTIONS GAIN DISTRIBUTIONS PERCENTAGE
- ----------------------------------------------------------------------------------------------------------
Dynamics Fund $ 0 $ 0 $ 8,601,251 0.00%
Growth Fund 0 0 8,538,710 0.00%
Growth & Income Fund 0 0 891,958 0.00%
S&P 500 Index Fund 779,817 1,119,575 0 100.00%
Value Equity Fund 513,739 949,901 6,239,703 100.00%
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from accounting principles generally accepted
in the United States.
The tax components of the Fund at January 31, 2003 include:
NET TAX
COST OF GROSS TAX GROSS TAX APPRECIATION
INVESTMENTS FOR UNREALIZED UNREALIZED (DEPRECIATION)
FUND TAX PURPOSES APPRECIATION DEPRECIATION ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------
Dynamics Fund $ 3,355,205,485 $ 481,512,592 $ 413,616,921 $ 67,895,671
Growth Fund 475,418,347 17,457,633 65,299,620 (47,841,987)
Growth & Income Fund 41,431,822 1,598,538 4,355,881 (2,757,343)
S&P 500 Index Fund 186,735,485 3,689,972 47,480,232 (43,790,260)
Small Company Growth Fund 829,207,432 76,146,839 101,854,598 (25,707,759)
Value Equity Fund 95,213,030 13,759,042 15,277,990 (1,518,948)
The primary difference between book and tax appreciation/depreciation is wash
sale loss deferrals. The net tax appreciation/depreciation on investments
excludes the effect of foreign currency transactions, futures contracts and
written options activity.
To the extent future capital gains and income are offset by capital loss
carryovers and deferred post-October 31 losses, such gains and income will not
be distributed to shareholders. Deferred post-October 31 capital and currency
losses are: Dynamics Fund $1,832,751,014, Growth Fund $371,886,511, Growth &
Income Fund $44,107,209, S&P 500 Index Fund $4,372,960, Small Company Growth
Fund $250,199,934 and Value Equity Fund $1,156,446.
G. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund enters into short-term forward
foreign currency contracts in connection with planned purchases or sales of
securities as a hedge against fluctuations in foreign exchange rates pending the
settlement of transactions in foreign securities. A forward foreign currency
contract is an agreement between contracting parties to exchange an amount of
currency at some future time at an agreed upon rate. These contracts are
marked-to-market daily and the related appreciation or depreciation of the
contracts is presented in the Statement of Assets and Liabilities. Any realized
gain or loss incurred by the Fund upon the sale of securities is included in the
Statement of Operations.
H. OPTION CONTRACTS -- The Funds may buy or write put and call options,
including securities index options, on portfolio securities for hedging purposes
or as a substitute for an investment. The Funds generally invest in options to
hedge against adverse movements in the value of portfolio holdings.
When an option is written, the Fund receives a premium and becomes obligated to
sell or purchase the underlying security at a fixed price, upon exercise of the
option. In writing an option, the Fund bears the market risk of an unfavorable
change in the price of the security underlying the written option. Exercise of
an option written by the Fund could result in the Fund buying or selling a
security at a price different from the current market value.
When an option is exercised, the proceeds on sales for a written call option,
the purchase cost for a written put option, or the cost of the security for a
purchased put or call option is adjusted by the amount of premium received or
paid.
Securities designated to cover outstanding written options are noted in the
Statement of Investment Securities where applicable. Options written are
reported as a liability in the Statement of Assets and Liabilities. Gains and
losses are reported in the Statement of Operations.
The 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. The risk in writing a put option is that the Fund may incur a loss if
the market price of the security decreases and the option is exercised. The risk
in buying an option is that the Fund pays a premium whether or not the option is
exercised. The use of such instruments may involve certain additional risks as a
result of unanticipated movements in the market. A lack of correlation between
the value of an instrument underlying an option and the asset being hedged, or
unexpected adverse price movements, could render the Fund's hedging strategy
unsuccessful. In addition, there can be no assurance that a liquid secondary
market will exist for any option purchased or sold.
Written option activity for the six months ended January 31, 2003, was as
follows:
CALL OPTIONS
- --------------------------------------------------------------------------------
NUMBER AMOUNT
OF OPTIONS OF PREMIUMS
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
Options outstanding at July 31, 2002 0 $ 0
Options written (481) 123,613
Options closed or expired 0 0
Options outstanding at January 31, 2003 (481) $ 123,613
I. EXPENSES -- Each Fund or Class bears expenses incurred specifically on its
behalf and, in addition, each Fund or Class bears a portion of general expenses,
based on the relative net assets of each Fund or Class.
Under an agreement between each Fund and the Fund's Custodian, certain Custodian
Fees and Expenses are reduced by credits granted by the Custodian from any
temporarily uninvested cash. Similarly, Custodian Fees and Expenses for Dynamics
and Growth Funds are reduced by credits earned from security brokerage
transactions under certain broker/service arrangements with third parties. Such
credits are included in Fees and Expenses Paid Indirectly in the Statement of
Operations.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. IFG serves as the Funds'
investment adviser. As compensation for its services to the Funds, IFG receives
an investment advisory fee which is accrued daily at the applicable rate and
paid monthly. The fee is based on the annual rate of each Fund's average net
assets as follows:
AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------------
$700 $2 $4 $6
$0 TO $350 TO MILLION BILLION BILLION BILLION OVER
$350 $700 TO $2 TO $4 TO $6 TO $8 $8
FUND MILLION MILLION BILLION BILLION BILLION BILLION BILLION
- ----------------------------------------------------------------------------------------------------
Dynamics Fund 0.60% 0.55% 0.50% 0.45% 0.40% 0.375% 0.35%
Growth Fund 0.60% 0.55% 0.50% 0.45% 0.40% 0.375% 0.35%
Small Company Growth Fund 0.75% 0.65% 0.55% 0.45% 0.40% 0.375% 0.35%
AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------------
$500 $1 $2 $4 $6
$0 TO MILLION BILLION BILLION BILLION BILLION OVER
$500 TO $1 TO $2 TO $4 TO $6 TO $8 $8
FUND MILLION BILLION BILLION BILLION BILLION BILLION BILLION
- ----------------------------------------------------------------------------------------------------
Growth & Income Fund 0.75% 0.65% 0.55% 0.45% 0.40% 0.375% 0.35%
Value Equity Fund 0.75% 0.65% 0.50% 0.45% 0.40% 0.375% 0.35%
S&P 500 Index Fund's investment advisory fee is based on the annual rate of
0.25% of average net assets.
A sub-advisory Agreement between IFG and World Asset Management ("World"),
unaffiliated with any IFG entity, provides that investment decisions of S&P 500
Index Fund are made by World.
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
compensation of marketing and advertising expenditures to INVESCO Distributors,
Inc. ("IDI" or the "Distributor"), a wholly owned subsidiary of IFG, of 0.25% of
annual average net assets of Investor Class shares. A master distribution plan
and agreement for Class A, Class B and Class C shares pursuant to Rule 12b-1 of
the Act provides for compensation of certain promotional and other sales related
costs to IDI. Class A shares of the Fund pay compensation to IDI at a rate of
0.35% of annual average net assets. During any period that Class A shares of the
Fund are closed to new investors, the Fund will reduce this payment for Class A
shares from 0.35% to 0.25% per annum. Class B and Class C shares of the Fund pay
compensation to IDI at a rate of 1.00% of annual average net assets. Of these
amounts, IDI may pay a service fee of 0.25% of the average net assets of the
Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the applicable class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose caps on the total sales charges,
including asset-based sales charges, that may be paid by the respective class. A
plan of distribution pursuant to Rule 12b-1 of the Act provides for financing
the distribution and continuing personal shareholder servicing of Class K shares
of 0.45% of annual average net assets. Any unreimbursed expenses IDI incurs with
respect to Investor Class, Class A, Class C and Class K shares in any fiscal
year can not be recovered in subsequent years. For the six months ended January
31, 2003, amounts paid to the Distributor were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- -------------------------------------------------------------------------------------------
Dynamics Fund $ 4,627,731 $ 6,498 $ 2,735 $ 87,841 $ 98,891
Growth Fund 627,463 273 196 17,228 6,500
Growth & Income Fund 55,094 462 51 5,422 171
S&P 500 Index Fund 171,286 -- -- -- --
Small Company Growth Fund 1,008,900 5,192 670 18,466 154,549
Value Equity Fund 135,615 316 1,202 6,514 --
If the Class B Plan is terminated, the board of directors may allow the Class B
shares to continue payments of the asset-based sales charge to the Distributor
for allowable unreimbursed expenses incurred for distributing shares before the
Class B Plan was terminated. The Class B Plan allows for the carry-forward of
distribution expenses, to be recovered from asset-based sales charges in
subsequent fiscal periods. Distribution fees related to the Distributor for the
six months ended January 31, 2003, for Class B were as follows:
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
AMOUNT RETAINED EXPENSES OF NET ASSETS
FUND BY DISTRIBUTOR UNDER PLAN OF CLASS
- -----------------------------------------------------------------------------------------------
Dynamics Fund - Class B Plan $ 3,098 $ 13,707 1.66%
Growth Fund - Class B Plan 190 0 0.00%
Growth & Income Fund - Class B Plan 94 506 0.94%
Small Company Growth Fund - Class B Plan 803 4,705 2.15%
Value Equity Fund - Class B Plan 1,101 0 0.00%
Distribution Expenses for each class as presented in the Statement of Operations
for the six months ended January 31, 2003 were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- -----------------------------------------------------------------------------------------------
Dynamics Fund $ 4,528,944 $ 8,204 $ 3,101 $ 82,845 $ 95,794
Growth Fund 604,358 432 197 16,551 6,303
Growth & Income Fund 53,332 657 91 5,260 189
S&P 500 Index Fund 173,682 -- -- -- --
Small Company Growth Fund 986,618 5,376 801 18,512 154,575
Value Equity Fund 128,792 324 1,220 6,467 --
IFG receives a transfer agent fee from each Class at an annual rate of $22.50
per shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. The fee is paid monthly at one-twelfth of the
annual fee and is based upon the actual number of accounts in existence during
each month. Transfer agent fees for each class as presented in the Statement of
Operations for the six months ended January 31, 2003 were as follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- --------------------------------------------------------------------------------------------------
Dynamics Fund $ 24,688 $ 12,488,853 $ 5,123 $ 855 $ 79,814 $ 135,744
Growth Fund -- 2,008,522 302 111 31,952 22,467
Growth & Income Fund -- 257,395 189 58 8,372 1,131
S&P 500 Index Fund 8,779 259,484 -- -- -- --
Small Company Growth Fund -- 2,794,031 2,393 358 22,157 941,953
Value Equity Fund -- 328,306 401 195 6,485 --
In accordance with an Administrative Services Agreement, each Fund pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.045% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG has voluntarily agreed to absorb and assume certain fees and expenses
incurred by the Funds. IFG is entitled to reimbursement from a Fund share class
that has fees and expenses voluntarily absorbed pursuant to this arrangement if
such reimbursements do not cause a share class to exceed voluntary expense
limitations and the reimbursement is made within three years after IFG incurred
the expense. For the six months ended January 31, 2003, total fees and expenses
voluntarily absorbed were as follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- --------------------------------------------------------------------------------------------------
Dynamics Fund $ 0 $ 6,132,790 0 $ 576 $ 75,215 $ 54,378
Growth Fund -- 0 102 518 32,423 15,625
Growth & Income Fund -- 273,022 197 552 10,865 2,676
S&P 500 Index Fund 13,850 298,813 -- -- -- --
Small Company Growth Fund -- 1,057,706 0 652 18,004 772,908
Value Equity Fund -- 301,682 826 565 8,034 --
As of the six months ended January 31, 2003, the reimbursement that may
potentially be made by the Funds to IFG and that will expire during the six
months ended January 31, 2006, are as follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- --------------------------------------------------------------------------------------------------
Dynamics Fund $ 0 $ 6,132,790 $ 0 $ 576 $103,411 $ 54,378
Growth Fund -- 0 199 719 32,423 15,625
Growth & Income Fund -- 367,934 443 794 15,200 3,179
S&P 500 Index Fund 18,297 393,068 -- -- -- --
Small Company Growth Fund -- 1,057,706 0 652 25,824 772,908
Value Equity Fund -- 417,602 826 565 11,133 --
During the six months ended January 31, 2003, the reimbursement that was made by
the Funds to IFG were as follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- --------------------------------------------------------------------------------------------------
Dynamics Fund $ 2,316 $ 0 $ 0 $ 0 $ 0 $ 0
Growth Fund -- 0 49 0 0 0
Growth & Income Fund -- 0 0 0 0 0
S&P 500 Index Fund 0 0 -- -- -- --
Small Company Growth Fund -- 61,381 0 0 0 70,752
Value Equity Fund -- 0 0 0 0 --
A 1% redemption fee is retained by S&P 500 Index Fund to offset transaction
costs and other expenses associated with short-term redemptions and exchanges.
The fee is imposed on redemptions or exchanges of shares held less than three
months. The redemption fee is accounted for as an addition to Paid-in Capital by
S&P 500 Index Fund. Total redemption fees received by S&P 500 Index Fund -
Institutional Class and S&P 500 Index Fund - Investor Class for the six months
ended January 31, 2003 were $5 and $57,028, respectively.
NOTE 3 -- ACQUISITION OF INVESCO ENDEAVOR FUND ("TARGET FUND"). On January 31,
2003, Dynamics Fund acquired all the net assets of the Target Fund pursuant to
an Agreement and Plan of Reorganization and Termination approved by the Target
Fund shareholders on January 29, 2003. The acquisition was accomplished by a
tax-free exchange of 4,491,385 shares of Dynamics Fund-Investor Class shares
(valued at $47,634,088) for 9,169,134 shares of the Target Fund-Investor Class
shares, 47,716 shares of Dynamics Fund-Class A shares (valued at $507,690) for
91,427 shares of the Target Fund-Class A shares, 1,207 shares of Dynamics
Fund-Class B shares (valued at $12,735) for 2,466 shares of the Target
Fund-Class B shares, 80,743 shares of Dynamics Fund-Class C shares (valued at
$838,403) for 164,854 shares of the Target Fund-Class C shares and 93 shares of
Dynamics Fund-Class K shares (valued at $985) for 191 shares of the Target
Fund-Class K shares, respectively, outstanding on January 31, 2003. The Target
Fund's net assets at that date ($48,993,901) including $3,500,200 of unrealized
appreciation, were combined with those of Dynamics Fund. The aggregate net
assets of Dynamics Fund and the Target Fund immediately before the acquisition
were $3,382,260,445 and $48,993,901, respectively. The net assets of Dynamics
Fund after the acquisition were $3,431,254,346.
NOTE 4 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the six months ended
January 31, 2003, the aggregate cost of purchases and proceeds from sales of
investment securities (excluding all U.S. Government securities and short-term
securities) were as follows:
FUND PURCHASES SALES
- ----------------------------------------------------------------------------------------------
Dynamics Fund $ 1,437,340,112 $ 1,755,890,885
Growth Fund 304,155,599 335,569,645
Growth & Income Fund 33,251,051 35,716,359
S&P 500 Index Fund 17,375,132 1,057,864
Small Company Growth Fund 416,448,945 451,648,882
Value Equity Fund 25,977,735 42,875,521
There were no purchases or sales of U.S. Government securities.
NOTE 5 -- TRANSACTIONS WITH AFFILIATES AND AFFILIATED COMPANIES. Certain of the
Funds' officers and directors are also officers and directors of IFG or IDI.
Each Fund has adopted an unfunded retirement plan covering all independent
directors of the Fund who will have served as an independent director for at
least five years at the time of retirement. Benefits under this plan are based
on an annual rate as defined in the plan agreement, as amended March 1, 2001.
Effective November 8, 2002, the plan provides that a director, prior to
retirement, may elect to convert amounts accrued under this plan into a new
deferred retirement plan.
Pension expenses for the six months ended January 31, 2003, included in
Directors' Fees and Expenses in the Statement of Operations, and unfunded
accrued pension costs and pension liability included in Prepaid Expenses and
Accrued Expenses, respectively, in the Statement of Assets and Liabilities were
as follows:
UNFUNDED
PENSION ACCRUED PENSION
FUND EXPENSES PENSION COSTS LIABILITY
- ------------------------------------------------------------------------------------------
Dynamics Fund $ 50,275 $ 0 $ 304,764
Growth Fund 8,200 0 108,160
Growth & Income Fund 659 0 5,299
S&P 500 Index Fund 1,411 0 5,760
Small Company Growth Fund 11,338 0 69,656
Value Equity Fund 1,605 0 31,875
The independent directors have contributed to a deferred fee agreement plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds. The
deferred amounts may be invested in the shares of any of the INVESCO Funds,
excluding the INVESCO Variable Investment Funds.
An affiliated company represents ownership by a Fund of at least 5% of the
voting securities of the issuer or may be affiliated with other INVESCO
investment companies during the period, as defined in the Act. A summary of the
transactions during the six months ended January 31, 2003, in which the issuer
was an affiliate of the Fund, is as follows:
REALIZED GAIN
PURCHASES/OTHER TRANSACTIONS SALES/OTHER TRANSACTIONS (LOSS) ON
----------------------------------------------------------------- INVESTMENT VALUE AT
AFFILIATE SHARES COST SHARES PROCEEDS SECURITIES 1/31/2003
- -------------------------------------------------------------------------------------------------------------------------
DYNAMICS FUND
Software HOLDRs Trust 1,345,700 $ 31,884,305 495,325 $ 13,673,316 $ 580,846 $ 23,725,462
GROWTH FUND
Microsoft Corp 109,400 5,099,186 9,700 582,388 (88,418) 23,627,486
SMALL COMPANY GROWTH FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 35,025,120 35,025,120 -- -- -- 35,025,120
VALUE EQUITY FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 2,000,066 2,000,066 -- -- -- 2,000,066
Dividend income from INVESCO Treasurer's Series Money Market Reserve Fund is
disclosed in the Statement of Operations. No dividend income was received from
any other affiliated companies.
NOTE 6 -- SECURITIES LOANED. The Funds have entered into a securities lending
agreement with the custodian. Under the terms of the agreement, the Funds
receive income, recorded monthly, after deduction of other amounts payable to
the custodian or to the borrower from lending transactions. In exchange for such
fees, the custodian is authorized to loan securities on behalf of the Funds,
against receipt of collateral at least equal in value to the value of securities
loaned. Cash collateral is invested by the custodian in the INVESCO Treasurer's
Series Money Market Reserve Fund or securities issued or guaranteed by the U.S
Governement, its agencies or instrumentalities. As of January 31, 2003,
Dynamics, Growth and Small Company Growth Funds have on loan securities valued
at $23,151,593, $193,500 and $104,466,208, respectively, and the cash collateral
has been invested in the INVESCO Treasurer's Series Money Market Reserve Fund
and is disclosed as "Other Investments" in the Statement of Assets and
Liabilities. The Fund bears the risk of any deficiency in the amount of
collateral available for return to a borrower due to a loss in an approved
investment. The securities loaned income is recorded in the Statement of
Operations. During the six months ended January 31, 2003, there were no such
securities lending arrangements for Growth & Income, S&P 500 Index and Value
Equity Funds.
NOTE 7 -- INTERFUND BORROWING AND LENDING. Each Fund is party to an interfund
lending agreement between each Fund and other INVESCO sponsored mutual funds,
which permits it to borrow or lend cash, at rates beneficial to both the
borrowing and lending funds. Loans totaling 10% or more of a borrowing Fund's
total assets are collateralized at 102% of the value of the loan; loans of less
than 10% are unsecured. The Funds may borrow up to 10% of its total net assets
for temporary or emergency purposes. During the six months ended January 31,
2003, Dynamics, Growth, Growth & Income and Value Equity Funds borrowed cash at
a weighted average rate ranging from 1.59% to 1.97% and interest expense
amounted to $27,308, $505, $665 and $1,061, respectively. During that same
period, Dynamics, Growth and Small Company Growth Funds lent cash at a weighted
average rate ranging from 1.51% to 1.96% and interest income amounted to $5,416,
$403 and $416, respectively. During the six months ended January 31, 2003, there
were no such borrowings and/or lendings for S&P 500 Index Fund.
NOTE 8 -- LINE OF CREDIT. Each Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the net assets at value of each respective
Fund. Each Fund agrees to pay annual fees and interest on the unpaid principal
balance based on prevailing market rates as defined in the agreement. During the
six months ended January 31, 2003, there were no such borrowings for any Fund.
NOTE 9 -- CONTINGENT DEFERRED SALES CHARGE ("CDSC"). Class A shares may charge a
1.00% CDSC if a shareholder purchased $1,000,000 or more and redeemed these
shares within 18 months from the date of purchase. Effective November 15, 2002,
qualified plans investing in Class A shares may pay a 1% CDSC and Class K shares
may pay a 0.70% CDSC if a shareholder redeemed these shares within 12 months
from the date of purchase. A CDSC is charged by Class B shares on redemptions or
exchanges of shares at a maximum of 5.00% beginning at the time of purchase to
0.00% at the beginning of the seventh year. A 1.00% CDSC is charged by Class C
shares on redemptions or exchanges held thirteen months or less. Shares acquired
through reinvestment of dividends or other distributions are not charged a CDSC.
The CDSC may be reduced or certain sales charge exceptions may apply. The CDSC
is paid by the redeeming shareholder and therefore it is not an expense of the
Fund. For the six months ended January 31, 2003, the Distributor received the
following CDSC from Class A, Class B, Class C and Class K shareholders:
FUND CLASS A CLASS B CLASS C CLASS K
- -------------------------------------------------------------------------------------------
Dynamics Fund $ 0 $ 450 $ 3,196 $ 0
Growth Fund 0 750 999 0
Growth & Income Fund 0 0 266 0
Small Company Growth Fund 0 0 723 0
Value Equity Fund 0 0 195 --
NOTE 10 -- SHARE INFORMATION. Changes in fund share transactions during the six
months ended January 31, 2003 and the year/period ended July 31, 2002 were as
follows:
DYNAMICS FUND GROWTH FUND GROWTH & INCOME FUND
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JANUARY 31 JULY 31 JANUARY 31 JULY 31 JANUARY 31 JULY 31
- ---------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002 2003 2002
(Note 1) (Note 1) UNAUDITED (Note 1) UNAUDITED (Note 1)
UNAUDITED
Shares Sold
Institutional Class 764,572 2,322,618 -- -- -- --
Investor Class 624,393,871 1,007,004,431 130,726,207 293,499,721 3,957,106 7,473,503
Class A 4,307,035 683,355 418,743 54,166 131,410 7,334
Class B 44,523 36,556 18,605 24,060 8,572 974
Class C 24,906,484 86,880,326 866,759 2,750,903 290,164 331,799
Class K 986,053 5,654,823 401,348 3,909,174 12,342 9,074
Shares Issued from
Reinvestment of Distributions
Institutional Class 0 966 -- -- -- --
Investor Class 0 533,720 0 2,965,102 0 94,244
Class C 0 3,443 0 24,279 0 2,346
Class K 0 5,305 0 15,456 0 17
Shares Issued in Connection
with Acquisition of INVESCO
Endeavor Fund (Note 3)
Investor Class 4,491,385 -- -- -- -- --
Class A 47,716 -- -- -- -- --
Class B 1,207 -- -- -- -- --
Class C 80,743 -- -- -- -- --
Class K 93 -- -- -- -- --
======================================================================================================================
660,023,682 1,103,125,543 132,431,662 303,242,861 4,399,594 7,919,291
Shares Repurchased
Institutional Class (476,184) (686,853) -- -- -- --
Investor Class (654,986,389) (1,047,072,631) (170,213,542) (382,291,940) (4,432,779) (9,141,292)
Class A (3,679,068) (498,065) (349,167) (1,327) (97,262) (30)
Class B (3,797) (417) (24,175) 0 0 0
Class C (25,063,767) (87,310,751) (1,279,665) (3,466,283) (320,797) (344,432)
Class K (1,629,897) (1,503,717) (1,139,278) (2,000,943) (2,516) (670)
======================================================================================================================
(685,839,102) (1,137,072,434) (173,005,827) (387,760,493) (4,853,354) (9,486,424)
NET DECREASE IN
FUND SHARES (25,815,420) (33,946,891) (40,574,165) (84,517,632) (453,760) (1,567,133)
======================================================================================================================
NOTE 10 -- SHARE INFORMATION (CONTINUED)
S&P 500 INDEX FUND SMALL COMPANY GROWTH VALUE EQUITY FUND
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JANUARY 31 JULY 31 JANUARY 31 JULY 31 JANUARY 31 JULY 31
- ---------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002 2003 2002
UNAUDITED UNAUDITED (Note 1) UNAUDITED (Note 1)
Shares Sold
Institutional Class 8,099 5,390 -- -- -- --
Investor Class 4,619,873 10,083,637 70,297,958 152,230,876 3,087,641 12,155,609
Class A -- -- 1,595,168 529,205 34,458 10,203
Class B -- -- 19,163 7,959 2,121 15,111
Class C -- -- 21,533,693 23,365,133 168,005 798,955
Class K -- -- 904,102 8,324,153 -- --
Shares Issued from
Reinvestment of Distributions
Institutional Class 302 667 -- -- -- --
Investor Class 85,155 100,207 0 0 32,286 366,423
Class A -- -- 0 0 60 62
Class B -- -- 0 0 20 111
Class C -- -- 0 0 81 2,040
=====================================================================================================================
4,713,429 10,189,901 94,350,084 184,457,326 3,324,672 13,348,514
Shares Repurchased
Institutional Class (12,013) (13,188) -- -- -- --
Investor Class (2,920,282) (5,139,915) (74,957,857) (166,398,528) (4,830,663) (14,187,444)
Class A -- -- (1,476,121) (219,415) (8) (146)
Class B -- -- 0 0 (739) (284)
Class C -- -- (21,527,939) (23,392,895) (197,941) (744,206)
Class K -- -- (454,451) (436,821) -- --
======================================================================================================================
(2,932,295) (5,153,103) (98,416,368) (190,447,659) (5,029,351) (14,932,080)
NET INCREASE
(DECREASE) IN
FUND SHARES 1,781,134 5,036,798 (4,066,284) (5,990,333) (1,704,679) (1,583,566)
======================================================================================================================
-------------------------------------------------------------------------------
OTHER INFORMATION
INVESCO STOCK FUNDS, INC. -- INVESCO ENDEAVOR FUND
UNAUDITED
SPECIAL SHAREHOLDER MEETING
On January 29, 2003, a special meeting of the shareholders of INVESCO Endeavor
Fund was held at which the approval of an Agreement and Plan of Reorganization
and Termination under which Dynamics Fund, a series of INVESCO Stock Funds,
Inc., would acquire all the assets of INVESCO Endeavor Fund in exchange solely
for shares of equal value of corresponding classes of Dynamics Fund and the
assumption by Dynamics Fund of all of INVESCO Endeavor Fund's liabilities,
followed by the distribution of those shares to the shareholders of INVESCO
Endeavor Fund (Proposal 1) was ratified. The following is a report of the votes
cast:
WITHHELD/
PROPOSAL FOR AGAINST ABSTAIN TOTAL
- -------------------------------------------------------------------------------------------
Proposal 1 5,581,621 387,591 235,964 6,205,176
FINANCIAL HIGHLIGHTS
DYNAMICS FUND-- INSTITUTIONAL CLASS
- ---------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
JANUARY 31 YEAR ENDED JULY 31 JULY 31
- ---------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.88 $ 17.28 $ 27.87 $ 24.29
===================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.03) (0.08) (0.07) (0.02)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.14) (6.30) (10.44) 3.60
===================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.17) (6.38) (10.51) 3.58
===================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.02 0.08 0.00
===================================================================================================
Net Asset Value -- End of Period $ 10.71 $ 10.88 $ 17.28 $ 27.87
===================================================================================================
TOTAL RETURN (1.65%)(c) (36.95%) (37.78%) 14.74%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 27,814 $ 25,133 $ 11,622 $ 22,989
Ratio of Expenses to Average Net Assets(d) 0.40%(c) 0.84% 0.77% 0.77%(e)
Ratio of Net Investment Loss to Average
Net Assets (0.19%)(c) (0.53%) (0.26%) (0.22%)(e)
Portfolio Turnover Rate 40%(c) 81% 55% 75%(f)
(a) From May 23, 2000, since inception of Class, to July 31, 2000.
(b) The per share information was computed based on average shares for the years ended July 31,
2002 and 2001 and the period ended July 31, 2000.
(c) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements
(which may include custodian fees).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level. Represents the year ended July 31, 2000.
FINANCIAL HIGHLIGHTS
DYNAMICS FUND -- INVESTOR CLASS
- ---------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
JANUARY 31 YEAR ENDED JULY 31 JULY 31 YEAR ENDED APRIL 30
- ---------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999(a) 1999 1998
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.81 $ 17.23 $ 27.86 $ 19.39 $ 18.15 $ 16.41 $ 12.02
=================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss(c) (0.05) (0.00) (0.12) (0.00) (0.00) (0.00) (0.05)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.15) (6.40) (10.43) 9.51 1.24 3.04 6.39
=================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.20) (6.40) (10.55) 9.51 1.24 3.04 6.34
=================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.02 0.08 1.04 0.00 1.30 1.95
=================================================================================================================================
Net Asset Value -- End of Period $ 10.61 $ 10.81 $ 17.23 $ 27.86 $ 19.39 $ 18.15 $ 16.41
=================================================================================================================================
TOTAL RETURN (1.85%)(d) (37.17%) (37.94%) 50.34% 6.83%(d) 20.83% 56.42%
RATIOS
Net Assets -- End of Period ($000
Omitted) $ 3,344,048 $ 3,688,213 $ 6,562,467 $ 7,865,489 $ 2,471,482 $ 2,044,321 $ 1,340,299
Ratio of Expenses to Average Net
Assets(e)(f) 0.61%(d) 1.21% 1.00% 0.89% 1.03%(g) 1.05% 1.08%
Ratio of Net Investment Loss to
Average Net Assets(f) (0.40%)(d) (0.86%) (0.49%) (0.34%) (0.32%)(g) (0.41%) (0.43%)
Portfolio Turnover Rate 40%(d) 81% 55% 75% 23%(d) 129% 178%
(a) From May 1, 1999 to July 31, 1999.
(b) The per share information was computed based on average shares for the year ended July 31, 2001.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the years ended July 31,
2002 and 2000, the period ended July 31, 1999 and the year ended April 30, 1999.
(d) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian,
distribution and transfer agent fees).
(f) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended January
31, 2003 and the year ended July 31, 2002. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 0.78% and 1.23%, respectively, and ratio of
net investment loss to average net assets would have been (0.57%) and (0.88%), respectively.
(g) Annualized
FINANCIAL HIGHLIGHTS
DYNAMICS FUND -- CLASS A & CLASS B
- ----------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JANUARY 31 JULY 31 JANUARY 31 JULY 31
- ----------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
UNAUDITED UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.82 $ 15.30 $ 10.78 $ 15.30
==========================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.11) (0.03) (0.11) (0.06)
Net Losses on Securities (Both Realized
and Unrealized) (0.08) (4.45) (0.12) (4.46)
==========================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.19) (4.48) (0.23) (4.52)
==========================================================================================================
Net Asset Value -- End of Period $ 10.63 $ 10.82 $ 10.55 $ 10.78
==========================================================================================================
TOTAL RETURN(c) (1.85%)(d) (29.22%)(d) (2.23%)(d) (29.54%)(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 9,152 $ 2,006 $ 823 $ 390
Ratio of Expenses to Average Net
Assets(e)(f) 0.60%(d) 1.11%(g) 0.99%(d) 2.09%(g)
Ratio of Net Investment Loss to Average
Net Assets(f) (0.39%)(d) (0.76%)(g) (0.78%)(d) (1.71%)(g)
Portfolio Turnover Rate 40%(d) 81%(h) 40%(d) 81%(h)
(a) From April 1, 2002, since inception of Class, to July 31, 2002.
(b) The per share information for each Class was computed based on average shares for the period ended
July 31, 2002.
(c) The applicable sales charges for Class A or CDSC for Class B are not included in the Total Return
calculation.
(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if
applicable, which is before any expense offset arrangements (which may include custodian fees).
(f) Various expenses of Class B were voluntarily absorbed by IFG for the six months ended January 31, 2003.
If such expenses had not been voluntarily absorbed for Class B, ratio of expenses to average net assets
would have been 1.08% and ratio of net investment loss to average net assets would have been (0.87%).
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the year ended July 31, 2002.
FINANCIAL HIGHLIGHTS
DYNAMICS FUND -- CLASS C
- ------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
JANUARY 31 YEAR ENDED JULY 31 JULY 31
- ------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.60 $ 17.04 $ 27.78 $ 28.25
================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss(c) (0.13) (0.25) (0.06) (0.00)
Net Losses on Securities (Both Realized
and Unrealized) (0.13) (6.17) (10.60) (0.47)
================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.26) (6.42) (10.66) (0.47)
================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.02 0.08 0.00
================================================================================================
Net Asset Value -- End of Period $ 10.34 $ 10.60 $ 17.04 $ 27.78
================================================================================================
TOTAL RETURN(d) (2.36%)(e) (37.76%) (38.45%) (1.66%)(e)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 12,330 $ 13,440 $ 28,887 $ 4,779
Ratio of Expenses to Average Net Assets(f)(g) 0.99%(e) 1.96% 1.86% 1.71%(h)
Ratio of Net Investment Loss to Average Net
Assets(g) (0.79%)(e) (1.59%) (1.34%) (1.20%)(h)
Portfolio Turnover Rate 40%(e) 81% 55% 75%(i)
(a) From February 15, 2000 since inception of Class, to July 31, 2000.
(b) The per share information was computed based on average shares for the period ended July
31, 2000.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the period ended July
31, 2000.
(d) The applicable CDSC are not included in the Total Return calculation.
(e) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(f) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian
fees).
(g) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended January
31, 2003 and the year ended July 31, 2002. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 1.45% and 2.16%, respectively, and ratio
of net investment loss to average net assets would have been (1.25%) and (1.79%), respectively.
(h) Annualized
(i) Portfolio Turnover is calculated at the Fund level. Represents the year ended July 31, 2000.
FINANCIAL HIGHLIGHTS
DYNAMICS FUND -- CLASS K
- ----------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
JANUARY 31 JULY 31 JULY 31
- ----------------------------------------------------------------------------------------------
2003 2002 2001(a)
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.76 $ 17.19 $ 22.50
==============================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.06) (0.15) (0.03)
Net Losses on Securities (Both Realized and
Unrealized) (0.14) (6.26) (5.28)
==============================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.20) (6.41) (5.31)
==============================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.02 0.00
==============================================================================================
Net Asset Value -- End of Period $ 10.56 $ 10.76 $ 17.19
==============================================================================================
TOTAL RETURN (1.86%)(c) (37.32%) (23.60%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 37,087 $ 44,745 $ 6
Ratio of Expenses to Average Net Assets(d)(e) 0.71%(c) 1.36% 1.48%(f)
Ratio of Net Investment Loss to Average Net
Assets(e) (0.50%)(c) (1.05%) (1.03%)(f)
Portfolio Turnover Rate 40%(c) 81% 55%(g)
(a) From December 1, 2000, since inception of Class, to July 31, 2001.
(b) The per share invormation was computed based on average shares for the year ended July 31,
2002.
(c) Based on operations for the period shown and, accordingly, is not representative
of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian
fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended January
31, 2003 and the period ended July 31, 2001. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 0.84% and 3.06% (annualized), respectively,
and ratio of net investment loss to average net assets would have been (0.63%) and (2.61%)
(annualized), respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended July 31, 2001.
FINANCIAL HIGHLIGHTS
GROWTH FUND -- INVESTOR CLASS
- ---------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
JANUARY 31 YEAR ENDED JULY 31 JULY 31 YEAR ENDED AUGUST 31
- ---------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999(a) 1998 1997
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 1.64 $ 3.08 $ 8.47 $ 6.75 $ 5.15 $ 6.06 $ 5.44
=================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss)(c) (0.01) (0.03) (0.05) (0.00) (0.00) 0.02 0.01
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.13) (1.39) (4.27) 2.48 2.11 0.69 1.39
=================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.14) (1.42) (4.32) 2.48 2.11 0.71 1.40
=================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.02 1.07 0.76 0.51 1.62 0.78
=================================================================================================================================
Net Asset Value -- End of Period $ 1.50 $ 1.64 $ 3.08 $ 8.47 $ 6.75 $ 5.15 $ 6.06
=================================================================================================================================
TOTAL RETURN (8.54%)(d) (46.28%) (56.43%) 38.42% 42.06%(d) 13.42% 28.14%
RATIOS
Net Assets -- End of Period ($000
Omitted) $ 421,368 $ 525,365 $ 1,251,042 $2,008,680 $ 1,232,908 $ 747,739 $ 709,220
Ratio of Expenses to Average Net
Assets(e) 0.97%(d) 1.55% 1.16% 1.02% 1.03%(f) 1.04% 1.07%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.38%)(d) (1.20%) (0.96%) (0.63%) (0.08%)(f) 0.37% 0.22%
Portfolio Turnover Rate 66%(d) 129% 129% 168% 134%(d) 153% 286%
(a) From September 1, 1998 to July 31, 1999.
(b) The per share information was computed based on average shares for the years ended July 31, 2002 and 2001.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the year ended July 31, 2000 and the
period ended July 31, 1999.
(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may include
custodian, distribution and transfer agent fees).
(f) Annualized
FINANCIAL HIGHLIGHTS
GROWTH FUND -- CLASS A & CLASS B
- ----------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JANUARY 31 JULY 31 JANUARY 31 JULY 31
- ----------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
UNAUDITED UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 1.64 $ 2.34 $ 1.63 $ 2.34
==========================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.02) (0.01) (0.00)(c) (0.01)
Net Losses on Securities (Both Realized
and Unrealized) (0.13) (0.69) (0.14) (0.70)
==========================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.15) (0.70) (0.14) (0.71)
==========================================================================================================
Net Asset Value -- End of Period $ 1.49 $ 1.64 $ 1.49 $ 1.63
==========================================================================================================
TOTAL RETURN(d) (9.15%)(e) (29.91%)(e) (8.59%)(e) (30.34%)(e)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 183 $ 87 $ 28 $ 39
Ratio of Expenses to Average Net
Assets(f)(g) 0.81%(e) 1.65%(h) 1.15%(e) 2.30%(h)
Ratio of Net Investment Loss to Average
Net Assets(g) (0.30%)(e) (0.89%)(h) (0.58%)(e) (1.59%)(h)
Portfolio Turnover Rate 66%(e) 129%(i) 66%(e) 129%(i)
(a) From April 1, 2002, since inception of Class, to July 31, 2002.
(b) The per share information for each Class was computed based on average shares for the period ended
July 31, 2002.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the six months ended January 31,
2003.
(d) The applicable sales charges for Class A or CDSC for Class B are not included in the Total Return
calculation.
(e) Based on operations for the period shown and, accordingly, is not representative of a full year.
(f) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is
before any expense offset arrangements (which may include custodian fees).
(g) Various expenses of each Class were voluntarily absorbed by IFG for the six months ended January 31, 2003
and the period ended July 31, 2002. If such expenses had not been voluntarily absorbed ratio of expenses to
average net assets would have been 0.86% and 1.99% (annualized), respectively, for Class A, and 2.47%
and 4.56% (annualized), respectively, for Class B, and ratio of net investment loss to average net assets
would have been (0.35%) and (1.23%) (annualized), respectively, for Class A, and (1.90%) and (3.85%)
(annualized), respectively for Class B.
(h) Annualized
(i) Portfolio Turnover is calculated at the Fund level. Represents the year ended July 31, 2002.
FINANCIAL HIGHLIGHTS
GROWTH FUND -- CLASS C
- ------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
JANUARY 31 YEAR ENDED JULY 31 JULY 31
- ------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 1.60 $ 3.05 $ 8.44 $ 8.26
================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.02) (0.05) (0.03) (0.05)
Net Gains or (Losses) on Securities (Both
Realized and Unrealized) (0.12) (1.38) (4.29) 0.23
================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.14) (1.43) (4.32) 0.18
================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.02 1.07 0.00
================================================================================================
Net Asset Value -- End of Period $ 1.46 $ 1.60 $ 3.05 $ 8.44
================================================================================================
TOTAL RETURN(c) (8.75%)(d) (47.07%) (56.67%) 2.18%(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 2,747 $ 3,669 $ 9,108 $ 3,213
Ratio of Expenses to Average Net Assets(e)(f) 1.15%(d) 3.03% 2.04% 1.76%(g)
Ratio of Net Investment Loss to Average
Net Assets(f) (0.57%)(d) (2.69%) (1.82%) (1.54%)(g)
Portfolio Turnover Rate 66%(d) 129% 129% 168%(h)
(a) From February 15, 2000, since inception of Class, to July 31, 2000.
(b) The per share information was computed based on average shares for the period ended July
31, 2000.
(c) The applicable CDSC are not included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian
fees).
(f) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended January
31, 2003. If such expenses had not been voluntarily absorbed, ratio of expenses to average net
assets would have been 2.14% and ratio of net investment loss to average net assets would have
been (1.56%).
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the year ended July 31, 2000.
FINANCIAL HIGHLIGHTS
GROWTH FUND -- CLASS K
- ----------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
JANUARY 31 JULY 31 JULY 31
- ----------------------------------------------------------------------------------------------
2003 2002 2001(a)
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 1.50 $ 3.03 $ 5.41
==============================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.01) (0.02) (0.02)
Net Losses on Securities (Both Realized and
Unrealized) (0.12) (1.49) (2.36)
==============================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.13) (1.51) (2.38)
==============================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.02 0.00
==============================================================================================
Net Asset Value -- End of Period $ 1.37 $ 1.50 $ 3.03
==============================================================================================
TOTAL RETURN (8.67%)(c) (50.02%) (43.99%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 1,631 $ 2,888 $ 8
Ratio of Expenses to Average Net Assets(d)(e) 0.87%(c) 2.32% 2.96%(f)
Ratio of Net Investment Loss to Average Net
Assets(e) (0.29%)(c) (1.91%) (2.72%)(f)
Portfolio Turnover Rate 66%(c) 129% 129%(g)
(a) From December 1, 2000, since inception of Class, to July 31, 2001.
(b) The per share information was computed based on average shares for the period ended
July 31, 2001.
(c) Based on operations for the period shown and, accordingly, is not representative
of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment
Adviser, if applicable, which is before any expense offset arrangements (which may
include custodian fees).
(e) Various expense of the Class were voluntarily absorbed by IFG for the six months ended
January 31, 2003. If such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 1.44% and ratio of net investment loss to average net assets
would have been (0.86%).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended July 31, 2001.
FINANCIAL HIGHLIGHTS
GROWTH & INCOME FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD PERIOD
ENDED ENDED ENDED
JANUARY 31 YEAR ENDED JULY 31 JULY 31 APRIL 30
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999(a) 1999
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 6.22 $ 10.21 $ 18.93 $ 15.37 $ 14.54 $ 10.00
===================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(c)
Net Investment Loss(d) (0.01) (0.08) (0.00) (0.00) (0.00) (0.00)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.55) (3.81) (7.93) 4.60 0.83 5.22
===================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.56) (3.89) (7.93) 4.60 0.83 5.22
===================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.10 0.79 1.04 0.00 0.68
===================================================================================================================
Net Asset Value -- End of Period $ 5.66 $ 6.22 $ 10.21 $ 18.93 $ 15.37 $ 14.54
===================================================================================================================
TOTAL RETURN (9.00%)(e) (38.37%) (43.25%) 30.79% 5.71%(e) 53.07%(e)
RATIOS
Net Assets -- End of Period ($000
Omitted) $ 37,388 $ 44,018 $ 88,409 $ 200,584 $ 61,316 $ 53,994
Ratio of Expenses to Average Net
Assets(f)(g) 0.76%(e) 1.50% 1.51% 1.46% 1.52%(h) 1.52%(h)
Ratio of Net Investment Loss to Average
Net Assets(g) (0.19%)(e) (0.98%) (0.99%) (0.85%) (0.45%)(h) (0.25%)(h)
Portfolio Turnover Rate 78%(e) 82% 218% 177% 46%(e) 121%(e)
(a) From May 1, 1999 to July 31, 1999.
(b) From July 1, 1998, commencement of investment operations, to April 30, 1999.
(c) The per share information was computed based on average shares for the year ended July 31, 2002.
(d) Net Investment Loss aggregated less than $0.01 on a per share basis for the years ended July 31, 2001 and
2000 and the periods ended July 31, 1999 and April 30, 1999.
(e) Based on operations for the period shown and, accordingly, is not representative of a full year.
(f) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is
before any expense offset arrangements (which may include custodian fees).
(g) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended January 31, 2003,
the years ended July 31, 2002, 2001 and 2000, and the periods ended July 31, 1999 and April 30, 1999.
If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have
been 1.40%, 2.40%, 1.69%, 1.46%, 1.75% (annualized) and 1.71% (annualized), respectively, and ratio of
net investment loss to average net assets would have been (0.83%), (1.88%), (1.17%), (0.85%), (0.68%)
(annualized) and (0.44%) (annualized), respectively.
(h) Annualized
FINANCIAL HIGHLIGHTS
GROWTH & INCOME FUND -- CLASS A & CLASS B
- ----------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JANUARY 31 JULY 31 JANUARY 31 JULY 31
- ----------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
UNAUDITED UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 6.22 $ 8.54 $ 6.19 $ 8.54
==========================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.08) (0.02) (0.09) (0.02)
Net Losses on Securities (Both Realized
and Unrealized) (0.48) (2.30) (0.48) (2.33)
==========================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.56) (2.32) (0.57) (2.35)
==========================================================================================================
Net Asset Value -- End of Period $ 5.66 $ 6.22 $ 5.62 $ 6.19
==========================================================================================================
TOTAL RETURN(b) (9.00%)(d) (27.17%)(d) (9.35%)(d) (27.40%)(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 235 $ 45 $ 54 $ 6
Ratio of Expenses to Average Net
Assets(e)(f) 0.81%(d) 1.60%(g) 1.13%(d) 2.30%(g)
Ratio of Net Investment Loss to Average Net
Assets(f) (0.13%)(d) (1.04%)(g) (0.52%)(d) (1.80%)(g)
Portfolio Turnover Rate 78%(d) 82%(h) 78%(d) 82%(h)
(a) From April 1, 2002, since inception of Class, to July 31, 2002.
(b) The per share information for each Class was computed based on average shares for the period
ended July 31, 2002.
(c) The applicable sales charges for Class A or CDSC for Class B are not included in the Total
Return calculation.
(d) Based on operations for the period shown and, accordingly, is not representative of a full
year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which
is before any expense offset arrangements (which may include custodian fees).
(f) Various expenses of each class were voluntarily absorbed by IFG for the six months ended January 31,
2003 and the period ended July 31, 2002. If such expenses had not been voluntarily absorbed, ratio
of expenses to average net assets would have been 0.86% and 4.55% (annualized), respectively, for
Class A and 4.20% and 62.08% (annualized), respectively, for Class B, and ratio of net investment
loss to average net assets would have been (0.18%) and (3.99%) (annualized), respectively, for
Class A and (3.59%) and (61.58%) (annualized), respectively, for Class B.
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the year ended July 31, 2002.
FINANCIAL HIGHLIGHTS
GROWTH & INCOME FUND -- CLASS C
- ------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
JANUARY 31 YEAR ENDED JULY 31 JULY 31
- ------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 6.10 $ 10.09 $ 18.87 $ 18.19
================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.04) (0.05) (0.03) (0.13)
Net Gains or (Losses) on Securities (Both
Realized and Unrealized) (0.53) (3.84) (7.96) 0.81
================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.57) (3.89) (7.99) 0.68
================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.10 0.79 0.00
================================================================================================
Net Asset Value -- End of Period $ 5.53 $ 6.10 $ 10.09 $ 18.87
================================================================================================
TOTAL RETURN(c) (9.34%)(d) (38.83%) (43.72%) 3.74%(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 947 $ 1,231 $ 2,142 $ 1,388
Ratio of Expenses to Average Net Assets(e)(f) 1.13%(d) 2.25% 2.27% 2.00%(g)
Ratio of Net Investment Loss to Average Net
Assets(f) (0.58%)(d) (1.72%) (1.78%) (1.63%)(g)
Portfolio Turnover Rate 78%(d) 82% 218% 177%(h)
(a) From February 15, 2000 since inception of Class, to July 31, 2000.
(b) The per share information was computed based on average shares for the period ended July
31, 2000.
(c) The applicable CDSC is not included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian
fees).
(f) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended January
31, 2003 and the years ended July 31, 2002 and 2001. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 2.18%, 3.33% and 2.32%,
respectively, and ratio of net investment loss to average net assets would have been
(1.63%), (2.80%) and (1.83%), respectively.
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level, Represents the year ended July 31, 2000.
FINANCIAL HIGHLIGHTS
GROWTH & INCOME FUND -- CLASS K
- ----------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
JANUARY 31 JULY 31 JULY 31
- ----------------------------------------------------------------------------------------------
2003 2002 2001(a)
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 6.20 $ 10.21 $ 15.22
==============================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.05) (0.08) (0.02)
Net Losses on Securities (Both Realized
and Unrealized) (0.51) (3.83) (4.99)
==============================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.56) (3.91) (5.01)
==============================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.10 0.00
==============================================================================================
Net Asset Value -- End of Period $ 5.64 $ 6.20 $ 10.21
==============================================================================================
TOTAL RETURN (9.03%)(c) (38.57%) (32.92%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 109 $ 58 $ 10
Ratio of Expenses to Average Net Assets(d)(e) 0.86%(c) 1.70% 1.81%(f)
Ratio of Net Investment Loss to Average
Net Assets(e) (0.27%)(c) (1.18%) (1.31%)(f)
Portfolio Turnover Rate 78%(c) 82% 218%(g)
(a) From December 1, 2000, since inception of Class, to July 31, 2001.
(b) The per share information was computed based on average shares for the period ended July
31, 2001.
(c) Based on operations for the period shown and, accordingly, is not representative of
a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
which is before any expense offset arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended January
31, 2003, the year ended July 31, 2002 and the period ended July 31, 2001. If such expenses
had not been voluntarily absorbed, ratio of expenses to average net assets would have been
4.06%, 30.95% and 2.68% (annualized), respectively, and ratio of net investment loss to
average net assets would have been (3.47%), (30.43%) and (2.18%) (annualized),
respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended July 31, 2001.
FINANCIAL HIGHLIGHTS
S&P 500 INDEX FUND -- INSTITUTIONAL CLASS
- ------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
JANUARY 31 YEAR ENDED JULY 31 JULY 31
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998(a)
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 9.23 $ 12.45 $ 15.07 $ 14.21 $ 12.01 $ 10.00
===================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income 0.03 0.08 0.19 0.15 0.18 0.11
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.53) (3.11) (2.44) 1.05 2.26 1.98
===================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.50) (3.03) (2.25) 1.20 2.44 2.09
===================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.08 0.19 0.37 0.34 0.24 0.08
===================================================================================================================
Net Asset Value -- End of Period $ 8.65 $ 9.23 $ 12.45 $ 15.07 $ 14.21 $ 12.01
===================================================================================================================
TOTAL RETURN (5.47%)(c) (24.50%) (15.09%) 8.47% 20.40% 20.93%(c)
RATIOS
Net Assets -- End of Period ($000
Omitted) $ 285 $ 338 $ 544 $ 2,627 $ 4,420 $ 3,259
Ratio of Expenses to Average Net
Assets(d)(e) 0.18%(c) 0.35% 0.35% 0.36% 0.35% 0.46%(f)
Ratio of Net Investment Income to
Average Net Assets(e) 0.74%(c) 1.15% 1.03% 1.00% 1.36% 1.96%(f)
Portfolio Turnover Rate 1%(c) 3% 43% 13% 2% 0%(c)(g)
(a) From December 23, 1997, commencement of investment operations, to July 31, 1998.
(b) The per share information was computed based on average shares for the year ended July 31, 2001.
(c) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
which is before any expense offset arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended January 31,
2003, the years ended July 31, 2002, 2001, 2000 and 1999 and the period ended July 31, 1998.
If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 4.38%, 7.36%, 1.84%, 1.00%, 1.17% and 2.51% (annualized),
respectively, and ratio of net investment income (loss) to average net assets would have been
(3.46%), (5.86%), (0.46%), 0.36%, 0.54% and (0.09%) (annualized), respectively.
(f) Annualized
(g) Portfolio Turnover Rate calculated to less than 0.10% for the period ended July 31, 1998.
FINANCIAL HIGHLIGHTS
S&P 500 INDEX FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
JANUARY 31 YEAR ENDED JULY 31 JULY 31
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998(a)
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 9.59 $ 12.78 $ 15.36 $ 14.39 $ 12.14 $ 10.00
===================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.09 0.10 0.11 0.14 0.07
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.59) (3.19) (2.39) 1.09 2.29 2.14
===================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.54) (3.10) (2.29) 1.20 2.43 2.21
===================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.05 0.09 0.29 0.23 0.18 0.07
===================================================================================================================
Net Asset Value -- End of Period $ 9.00 $ 9.59 $ 12.78 $ 15.36 $ 14.39 $ 12.14
===================================================================================================================
TOTAL RETURN (5.61%)(b) (24.33%) (15.07%) 8.34% 20.09% 22.11%(b)
RATIOS
Net Assets -- End of Period ($000
Omitted) $ 143,394 $ 135,578 $ 116,309 $ 92,784 $ 64,613 $ 15,065
Ratio of Expenses to Average Net
Assets(c)(d) 0.33%(b) 0.65% 0.63% 0.63% 0.60% 0.62%(e)
Ratio of Net Investment Income to Average
Net Assets(d) 0.58%(b) 0.84% 0.75% 0.74% 1.06% 1.52%(e)
Portfolio Turnover Rate 1%(b) 3% 43% 13% 2% 0%(b)(f)
(a) From December 23, 1997, commencement of investment operations, to July 31, 1998.
(b) Based on operations for the period shown and, accordingly, is not representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is
before any expense offset arrangements (which may include custodian fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended January 31, 2003,
the years ended July 31, 2002, 2001, 2000 and 1999 and the period ended July 31, 1998. If such expenses
had not been voluntarily absorbed, ratio of expenses to average net assets would have been 0.54%,
1.01%, 0.99%, 0.95%, 0.99% and 1.71% (annualized), respectively, and ratio of net investment
income to average net assets would have been 0.37%, 0.48%, 0.39%, 0.43%, 0.67% and 0.43% (annualized),
respectively.
(e) Annualized
(f) Portfolio Turnover Rate calculated to less than 0.10% for the period ended July 31, 1998.
FINANCIAL HIGHLIGHTS
SMALL COMPANY GROWTH FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
JANUARY 31 YEAR ENDED JULY 31 JULY 31 YEAR ENDED MAY 31
- ------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999(a) 1999 1998
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 8.41 $ 12.76 $ 18.50 $ 13.61 $ 12.08 $ 11.90 $ 12.82
==============================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss(c) (0.05) (0.01) (0.04) (0.00) (0.00) (0.00) (0.06)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.26) (4.34) (4.77) 6.88 1.53 1.35 2.56
==============================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.31) (4.35) (4.81) 6.88 1.53 1.35 2.50
==============================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.00 0.93 1.99 0.00 1.17 3.42
==============================================================================================================================
Net Asset Value -- End of Period $ 8.10 $ 8.41 $ 12.76 $ 18.50 $ 13.61 $ 12.08 $ 11.90
==============================================================================================================================
TOTAL RETURN (3.69%)(d) (34.09%) (26.53%) 53.55% 12.67%(d) 12.91% 22.65%
RATIOS
Net Assets -- End of Period ($000
Omitted) $ 733,253 $ 800,520 $ 1,395,113 $ 1,440,445 $ 452,861 $ 318,109 $ 272,619
Ratio of Expenses to Average Net
Assets(e)(f) 0.76%(d) 1.45% 1.29% 1.20% 1.50%(g) 1.51% 1.48%
Ratio of Net Investment Loss to
Average Net Assets(f) (0.55%)(d) (1.01%) (0.28%) (0.34%) (0.69%)(g) (0.58%) (0.42%)
Portfolio Turnover Rate 54%(d) 99% 112% 186% 41%(d) 203% 158%
(a) From June 1, 1999 to July 31, 1999.
(b) The per share information was computed based on average shares for the year ended July 31, 2001.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the year ended July 31, 2000, the period
ended July 31, 1999 and the year ended May 31, 1999.
(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable,
which is before any expense offset arrangements (which may include custodian, distribution and transfer agent
fees).
(f) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended January 31, 2003,
the year ended July 31, 2000, the period ended July 31, 1999 and the year ended May 31, 1999. If such
expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have been
0.89%, 1.21%, 1.62% (annualized) and 1.59%, respectively, and ratio of net investment loss to average
net assets would have been (0.68%), (0.35%), (0.81%) (annualized) and (0.66%), respectively.
(g) Annualized
FINANCIAL HIGHLIGHTS
SMALL COMPANY GROWTH FUND -- CLASS A & CLASS B
- ----------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JANUARY 31 JULY 31 JANUARY 31 JULY 31
- ----------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
UNAUDITED UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 8.41 $ 11.25 $ 8.41 $ 11.25
==========================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.06) (0.02) (0.12) (0.04)
Net Losses on Securities (Both Realized
and Unrealized) (0.24) (2.82) (0.23) (2.80)
==========================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.30) (2.84) (0.35) (2.84)
==========================================================================================================
Net Asset Value -- End of Period $ 8.11 $ 8.41 $ 8.06 $ 8.41
==========================================================================================================
TOTAL RETURN(c) (3.57%)(d) (25.24%)(d) (4.16%)(d) (25.24%)(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 3,478 $ 2,607 $ 219 $ 67
Ratio of Expenses to Average Net
Assets(e)(f) 0.66%(d) 1.24%(g) 1.13%(d) 2.14%(g)
Ratio of Net Investment Loss to Average
Net Assets(f) (0.46%)(d) (0.74%)(g) (0.93%)(d) (1.68%)(g)
Portfolio Turnover Rate 54%(d) 99%(h) 54%(d) 99%(h)
(a) From April 1, 2002, since inception of Class, to July 31, 2002.
(b) The per share information for each Class was computed based on average shares for the period ended
July 31, 2002.
(c) The applicable sales charges for Class A or CDSC for Class B are not included in the Total Return
calculation.
(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by the Investment Adviser, if
applicable, which is before any expense offset arrangements (which may include custodian fees).
(f) Various expenses of Class B were voluntarily absorbed by IFG for the six months ended January 31, 2003.
If such expenses had not been voluntarily absorbed for Class B, ratio of expenses to average net assets
would have been 1.54% and ratio of net investment loss to average net assets would have been (1.34%).
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the year ended July 31, 2002.
FINANCIAL HIGHLIGHTS
SMALL COMPANY GROWTH FUND -- CLASS C
- ------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
JANUARY 31 YEAR ENDED JULY 31 JULY 31
- ------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 8.09 $ 12.54 $ 18.37 $ 20.68
================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss(c) (0.22) (0.18) (0.12) (0.00)
Net Losses on Securities
(Both Realized and Unrealized) (0.09) (4.27) (4.78) (2.31)
================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.31) (4.45) (4.90) (2.31)
================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.00 0.93 0.00
================================================================================================
Net Asset Value -- End of Period $ 7.78 $ 8.09 $ 12.54 $ 18.37
================================================================================================
TOTAL RETURN(d) (3.84%)(e) (35.57%) (27.24%) (11.17%)(e)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 1,089 $ 1,087 $ 2,034 $ 1,926
Ratio of Expenses to Average Net
Assets(f)(g) 1.13%(e) 2.25% 2.13% 1.83%(h)
Ratio of Net Investment Loss to Average
Net Assets(g) (0.91%)(e) (1.81%) (1.12%) (0.91%)(h)
Portfolio Turnover Rate 54%(e) 99% 112% 186%(i)
(a) From February 15, 2000, since inception of Class, to July 31, 2000.
(b) The per share information was computed based on average shares for the year ended July 31,
2002.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the period ended
July 31, 2000.
(d) The applicable CDSC are not included in the Total Return calculation.
(e) Based on operations for the period shown and, accordingly, is not representative
of a full year.
(f) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by the Investment
Adviser, if applicable, which is before any expense offset arrangements (which may include
custodian fees).
(g) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended
January 31, 2003 and the year ended July 31, 2002. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 1.62% and 2.70%, respectively,
and ratio of net investment loss to average net assets would have been (1.40%) and (2.26%),
respectively.
(h) Annualized
(i) Portfolio Turnover is calculated at the Fund level. Represents the year ended July 31, 2000.
FINANCIAL HIGHLIGHTS
SMALL COMPANY GROWTH FUND -- CLASS K
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
JANUARY 31 JULY 31
- --------------------------------------------------------------------------------
2003 2002(a)
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 8.43 $ 11.76
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.06) (0.05)
Net Losses on Securities (Both Realized and
Unrealized) (0.26) (3.28)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.32) (3.33)
================================================================================
Net Asset Value -- End of Period $ 8.11 $ 8.43
================================================================================
TOTAL RETURN (3.91%)(c) (28.32%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 67,574 $ 66,451
Ratio of Expenses to Average Net Assets(d)(e) 0.86%(c) 1.17%(f)
Ratio of Net Investment Loss to Average Net
Assets(e) (0.65%)(c) (0.80%)(f)
Portfolio Turnover Rate 54%(c) 99%(g)
(a) From December 17, 2001, since inception of Class, to July 31, 2002.
(b) The per share information was computed based on average shares for the
period ended July 31, 2002.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
the Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the six
months ended January 31, 2003. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 1.99% and
ratio of net investment loss to average net assets would have been (1.78%).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended July 31, 2002.
FINANCIAL HIGHLIGHTS
VALUE EQUITY FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
JANUARY 31 YEAR ENDED JULY 31 JULY 31 YEAR ENDED AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999(a) 1998 1997
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 16.23 $ 21.19 $ 25.15 $ 29.61 $ 25.68 $ 28.30 $ 22.24
==============================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.08 0.11 0.11 0.11 0.17 0.26 0.35
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.96) (4.29) (0.15) (1.96) 6.25 (0.43) 6.62
==============================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.88) (4.18) (0.04) (1.85) 6.42 (0.17) 6.97
==============================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.08 0.78 3.92 2.61 2.49 2.45 0.91
==============================================================================================================================
Net Asset Value -- End of Period $ 15.27 $ 16.23 $ 21.19 $ 25.15 $ 29.61 $ 25.68 $ 28.30
==============================================================================================================================
TOTAL RETURN (5.42%)(b) (20.28%) 0.20% (6.52%) 25.41%(b) (1.06%) 32.04%
RATIOS
Net Assets -- End of Period ($000
Omitted) $ 91,816 $ 125,313 $ 198,905 $ 248,944 $ 369,982 $ 349,984 $ 369,766
Ratio of Expenses to Average Net
Assets(c)(d) 0.66%(b) 1.30% 1.31% 1.31% 1.27%(e) 1.15% 1.04%
Ratio of Net Investment Income to
Average Net Assets(d) 0.50%(b) 0.55% 0.48% 0.40% 0.63%(e) 0.86% 1.35%
Portfolio Turnover Rate 26%(b) 43% 54% 67% 22%(b) 48% 37%
(a) From September 1, 1998 to July 31, 1999.
(b) Based on operations for the period shown and, accordingly, is not representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if
applicable, which is before any offset arrangements (which may include custodian and transfer agent fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended January 31, 2003,
the years ended July 31, 2002, 2001 and 2000, the period ended July 31, 1999 and the year ended August 31,
1998. If such expenses had not be voluntarily absorbed, ratio of expenses to average net assets would have
been 0.95%, 1.64%, 1.53%, 1.44%, 1.38% (annualized) and 1.19%, respectively, and ratio of net investment
income to average net assets would have been 0.21%, 0.21%, 0.26%, 0.27%, 0.52% (annualized) and 0.82%,
respectively.
(e) Annualized
FINANCIAL HIGHLIGHTS
VALUE EQUITY FUND -- CLASS A & CLASS B
- ----------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JANUARY 31 JULY 31 JANUARY 31 JULY 31
- ----------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
UNAUDITED UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 16.09 $ 20.20 $ 16.18 $ 20.20
==========================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss) 0.15 0.06 0.03 (0.01)
Net Losses on Securities (Both Realized
and Unrealized) (1.03) (3.98) (0.96) (3.86)
==========================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.88) (3.92) (0.93) (3.87)
==========================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.11 0.19 0.02 0.15
==========================================================================================================
Net Asset Value -- End of Period $ 15.10 $ 16.09 $ 15.23 $ 16.18
==========================================================================================================
TOTAL RETURN(c) (5.48%)(d) (19.46%)(d) (5.74%)(d) (19.21%)(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 674 $ 163 $ 249 $ 242
Ratio of Expenses to Average Net
Assets(e)(f) 0.71%(d) 1.39%(g) 1.03%(d) 1.95%(g)
Ratio of Net Investment Income (Loss) to
Average Net Assets(f) 0.44%(d) 0.51%(g) 0.11%(d) (0.22%)(g)
Portfolio Turnover Rate 26%(d) 43%(h) 26%(d) 43%(h)
(a) From April 1, 2002, since inception of Class, to July 31, 2002.
(b) The per share information for Class B was computed based on average shares for the period ended July
31, 2002.
(c) The applicable sales charges for Class A or CDSC for Class B are not included in the Total
Return calculation.
(d) Based on operations for the period shown and, accordingly, is not representative of a full
year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by the Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian fees).
(f) Various expenses of each Class were voluntarily absorbed by IFG for the six months ended January 31,
2003. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 1.16% for Class A and 1.27% for Class B, and ratio of net investment loss to average
net assets would have been (0.01%) for Class A and (0.13%) for Class B.
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the year ended July 31, 2002.
FINANCIAL HIGHLIGHTS
VALUE EQUITY FUND -- CLASS C
- ------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
JANUARY 31 YEAR ENDED JULY 31 JULY 31
- ------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 15.89 $ 20.82 $ 24.90 $ 24.72
================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss) 0.02 (0.02) (0.06) (0.06)
Net Gains or (Losses) on Securities (Both
Realized and Unrealized) (0.93) (4.24) (0.14) 0.45
================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.91) (4.26) (0.20) 0.39
================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.02 0.67 3.88 0.21
================================================================================================
Net Asset Value -- End of Period $ 14.96 $ 15.89 $ 20.82 $ 24.90
================================================================================================
TOTAL RETURN(c) (5.80%)(d) (20.98%) (0.49%) 1.52%(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 1,138 $ 1,684 $ 1,024 $ 96
Ratio of Expenses to Average Net Assets(e)(f) 1.03%(d) 2.05% 2.04% 2.13%(g)
Ratio of Net Investment Income (Loss) to
Average Net Assets(f) 0.10%(d) (0.12%) (0.23%) (0.49%)(g)
Portfolio Turnover Rate 26%(d) 43% 54% 67%(h)
(a) From February 15, 2000, since inception of Class, to July 31, 2000.
(b) The per share information was computed based on average shares for the six months ended
January 31, 2003 and the years ended July 31, 2002 and 2001.
(c) The applicable CDSC are not included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not representative
of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
which is before any expense offset arrangements (which may include custodian fees).
(f) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended
January 31, 2003, the years ended July 31, 2002 and 2001 and the period ended July 31, 2000.
If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 1.66%, 2.79%, 2.29% and 2.22% (annualized), respectively, and ratio of net
investment loss to average net assets would have been (0.53%), (0.86%), (0.48%)% and (0.58%)
(annualized), respectively.
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the year ended July 31, 2000.
[INVESCO ICON] INVESCO(R)
1-800-525-8085
Personal Account Line: 1-800-424-8085
Advisor Services: 1-800-6-INVESCO
invescofunds.com
INVESCO Distributors, Inc.,(SM) Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
This information must be preceded or accompanied
by a current prospectus.
SEQ 900440 2/03
APPENDIX IV
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS*
OF INVESCO GROWTH FUND INTO AIM LARGE CAP GROWTH FUND
APRIL 30,2003
(UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------- ------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
INVESCO LARGE CAP GROWTH FUND INVESCO LARGE CAP GROWTH FUND
GROWTH GROWTH PRO FORMA GROWTH GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
COMMON STOCKS & OTHER EQUITY
INTERESTS--96.84%
AEROSPACE & DEFENSE--2.27%
101,900 -- 101,900 Lockheed Martin Corp. $ 5,100,095 $ -- $ 5,100,095
- -----------------------------------------------------------------------------------------------------------------------------------
152,900 26,200 179,100 United Technologies Corp. 9,450,749 1,619,422 11,070,171
===================================================================================================================================
14,550,844 1,619,422 16,170,266
===================================================================================================================================
AIRLINES--0.24%
-- 42,600 42,600 Ryanair Holdings PLC-ADR (Ireland)(a) -- 1,689,942 1,689,942
===================================================================================================================================
ALUMINUM--0.58%
179,200 -- 179,200 Alcoa Inc. 4,109,056 -- 4,109,056
===================================================================================================================================
APPAREL RETAIL--0.47%
-- 99,000 99,000 Gap, Inc. (The) -- 1,646,370 1,646,370
- -----------------------------------------------------------------------------------------------------------------------------------
-- 86,500 86,500 TJX Cos., Inc. (The) -- 1,665,125 1,665,125
===================================================================================================================================
-- 3,311,495 3,311,495
===================================================================================================================================
APPLICATION SOFTWARE--3.49%
485,550 -- 485,550 BEA Systems, Inc.(a) 5,200,240 -- 5,200,240
- -----------------------------------------------------------------------------------------------------------------------------------
-- 37,300 37,300 Electronic Arts Inc.(a) -- 2,210,771 2,210,771
- -----------------------------------------------------------------------------------------------------------------------------------
168,400 -- 168,400 Mercury Interactive Corp.(a) 5,715,496 -- 5,715,496
- -----------------------------------------------------------------------------------------------------------------------------------
130,900 -- 130,900 SAP AG (Germany)(a) 3,339,259 -- 3,339,259
- -----------------------------------------------------------------------------------------------------------------------------------
291,500 -- 291,500 Software HOLDRs Trust 8,348,560 -- 8,348,560
===================================================================================================================================
22,603,555 2,210,771 24,814,326
===================================================================================================================================
BANKS--4.61%
135,300 35,000 170,300 Bank of America Corp. 10,018,965 2,591,750 12,610,715
- -----------------------------------------------------------------------------------------------------------------------------------
-- 55,350 55,350 Charter One Financial, Inc. -- 1,607,918 1,607,918
- -----------------------------------------------------------------------------------------------------------------------------------
-- 50,400 50,400 First Tennessee National Corp. -- 2,207,520 2,207,520
- -----------------------------------------------------------------------------------------------------------------------------------
-- 52,100 52,100 Southtrust Corp. -- 1,399,458 1,399,458
- -----------------------------------------------------------------------------------------------------------------------------------
-- 69,900 69,900 U.S. Bancorp -- 1,548,285 1,548,285
- -----------------------------------------------------------------------------------------------------------------------------------
-- 51,700 51,700 Washington Mutual, Inc. -- 2,042,150 2,042,150
- -----------------------------------------------------------------------------------------------------------------------------------
204,100 31,300 235,400 Wells Fargo & Co. 9,849,866 1,510,538 11,360,404
===================================================================================================================================
19,868,831 12,907,619 32,776,450
===================================================================================================================================
BIOTECHNOLOGY--5.01%
187,100 94,000 281,100 Amgen Inc.(a) 11,471,101 5,763,140 17,234,241
- -----------------------------------------------------------------------------------------------------------------------------------
81,600 -- 81,600 Biotech HOLDRs Trust 8,298,720 -- 8,298,720
- -----------------------------------------------------------------------------------------------------------------------------------
-- 40,300 40,300 Genetech, Inc.(a) -- 1,530,997 1,530,997
- -----------------------------------------------------------------------------------------------------------------------------------
185,900 -- 185,900 Gilead Sciences, Inc.(a) 8,577,426 -- 8,577,426
===================================================================================================================================
28,347,247 7,294,137 35,641,384
===================================================================================================================================
BREWERS--1.25%
118,700 59,500 178,200 Anheuser-Busch Cos., Inc. 5,920,756 2,967,860 8,888,616
===================================================================================================================================
BROADCASTING & Cable TV--1.31%
310,670 -- 310,670 EchoStar Communications Corp.-Class A(a) 9,307,673 -- 9,307,673
===================================================================================================================================
CASINOS & GAMBLING--0.38%
-- 31,300 31,300 International Game Technology(a) -- 2,701,190 2,701,190
===================================================================================================================================
CATALOG RETAIL--0.30%
-- 72,500 72,500 USA Interactive(a) -- 2,171,375 2,171,375
===================================================================================================================================
COMPUTER & ELECTRONICS RETAIL--0.28%
-- 57,000 57,000 Best Buy Co., Inc.(a) -- 1,971,060 1,971,060
===================================================================================================================================
</Table>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------- ------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
INVESCO LARGE CAP GROWTH FUND INVESCO LARGE CAP GROWTH FUND
GROWTH GROWTH PRO FORMA GROWTH GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
COMPUTER HARDWARE--1.51%
-- 263,900 263,900 Dell Computer Corp.(a) $ -- $ 7,629,349 $ 7,629,349
- -----------------------------------------------------------------------------------------------------------------------------------
-- 36,500 36,500 International Business Machines Corp. -- 3,098,850 3,098,850
===================================================================================================================================
-- 10,728,199 10,728,199
===================================================================================================================================
COMPUTER STORAGE & PERIPHERALS--0.75%
-- 273,000 273,000 EMC Corp.(a) -- 2,481,570 2,481,570
- -----------------------------------------------------------------------------------------------------------------------------------
-- 38,600 38,600 Lexmark International, Inc.(a) -- 2,876,086 2,876,086
===================================================================================================================================
-- 5,357,656 5,357,656
===================================================================================================================================
DATA PROCESSING SERVICES--2.66%
137,800 106,600 244,400 First Data Corp. 5,405,894 4,181,918 9,587,812
- -----------------------------------------------------------------------------------------------------------------------------------
242,000 -- 242,000 Fiserv, Inc.(a) 7,124,480 -- 7,124,480
- -----------------------------------------------------------------------------------------------------------------------------------
-- 69,600 69,600 Paychex, Inc. -- 2,167,344 2,167,344
===================================================================================================================================
12,530,374 6,349,262 18,879,636
===================================================================================================================================
DEPARTMENT STORES--0.45%
55,800 -- 55,800 Kohl's Corp.(a) 3,169,440 -- 3,169,440
===================================================================================================================================
DIVERSIFIED COMMERCIAL SERVICES--0.52%
-- 67,800 67,800 Apollo Group, Inc.-Class A(a) -- 3,674,692 3,674,692
===================================================================================================================================
DIVERSIFIED FINANCIAL SERVICES--6.67%
122,800 57,800 180,600 American Express Co. 4,649,208 2,188,308 6,837,516
- -----------------------------------------------------------------------------------------------------------------------------------
501,621 52,000 553,621 Citigroup Inc. 19,688,624 2,041,000 21,729,624
- -----------------------------------------------------------------------------------------------------------------------------------
-- 28,100 28,100 Fannie Mae -- 2,034,159 2,034,159
- -----------------------------------------------------------------------------------------------------------------------------------
342,200 -- 342,200 J.P. Morgan Chase & Co. 10,043,570 -- 10,043,570
- -----------------------------------------------------------------------------------------------------------------------------------
-- 32,000 32,000 Moody's Corp. -- 1,545,280 1,545,280
- -----------------------------------------------------------------------------------------------------------------------------------
-- 46,900 46,900 SLM Corp. -- 5,252,800 5,252,800
===================================================================================================================================
34,381,402 13,061,547 47,442,949
===================================================================================================================================
FOOTWEAR--0.29%
-- 38,300 38,300 NIKE, Inc.-Class B -- 2,050,199 2,050,199
===================================================================================================================================
GENERAL MERCHANDISE STORES--3.00%
232,300 -- 232,300 Target Corp. 7,768,112 -- 7,768,112
- -----------------------------------------------------------------------------------------------------------------------------------
201,200 39,100 240,300 Wal-Mart Stores, Inc. 11,331,584 2,202,112 13,533,696
===================================================================================================================================
19,099,696 2,202,112 21,301,808
===================================================================================================================================
HEALTH CARE EQUIPMENT--4.45%
-- 104,300 104,300 Becton, Dickinson & Co. -- 3,692,220 3,692,220
- -----------------------------------------------------------------------------------------------------------------------------------
148,100 -- 148,100 Biomet, Inc. 4,511,126 -- 4,511,126
- -----------------------------------------------------------------------------------------------------------------------------------
52,200 91,400 143,600 Boston Scientific Corp.(a) 2,247,210 3,934,770 6,181,980
- -----------------------------------------------------------------------------------------------------------------------------------
103,500 45,100 148,600 Medtronic, Inc. 4,941,090 2,153,074 7,094,164
- -----------------------------------------------------------------------------------------------------------------------------------
-- 60,200 60,200 St. Jude Medical, Inc.(a) -- 3,158,092 3,158,092
- -----------------------------------------------------------------------------------------------------------------------------------
-- 39,600 39,600 Stryker Corp. -- 2,653,596 2,653,596
- -----------------------------------------------------------------------------------------------------------------------------------
-- 92,800 92,800 Zimmer Holdings, Inc.(a) -- 4,352,320 4,352,320
===================================================================================================================================
11,699,426 19,944,072 31,643,498
===================================================================================================================================
HEALTH CARE SUPPLIES--0.46%
-- 73,700 73,700 Alcon, Inc. (Switzerland)(a) -- 3,246,485 3,246,485
===================================================================================================================================
HOME IMPROVEMENT RETAIL--0.20%
-- 32,700 32,700 Lowe's Cos., Inc. -- 1,435,203 1,435,203
===================================================================================================================================
HOUSEHOLD PRODUCTS--1.72%
-- 66,800 66,800 Clorox Co. (The) -- 3,020,696 3,020,696
- -----------------------------------------------------------------------------------------------------------------------------------
-- 55,500 55,500 Colgate-Palmolive Co. -- 3,172,935 3,172,935
- -----------------------------------------------------------------------------------------------------------------------------------
-- 66,800 66,800 Procter & Gamble Co. (The) -- 6,001,980 6,001,980
===================================================================================================================================
-- 12,195,611 12,195,611
===================================================================================================================================
HOUSEWARES & SPECIALTIES--0.26%
-- 38,600 38,600 Fortune Brands, Inc. -- 1,868,240 1,868,240
===================================================================================================================================
</Table>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------- ------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
INVESCO LARGE CAP GROWTH FUND INVESCO LARGE CAP GROWTH FUND
GROWTH GROWTH PRO FORMA GROWTH GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
INDUSTRIAL CONGLOMERATES--1.97%
476,590 -- 476,590 General Electric Co. $14,035,575 $ -- $14,035,575
===================================================================================================================================
INDUSTRIAL MACHINERY--2.03%
80,800 -- 80,800 Danaher Corp. 5,573,584 -- 5,573,584
- -----------------------------------------------------------------------------------------------------------------------------------
52,900 -- 52,900 Illinois Tool Works Inc. 3,384,542 -- 3,384,542
- -----------------------------------------------------------------------------------------------------------------------------------
162,700 -- 162,700 SPX Corp.(a) 5,499,260 -- 5,499,260
===================================================================================================================================
14,457,386 -- 14,457,386
===================================================================================================================================
INTEGRATED OIL & GAS--1.33%
268,000 -- 268,000 Exxon Mobil Corp. 9,433,600 -- 9,433,600
===================================================================================================================================
INTERNET RETAIL--0.80%
-- 88,600 88,600 Amazon.com, Inc.(a) -- 2,540,162 2,540,162
- -----------------------------------------------------------------------------------------------------------------------------------
-- 34,300 34,300 eBay Inc.(a) -- 3,182,011 3,182,011
===================================================================================================================================
-- 5,722,173 5,722,173
===================================================================================================================================
INTERNET SOFTWARE & SERVICES--0.33%
-- 95,900 95,900 Yahoo! Inc.(a) -- 2,376,402 2,376,402
===================================================================================================================================
INVESTMENT BANKING & BROKERAGE--1.30%
50,000 -- 50,000 Goldman Sachs Group, Inc. (The) 3,795,000 -- 3,795,000
- -----------------------------------------------------------------------------------------------------------------------------------
133,000 -- 133,000 Merrill Lynch & Co., Inc. 5,459,650 -- 5,459,650
===================================================================================================================================
9,254,650 -- 9,254,650
===================================================================================================================================
IT CONSULTING & OTHER SERVICES--0.92%
Affiliated Computer Services,
137,300 -- 137,300 Inc.-Class A(a) 6,549,210 -- 6,549,210
===================================================================================================================================
LEISURE PRODUCTS--0.41%
-- 132,800 132,800 Mattel, Inc. -- 2,887,072 2,887,072
===================================================================================================================================
LIFE & HEALTH INSURANCE--0.46%
-- 100,700 100,700 AFLAC Inc. -- 3,293,897 3,293,897
===================================================================================================================================
MANAGED HEALTH CARE--0.79%
-- 23,200 23,200 Anthem, Inc.(a) -- 1,592,448 1,592,448
- -----------------------------------------------------------------------------------------------------------------------------------
-- 43,600 43,600 UnitedHealth Group Inc. -- 4,016,868 4,016,868
===================================================================================================================================
-- 5,609,316 5,609,316
===================================================================================================================================
MOVIES & ENTERTAINMENT--1.58%
348,700 -- 348,700 AOL Time Warner Inc.(a) 4,770,216 -- 4,770,216
- -----------------------------------------------------------------------------------------------------------------------------------
-- 62,200 62,200 Fox Entertainment Group, Inc.-Class A(a) -- 1,579,880 1,579,880
- -----------------------------------------------------------------------------------------------------------------------------------
112,700 -- 112,700 Viacom Inc.-Class B(a) 4,892,307 -- 4,892,307
===================================================================================================================================
9,662,523 1,579,880 11,242,403
===================================================================================================================================
MULTI-LINE INSURANCE--0.99%
121,300 -- 121,300 American International Group, Inc. 7,029,335 -- 7,029,335
===================================================================================================================================
MUTUAL FUNDS--2.07%
66,000 -- 66,000 DIAMONDS Trust - Series I 5,600,760 -- 5,600,760
- -----------------------------------------------------------------------------------------------------------------------------------
331,300 -- 331,300 Nasdaq-100 Index Tracking Stock(a) 9,094,185 -- 9,094,185
===================================================================================================================================
14,694,945 -- 14,694,945
===================================================================================================================================
NETWORKING EQUIPMENT--2.54%
756,540 442,200 1,198,740 Cisco Systems, Inc.(a) 11,378,362 6,650,688 18,029,050
===================================================================================================================================
OFFICE ELECTRONICS--0.29%
-- 51,000 51,000 Canon Inc. (Japan) -- 2,067,712 2,067,712
===================================================================================================================================
OIL & GAS EQUIPMENT & SERVICES--0.71%
Weatherford International Ltd.
124,700 -- 124,700 (Bermuda)(a) 5,016,681 -- 5,016,681
===================================================================================================================================
OIL & GAS EXPLORATION &
PRODUCTION--0.64%
78,855 -- 78,855 Apache Corp. 4,514,449 -- 4,514,449
===================================================================================================================================
</Table>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------- ------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
INVESCO LARGE CAP GROWTH FUND INVESCO LARGE CAP GROWTH FUND
GROWTH GROWTH PRO FORMA GROWTH GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
PAPER PRODUCTS--0.82%
163,500 -- 163,500 International Paper Co. $ 5,845,125 $ -- $ 5,845,125
===================================================================================================================================
PERSONAL PRODUCTS--0.45%
-- 55,300 55,300 Avon Products, Inc. -- 3,216,801 3,216,801
===================================================================================================================================
PHARMACEUTICALS--13.26%
185,300 -- 185,300 Abbott Laboratories 7,528,739 -- 7,528,739
- -----------------------------------------------------------------------------------------------------------------------------------
-- 49,000 49,000 Allergan, Inc. -- 3,442,250 3,442,250
- -----------------------------------------------------------------------------------------------------------------------------------
-- 31,000 31,000 Forest Laboratories, Inc.(a) -- 1,603,320 1,603,320
- -----------------------------------------------------------------------------------------------------------------------------------
243,400 167,900 411,300 Johnson & Johnson 13,718,024 9,462,844 23,180,868
- -----------------------------------------------------------------------------------------------------------------------------------
136,600 -- 136,600 Merck & Co. Inc. 7,947,388 -- 7,947,388
- -----------------------------------------------------------------------------------------------------------------------------------
-- 69,900 69,900 Mylan Laboratories Inc. -- 1,976,073 1,976,073
- -----------------------------------------------------------------------------------------------------------------------------------
601,000 299,300 900,300 Pfizer Inc. 18,480,750 9,203,475 27,684,225
- -----------------------------------------------------------------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.
93,800 94,000 187,800 -ADR (Israel) 4,380,460 4,389,800 8,770,260
- -----------------------------------------------------------------------------------------------------------------------------------
226,800 52,000 278,800 Wyeth 9,872,604 2,263,560 12,136,164
===================================================================================================================================
61,927,965 32,341,322 94,269,287
===================================================================================================================================
PROPERTY & CASUALTY INSURANCE--0.54%
-- 32,400 32,400 Ambac Financial Group, Inc. -- 1,890,540 1,890,540
- -----------------------------------------------------------------------------------------------------------------------------------
-- 29,200 29,200 Progressive Corp. (The) -- 1,985,600 1,985,600
===================================================================================================================================
-- 3,876,140 3,876,140
===================================================================================================================================
RAILROADS--0.52%
175,000 -- 175,000 Norfolk Southern Corp. 3,711,750 -- 3,711,750
===================================================================================================================================
RESTAURANTS--0.20%
-- 59,500 59,500 Starbucks Corp.(a) -- 1,397,655 1,397,655
===================================================================================================================================
SEMICONDUCTOR EQUIPMENT--1.48%
462,540 99,000 561,540 Applied Materials, Inc.(a) 6,753,084 1,445,400 8,198,484
- -----------------------------------------------------------------------------------------------------------------------------------
82,700 -- 82,700 Novellus Systems, Inc.(a) 2,318,908 -- 2,318,908
===================================================================================================================================
9,071,992 1,445,400 10,517,392
===================================================================================================================================
SEMICONDUCTORS--5.39%
-- 135,800 135,800 Altera Corp.(a) -- 2,146,998 2,146,998
- -----------------------------------------------------------------------------------------------------------------------------------
-- 58,400 58,400 Analog Devices, Inc.(a) -- 1,934,208 1,934,208
- -----------------------------------------------------------------------------------------------------------------------------------
690,700 102,000 792,700 Intel Corp. 12,708,880 1,876,800 14,585,680
- -----------------------------------------------------------------------------------------------------------------------------------
-- 105,900 105,900 Linear Technology Corp. -- 3,650,373 3,650,373
- -----------------------------------------------------------------------------------------------------------------------------------
130,200 -- 130,200 Semiconductor HOLDRs Trust 3,435,978 -- 3,435,978
- -----------------------------------------------------------------------------------------------------------------------------------
453,080 53,100 506,180 Texas Instruments Inc. 8,377,449 981,819 9,359,268
- -----------------------------------------------------------------------------------------------------------------------------------
-- 118,800 118,800 Xilinx, Inc.(a) -- 3,215,916 3,215,916
===================================================================================================================================
24,522,307 13,806,114 38,328,421
===================================================================================================================================
SOFT DRINKS--0.76%
55,300 -- 55,300 Coca-Cola Co. (The) 2,234,120 -- 2,234,120
- -----------------------------------------------------------------------------------------------------------------------------------
-- 73,000 73,000 PepsiCo, Inc. -- 3,159,440 3,159,440
===================================================================================================================================
2,234,120 3,159,440 5,393,560
===================================================================================================================================
SPECIALTY STORES--1.07%
-- 30,300 30,300 AutoZone, Inc.(a) -- 2,448,543 2,448,543
- -----------------------------------------------------------------------------------------------------------------------------------
-- 38,500 38,500 Bed Bath & Beyond Inc.(a) -- 1,521,135 1,521,135
- -----------------------------------------------------------------------------------------------------------------------------------
-- 189,800 189,800 Staples, Inc.(a) -- 3,613,792 3,613,792
===================================================================================================================================
-- 7,583,470 7,583,470
===================================================================================================================================
SYSTEMS SOFTWARE--8.98%
-- 57,500 57,500 Adobe Systems Inc. -- 1,987,200 1,987,200
- -----------------------------------------------------------------------------------------------------------------------------------
995,680 500,600 1,496,280 Microsoft Corp. 25,459,538 12,800,342 38,259,880
- -----------------------------------------------------------------------------------------------------------------------------------
532,645 355,600 888,245 Oracle Corp.(a) 6,327,823 4,224,528 10,552,351
- -----------------------------------------------------------------------------------------------------------------------------------
109,400 44,900 154,300 Symantec Corp.(a) 4,808,130 1,973,355 6,781,485
- -----------------------------------------------------------------------------------------------------------------------------------
215,600 69,000 284,600 VERITAS Software Corp.(a) 4,745,356 1,518,690 6,264,046
===================================================================================================================================
41,340,847 22,504,115 63,844,962
===================================================================================================================================
TELECOMMUNICATIONS EQUIPMENT--0.23%
-- 100,000 100,000 Nokia Oyj-ADR (Finland) -- 1,657,000 1,657,000
===================================================================================================================================
</Table>
<Table>
<Caption>
SHARES MARKET VALUE
- ---------------------------------------------- ------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
INVESCO LARGE CAP GROWTH FUND INVESCO LARGE CAP GROWTH FUND
GROWTH GROWTH PRO FORMA GROWTH GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
WIRELESS TELECOMMUNICATION SERVICES--0.85%
220,300 186,400 406,700 Nextel Communications, Inc.-Class A (a) $ 3,258,237 $ 2,756,856 $ 6,015,093
===================================================================================================================================
Total Common Stocks & Other Equity
Interests (Cost $650,890,787) 443,527,359 244,889,602 688,416,961
===================================================================================================================================
<Caption>
PRINCIPAL AMOUNT
- ----------------------------------------------
AIM AIM LARGE CAP
INVESCO LARGE CAP GROWTH FUND
GROWTH GROWTH PRO FORMA
FUND FUND COMBINING
REPURCHASE AGREEMENTS--0.12%
State Street Bank & Trust 1.26%,
$ 861,000 $ -- $ 861,000 05/01/03 (Cost $861,000)(b) 861,000 -- 861,000
===================================================================================================================================
SHORT TERM COMMERCIAL PAPER--1.83%
13,000,000 -- 13,000,000 American General Finance 1.32%,
05/01/03 (Cost $13,000,000)(c) 13,000,000 -- 13,000,000
===================================================================================================================================
<Caption>
SHARES
- ----------------------------------------------
AIM AIM LARGE CAP
INVESCO LARGE CAP GROWTH FUND
GROWTH GROWTH PRO FORMA
FUND FUND COMBINING
MONEY MARKET FUNDS--1.38%
-- 4,912,665 4,912,665 STIC Liquid Assets Portfolio(d) -- 4,912,665 4,912,665
- -----------------------------------------------------------------------------------------------------------------------------------
-- 4,912,665 4,912,665 STIC Prime Portfolio(d) -- 4,912,665 4,912,665
===================================================================================================================================
Total Money Market Funds
(Cost $9,825,330) -- 9,825,330 9,825,330
===================================================================================================================================
TOTAL INVESTMENTS--100.17%
(excluding investments purchased
with cash collateral from securities
loaned)(Cost $674,577,117) 457,388,359 254,714,932 712,103,291
===================================================================================================================================
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS--3.12%
INVESCO Money Market Reserve Fund
9,803,189 -- 9,803,189 - Treasurer Series(d)(e) 9,803,189 -- 9,803,189
- -----------------------------------------------------------------------------------------------------------------------------------
-- 12,397,069 12,397,069 STIC Liquid Assets Portfolio(d)(e) -- 12,397,069 12,397,069
- -----------------------------------------------------------------------------------------------------------------------------------
Total Money Market Funds (purchased
with cash collateral from securities
loaned) (Cost $22,200,258) 9,803,189 12,397,069 22,200,258
===================================================================================================================================
TOTAL INVESTMENTS--103.29%
(Cost $696,777,375) 467,191,548 267,112,001 734,303,549
===================================================================================================================================
OTHER ASSETS LESS LIABILITIES--(3.29%) (12,332,055) (11,084,971) (23,417,026)
===================================================================================================================================
NET ASSETS--100.00% $454,859,493 $256,027,030 $710,886,523
===================================================================================================================================
</Table>
Investment Abbreviations:
ADR -- American Depositary Receipt
HOLDRs -- Holding Company Depository Receipts
Notes to Pro Forma Combining Schedule of Investments:
(a) Non-income producing security.
(b) Repurchase agreement entered into 04/30/03 with a maturing value of $861,030
and collateralized by U.S. Government Obligations.
(c) Security is traded on discount basis. The interest rate shown represents the
discount rate at the time of purchase by INVESCO Growth Fund.
(d) STIC Liquid Assets Portfolio and STIC Prime Portfolio are affiliated with
AIM Large Cap Growth Fund by having the same investment advisor. INVESCO Money
Market Reserve Fund is affiliated with INVESCO Growth Fund by having the same
investment advisor.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned.
* As of 4/30/03, all of the securities held by the INVESCO Growth Fund would
comply with the compliance guidelines and/or investment restrictions of the AIM
Large Cap Growth Fund.
See Accompanying Notes to Pro Form Combining Financial Statements.
PRO FORM COMBINING STATEMENT OF ASSETS & LIABILITIES
OF INVESCO GROWTH FUND INTO AIM LARGE CAP GROWTH FUND
APRIL 30, 2003
(UNAUDITED)
<Table>
<Caption>
AIM AIM LARGE CAP
INVESCO LARGE CAP GROWTH FUND
GROWTH GROWTH PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
----------------------------------------------------------------
ASSETS:
Investments, at market value* $467,191,548 $267,112,001 $ -- $734,303,549
(cost $447,678,426 - INVESCO Growth Fund)
(cost $249,098,949 - AIM Large Cap Growth Fund)
(cost $696,777,375 - Pro Forma combining)
- --------------------------------------------------------------------------------------------------------------------
Foreign currencies, at value -- 78 -- 78
(cost $0 - INVESCO Growth Fund)
(cost $74 - AIM Large Cap Growth Fund)
(cost $74 - Pro Forma combining)
- --------------------------------------------------------------------------------------------------------------------
Receivables for:
Investments sold 5,615,705 9,270,283 -- 14,885,988
- --------------------------------------------------------------------------------------------------------------------
Fund shares sold 642,552 885,394 -- 1,527,946
- --------------------------------------------------------------------------------------------------------------------
Dividends and interest 125,519 114,490 -- 240,009
- --------------------------------------------------------------------------------------------------------------------
Due from advisor -- -- 562,750 562,750
- --------------------------------------------------------------------------------------------------------------------
Investment for deferred compensation plan 49,831 20,227 -- 70,058
- --------------------------------------------------------------------------------------------------------------------
Other assets 35,347 27,047 -- 62,394
====================================================================================================================
Total assets 473,660,502 277,429,520 562,750 751,652,772
====================================================================================================================
LIABILITIES:
Payables for:
Amount due custodian 66,924 -- -- 66,924
- --------------------------------------------------------------------------------------------------------------------
Investments purchased 8,162,506 7,951,836 -- 16,114,342
- --------------------------------------------------------------------------------------------------------------------
Fund shares reacquired 557,070 551,821 -- 1,108,891
- --------------------------------------------------------------------------------------------------------------------
Deferred compensation plan 49,831 20,227 -- 70,058
- --------------------------------------------------------------------------------------------------------------------
Collateral upon return of securities loaned 9,803,189 12,397,069 -- 22,200,258
- --------------------------------------------------------------------------------------------------------------------
Accrued distribution fees 92,771 207,508 -- 300,279
- --------------------------------------------------------------------------------------------------------------------
Accrued trustees' fees 2,041 848 -- 2,889
- --------------------------------------------------------------------------------------------------------------------
Accrued transfer agent fees -- 199,222 -- 199,222
- --------------------------------------------------------------------------------------------------------------------
Accrued merger expenses -- -- 562,750 562,750
- --------------------------------------------------------------------------------------------------------------------
Accrued operating expenses 66,677 73,959 -- 140,636
====================================================================================================================
Total liabilities 18,801,009 21,402,490 562,750 40,766,249
====================================================================================================================
Net assets applicable to shares outstanding $454,859,493 $256,027,030 $ -- $710,886,523
====================================================================================================================
NET ASSETS:
Class A $ 1,200,120 $113,361,183 $ 1,775,994 $116,337,297
====================================================================================================================
Class B $ 41,054 $105,786,416 $ -- $105,827,470
====================================================================================================================
Class C $ 2,695,376 $ 36,086,004 $ -- $ 38,781,380
====================================================================================================================
Class R $ -- $ 793,427 $ -- $ 793,427
====================================================================================================================
Class K $ 1,775,994 $ -- $ (1,775,994) $ --
====================================================================================================================
Investor Class $449,146,949 $ -- $ -- $449,146,949
====================================================================================================================
SHARES OUTSTANDING, $.01 PAR VALUE
PER SHARE (INVESCO GROWTH FUND):
SHARES OUTSTANDING, $0.001 PAR VALUE
PER SHARE (AIM LARGE CAP GROWTH FUND):
Class A 746,242 15,143,765 397,288 15,541,053
====================================================================================================================
Class B 25,551 14,520,472 5,643 14,526,115
====================================================================================================================
Class C 1,714,673 4,950,139 369,278 5,319,417
====================================================================================================================
Class R -- 105,949 -- 105,949
====================================================================================================================
Class K 1,198,812 -- -- --
====================================================================================================================
Investor Class 277,123,968 -- 59,938,695 59,938,695
====================================================================================================================
Class A:
Net asset value per share $ 1.61 $ 7.49 $ -- $ 7.49
- --------------------------------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $1.61 / 94.50% -
INVESCO Growth Fund)
(Net asset value of $7.49 / 94.50% -
AIM Large Cap Growth Fund) $ 1.70 $ 7.93 $ -- $ 7.93
====================================================================================================================
Class B:
Net asset value and offering price per share $ 1.61 $ 7.29 $ -- $ 7.29
====================================================================================================================
Class C:
Net asset value and offering price per share $ 1.57 $ 7.29 $ -- $ 7.29
====================================================================================================================
Class R:
Net asset value and offering price per share $ -- $ 7.49 $ -- $ 7.49
====================================================================================================================
Class K:
Net asset value and offering price per share $ 1.48 $ -- $ -- $ --
====================================================================================================================
Investor Class:
Net asset value and offering price per share $ 1.62 $ -- $ -- $ 7.49
====================================================================================================================
</Table>
* At April 30, 2003, securities with an aggregate market value of $9,279,225 and
$11,793,927 were on loan to brokers for INVESCO Growth Fund and AIM Large Cap
Growth Fund, respectively.
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
PRO FORMA COMBINING STATEMENT OF OPERATIONS
OF INVESCO GROWTH FUND INTO AIM LARGE CAP GROWTH FUND
FOR THE YEAR ENDED APRIL 30, 2003
(UNAUDITED)
<Table>
<Caption>
AIM AIM LARGE CAP
INVESCO LARGE CAP GROWTH FUND
GROWTH GROWTH PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
----------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 4,974,932 $ 1,943,863 $ -- $ 6,918,795
(net of foreign withholding tax of $18,464 -
INVESCO Growth Fund)
(net of foreign withholding tax of $26,889 -
AIM Large Cap Growth Fund)
(net of foreign withholding tax of $45,353 -
Pro Forma Combining)
- --------------------------------------------------------------------------------------------------------------------------
Dividends from affiliated money market funds -- 184,477 -- 184,477
- --------------------------------------------------------------------------------------------------------------------------
Interest 410,546 23,727 -- 434,273
- --------------------------------------------------------------------------------------------------------------------------
Security lending income 19,785 6,059 -- 25,844
==========================================================================================================================
Total investment income 5,405,263 2,158,126 -- 7,563,389
==========================================================================================================================
EXPENSES:
Advisory fees 2,980,775 1,917,153 846,643 5,744,571
- --------------------------------------------------------------------------------------------------------------------------
Administrative services fees 239,636 66,430 (111,315) 194,751
- --------------------------------------------------------------------------------------------------------------------------
Custodian fees 91,588 55,524 -- 147,112
- --------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class A 1,078 385,326 9,194 395,598
- --------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class B 384 1,067,953 -- 1,068,337
- --------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class C 34,534 385,471 -- 420,005
- --------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class R -- 1,026 -- 1,026
- --------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class K 11,821 -- (11,821) --
- --------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Investor Class 1,259,688 -- -- 1,259,688
- --------------------------------------------------------------------------------------------------------------------------
Interest expense 598 -- -- 598
- --------------------------------------------------------------------------------------------------------------------------
Registration fees 223,006 74,875 -- 297,881
- --------------------------------------------------------------------------------------------------------------------------
Reports to shareholders 667,804 112,819 (382,182) 398,441
- --------------------------------------------------------------------------------------------------------------------------
Professional fees 58,834 30,108 (28,667) 60,275
- --------------------------------------------------------------------------------------------------------------------------
Transfer agent fees 3,844,224 1,463,671 (546,550) 4,761,345
- --------------------------------------------------------------------------------------------------------------------------
Trustees' fees 46,958 10,023 -- 56,981
- --------------------------------------------------------------------------------------------------------------------------
Other 29,361 20,317 -- 49,678
==========================================================================================================================
Total expenses 9,490,289 5,590,696 (224,698) 14,856,287
==========================================================================================================================
Less: Fees waived (75,668) (2,715) 75,668 (2,715)
- --------------------------------------------------------------------------------------------------------------------------
Expenses paid indirectly (76,597) (4,927) -- (81,524)
==========================================================================================================================
Net expenses 9,338,024 5,583,054 (149,030) 14,772,048
==========================================================================================================================
Net investment income (loss) (3,932,761) (3,424,928) 149,030 (7,208,659)
==========================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES CONTRACTS AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (170,906,178) (74,088,882) -- (244,995,060)
- --------------------------------------------------------------------------------------------------------------------------
Foreign currencies -- (109,556) -- (109,556)
- --------------------------------------------------------------------------------------------------------------------------
Futures contracts -- (2,129,999) -- (2,129,999)
- --------------------------------------------------------------------------------------------------------------------------
Option contracts written -- 34,439 -- 34,439
==========================================================================================================================
(170,906,178) (76,293,998) -- (247,200,176)
==========================================================================================================================
Change in net unrealized appreciation of:
Investment securities 6,663,583 29,984,370 -- 36,647,953
- --------------------------------------------------------------------------------------------------------------------------
Foreign currencies -- 397 -- 397
- --------------------------------------------------------------------------------------------------------------------------
Futures contracts -- 467,675 -- 467,675
==========================================================================================================================
6,663,583 29,984,767 -- 37,116,025
==========================================================================================================================
Net gain (loss) from investment
securities, foreign currencies,
futures contracts and option contracts: (164,242,595) (46,309,231) -- (210,084,151)
==========================================================================================================================
Net increase (decrease) in net
assets resulting from operations $(168,175,356) $ (49,734,159) $ 149,030 $(217,292,810)
==========================================================================================================================
</Table>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
OF INVESCO GROWTH FUND INTO AIM LARGE CAP GROWTH FUND
APRIL 30, 2003
(UNAUDITED)
NOTE 1 - BASIS OF PRO FORMA PRESENTATION
The pro forma financial statements and the accompanying pro forma schedule of
investments give effect to the proposed Agreement and Plan of Reorganization
(the "Agreement and Plan") between AIM Large Cap Growth Fund and INVESCO Growth
Fund and the consummation of the transactions contemplated therein to be
accounted for as a tax-free reorganization of investment companies. The
Agreement and Plan would be accomplished by an exchange of shares of AIM Large
Cap Growth Fund for the net assets of INVESCO Growth Fund and the distribution
of AIM Large Cap Growth Fund shares to INVESCO Growth Fund shareholders. If the
Agreement and Plan were to have taken place at April 30, 2003, INVESCO Growth
Fund Class A shareholders would have received 160,407 shares of AIM Large Cap
Growth Fund - Class A shares, INVESCO Growth Fund Class B shareholders would
have received 5,643 shares of AIM Large Cap Growth Fund - Class B shares,
INVESCO Growth Fund Class C shareholders would have received 369,278 shares of
AIM Large Cap Growth Fund - Class C shares, INVESCO Growth Fund Class K
shareholders would have received 236,881 shares of AIM Large Cap Growth Fund -
Class A shares, and INVESCO Growth Fund Investor Class shareholders would have
received 59,938,695 shares of AIM Large Cap Growth Fund - Investor Class shares.
NOTE 2 - PRO FORMA ADJUSTMENTS
(a) Under the terms of the investment advisory agreement of AIM Large Cap Growth
Fund, the advisory fees based on pro forma combined assets for the year ended
April 30, 2003 were $5,744,571. The pro forma advisory fees were adjusted to
reflect the advisory fee rates in effect for AIM Large Cap Growth Fund.
Correspondingly the advisory fee waivers have been adjusted to reflect the
termination of the INVESCO Growth Fund expense limitations.
(b) Pursuant to a master administrative services agreement for AIM Large Cap
Growth Fund, fees calculated on pro forma combined assets for the year ended
April 30, 2003 were $194,751. The administrative services fees were adjusted to
reflect the fees in effect under the administrative services agreement for AIM
Large Cap Growth Fund.
(c) Pursuant to the terms of a master distribution agreement for Class A shares
of AIM Large Cap Growth Fund, the Fund pays AIM Distributors, Inc. a fee
calculated at 0.35% of the average daily net assets of Class A shares. The Class
A distribution fees on the pro forma combined assets for the year ended April
30, 2003 were $395,598 after the reorganization of Class K shares of INVESCO
Growth Fund into Class A shares of AIM Large Cap Growth Fund. The distribution
fees were adjusted to reflect the distribution rate paid in accordance with AIM
Large Cap Growth Fund's Class A distribution agreement.
(d) Reports to shareholders were reduced by $382,182 to eliminate the effects of
duplicative fixed costs of production of reports to shareholders.
(e) Professional fees were reduced by $28,667 to eliminate the effects of
duplicative fixed costs of professional services fees.
(f) Transfer agency fees were reduced by $546,550 to reflect the fees on the pro
forma combined open accounts under the transfer agency and service agreement for
AIM Large Cap Growth Fund.
NOTE 3 - MERGER COSTS
Merger costs related to the Agreement and Plan are estimated at approximately
$562,750 and because these are non recurring costs they have not been included
in the unaudited pro forma statement of operations. These costs represent the
estimated expense of INVESCO Growth Fund carrying out its obligations under the
Agreement and Plan and consist of management's estimate of legal fees,
accounting fees, printing costs and mailing charges related to the proposed
merger. INVESCO Funds Group, Inc. has agreed to pay 100% of these costs.
APPENDIX V
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS*
OF INVESCO VALUE EQUITY FUND INTO AIM LARGE CAP BASIC VALUE FUND
APRIL 30, 2003
(UNAUDITED)
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------- ------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
INVESCO LARGE CAP BASIC VALUE FUND INVESCO LARGE CAP BASIC VALUE FUND
VALUE EQUITY BASIC VALUE PRO FORMA VALUE EQUITY BASIC VALUE PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
DOMESTIC COMMON STOCKS--
85.11%
ADVERTISING--3.33%
-- 347,500 347,500 Interpublic Group of Cos., Inc. (The)(a) $ -- $ 3,961,500 $ 3,961,500
- -----------------------------------------------------------------------------------------------------------------------------------
-- 87,300 87,300 Omnicom Group Inc. -- 5,403,870 5,403,870
===================================================================================================================================
-- 9,365,370 9,365,370
===================================================================================================================================
AEROSPACE & DEFENSE--2.02%
-- 138,600 138,600 Honeywell International Inc. -- 3,270,960 3,270,960
- ------------------------------------------------------------------------------------------------------------------------------------
11,100 -- 11,100 L-3 Communications Holdings, Inc.(a) 492,840 -- 492,840
- ------------------------------------------------------------------------------------------------------------------------------------
20,000 -- 20,000 Lockheed Martin Corp. 1,001,000 -- 1,001,000
- ------------------------------------------------------------------------------------------------------------------------------------
15,000 -- 15,000 United Technologies Corp. 927,150 -- 927,150
===================================================================================================================================
2,420,990 3,270,960 5,691,950
===================================================================================================================================
ALUMINUM--0.47%
58,000 -- 58,000 Alcoa Inc. 1,329,940 -- 1,329,940
===================================================================================================================================
APPAREL RETAIL--2.12%
-- 359,100 359,100 Gap, Inc. (The) -- 5,971,833 5,971,833
===================================================================================================================================
BANKS--8.14%
34,864 60,900 95,764 Bank of America Corp. 2,581,679 4,509,645 7,091,324
- ------------------------------------------------------------------------------------------------------------------------------------
-- 163,000 163,000 Bank of New York Co., Inc. (The) -- 4,311,350 4,311,350
- ------------------------------------------------------------------------------------------------------------------------------------
40,800 105,000 145,800 Bank One Corp. 1,470,840 3,785,250 5,256,090
- ------------------------------------------------------------------------------------------------------------------------------------
65,300 -- 65,300 Mellon Financial Corp. 1,727,185 -- 1,727,185
- ------------------------------------------------------------------------------------------------------------------------------------
45,400 -- 45,400 Wachovia Corp. 1,734,734 -- 1,734,734
- ------------------------------------------------------------------------------------------------------------------------------------
58,100 -- 58,100 Wells Fargo & Co. 2,803,906 -- 2,803,906
===================================================================================================================================
10,318,344 12,606,245 22,924,589
===================================================================================================================================
BREWERS--0.75%
42,500 -- 42,500 Anheuser-Busch Cos., Inc. 2,119,900 -- 2,119,900
===================================================================================================================================
BUILDING PRODUCTS--1.65%
-- 219,800 219,800 Masco Corp. -- 4,631,186 4,631,186
===================================================================================================================================
</Table>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------- ------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
INVESCO LARGE CAP BASIC VALUE FUND INVESCO LARGE CAP BASIC VALUE FUND
VALUE EQUITY BASIC VALUE PRO FORMA VALUE EQUITY BASIC VALUE PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
COMPUTER HARDWARE--1.04%
88,100 -- 88,100 Hewlett-Packard Co. $ 1,436,030 $ -- $ 1,436,030
- -----------------------------------------------------------------------------------------------------------------------------------
17,700 -- 17,700 International Business Machines Corp. 1,502,730 -- 1,502,730
===================================================================================================================================
2,938,760 -- 2,938,760
===================================================================================================================================
CONSTRUCTION, FARM MACHINERY &
HEAVY TRUCKS--0.97%
-- 62,200 62,200 Deere & Co. -- 2,738,666 2,738,666
===================================================================================================================================
DATA PROCESSING SERVICES--2.92%
-- 215,300 215,300 Ceridian Corp.(a) -- 3,003,435 3,003,435
- -----------------------------------------------------------------------------------------------------------------------------------
-- 133,200 133,200 First Data Corp. -- 5,225,436 5,225,436
===================================================================================================================================
-- 8,228,871 8,228,871
===================================================================================================================================
DIVERSIFIED CHEMICALS--0.72%
35,000 -- 35,000 Dow Chemical Co. (The) 1,142,400 -- 1,142,400
---------------------------------------------------------------------------------------------------------------------------------
49,300 -- 49,300 Olin Corp. 893,316 -- 893,316
===================================================================================================================================
2,035,716 -- 2,035,716
===================================================================================================================================
DIVERSIFIED COMMERCIAL SERVICES--2.59%
-- 322,000 322,000 Cendant Corp.(a) -- 4,598,160 4,598,160
- -----------------------------------------------------------------------------------------------------------------------------------
-- 69,700 69,700 H&R Block, Inc. -- 2,691,814 2,691,814
===================================================================================================================================
-- 7,289,974 7,289,974
===================================================================================================================================
DIVERSIFIED FINANCIAL SERVICES--13.59%
79,026 185,293 264,319 Citigroup Inc. 3,101,770 7,272,751 10,374,521
- -----------------------------------------------------------------------------------------------------------------------------------
-- 117,900 117,900 Freddie Mac -- 6,826,410 6,826,410
- -----------------------------------------------------------------------------------------------------------------------------------
58,800 152,000 210,800 J.P. Morgan Chase & Co. 1,725,780 4,461,200 6,186,980
- -----------------------------------------------------------------------------------------------------------------------------------
66,300 -- 66,300 Janus Capital Group Inc. 921,570 -- 921,570
- -----------------------------------------------------------------------------------------------------------------------------------
43,200 -- 43,200 Lehman Brothers Holdings Inc. 2,720,304 -- 2,720,304
- -----------------------------------------------------------------------------------------------------------------------------------
55,000 104,000 159,000 Merrill Lynch & Co., Inc. 2,257,750 4,269,200 6,526,950
- -----------------------------------------------------------------------------------------------------------------------------------
-- 105,000 105,000 Morgan Stanley -- 4,698,750 4,698,750
===================================================================================================================================
10,727,174 27,528,311 38,255,485
===================================================================================================================================
ELECTRIC UTILITIES--1.09%
19,400 -- 19,400 Dominion Resources, Inc. 1,148,092 -- 1,148,092
- -----------------------------------------------------------------------------------------------------------------------------------
17,000 -- 17,000 FPL Group, Inc. 1,034,790 -- 1,034,790
- -----------------------------------------------------------------------------------------------------------------------------------
47,000 -- 47,000 NiSource Inc. 888,300 -- 888,300
===================================================================================================================================
3,071,182 -- 3,071,182
===================================================================================================================================
</Table>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------- ------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
INVESCO LARGE CAP BASIC VALUE FUND INVESCO LARGE CAP BASIC VALUE FUND
VALUE EQUITY BASIC VALUE PRO FORMA VALUE EQUITY BASIC VALUE PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
ELECTRICAL COMPONENTS & EQUIPMENT--0.32%
27,000 -- 27,000 SPX Corp.(a) $ 912,600 $ -- $ 912,600
===================================================================================================================================
ENVIRONMENTAL SERVICES--2.35%
50,900 253,750 304,650 Waste Management, Inc. 1,105,548 5,511,450 6,616,998
===================================================================================================================================
FOOD RETAIL--2.29%
-- 289,100 289,100 Kroger Co. (The)(a) -- 4,134,130 4,134,130
- -----------------------------------------------------------------------------------------------------------------------------------
-- 139,000 139,000 Safeway Inc.(a) -- 2,310,180 2,310,180
===================================================================================================================================
-- 6,444,310 6,444,310
===================================================================================================================================
GENERAL MERCHANDISE STORES--2.39%
52,000 149,100 201,100 Target Corp. 1,738,880 4,985,904 6,724,784
===================================================================================================================================
HEALTH CARE DISTRIBUTORS & SERVICES--1.48%
-- 150,000 150,000 McKesson Corp. -- 4,161,000 4,161,000
===================================================================================================================================
HEALTH CARE FACILITIES--1.45%
-- 47,000 47,000 HCA Inc. -- 1,508,700 1,508,700
- -----------------------------------------------------------------------------------------------------------------------------------
-- 174,000 174,000 Tenet Healthcare Corp.(a) -- 2,582,160 2,582,160
===================================================================================================================================
-- 4,090,860 4,090,860
===================================================================================================================================
HOUSEHOLD PRODUCTS--0.29%
9,000 -- 9,000 Procter & Gamble Co. (The) 808,650 -- 808,650
===================================================================================================================================
INDUSTRIAL CONGLOMERATES--2.13%
70,700 133,000 203,700 General Electric Co. 2,082,115 3,916,850 5,998,965
===================================================================================================================================
INDUSTRIAL GAS--0.44%
21,100 -- 21,100 Praxair, Inc. 1,225,488 -- 1,225,488
===================================================================================================================================
INDUSTRIAL MACHINERY--2.95%
17,000 -- 17,000 Danaher Corp. 1,172,660 -- 1,172,660
- -----------------------------------------------------------------------------------------------------------------------------------
22,515 60,600 83,115 Illinois Tool Works Inc. 1,440,510 3,877,188 5,317,698
- -----------------------------------------------------------------------------------------------------------------------------------
15,600 -- 15,600 ITT Industries Inc. 909,480 -- 909,480
- -----------------------------------------------------------------------------------------------------------------------------------
50,400 -- 50,400 Timken Co. (The) 892,080 -- 892,080
===================================================================================================================================
4,414,730 3,877,188 8,291,918
===================================================================================================================================
</Table>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------- ------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
INVESCO LARGE CAP BASIC VALUE FUND INVESCO LARGE CAP BASIC VALUE FUND
VALUE EQUITY BASIC VALUE PRO FORMA VALUE EQUITY BASIC VALUE PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
INSURANCE BROKERS--1.69%
52,700 47,100 99,800 Marsh & McLennan Cos., Inc. $ 2,512,736 $ 2,245,728 $ 4,758,464
===================================================================================================================================
INTEGRATED OIL & GAS--0.95%
75,600 -- 75,600 Exxon Mobil Corp. 2,661,120 -- 2,661,120
===================================================================================================================================
INTEGRATED TELECOMMUNICATION SERVICES--1.63%
50,000 -- 50,000 BellSouth Corp. 1,274,500 -- 1,274,500
- -----------------------------------------------------------------------------------------------------------------------------------
57,602 -- 57,602 SBC Communications Inc. 1,345,583 -- 1,345,583
- -----------------------------------------------------------------------------------------------------------------------------------
52,500 -- 52,500 Verizon Communications Inc. 1,962,450 -- 1,962,450
===================================================================================================================================
4,582,533 -- 4,582,533
===================================================================================================================================
IT CONSULTING & SERVICES--0.54%
47,100 -- 47,100 Accenture Ltd.-Class A(a) 754,542 -- 754,542
- -----------------------------------------------------------------------------------------------------------------------------------
39,900 -- 39,900 Veridian Corp.(a) 757,701 -- 757,701
===================================================================================================================================
1,512,243 -- 1,512,243
===================================================================================================================================
LIFE & HEALTH INSURANCE--1.08%
-- 95,000 95,000 Prudential Financial, Inc. -- 3,037,150 3,037,150
===================================================================================================================================
MANAGED HEALTH CARE--1.21%
-- 36,900 36,900 UnitedHealth Group Inc. -- 3,399,597 3,399,597
===================================================================================================================================
MOVIES & ENTERTAINMENT--2.10%
-- 316,800 316,800 Walt Disney Co. (The) -- 5,911,488 5,911,488
===================================================================================================================================
MULTI-LINE INSURANCE--0.20%
9,700 -- 9,700 American International Group, Inc. 562,115 -- 562,115
===================================================================================================================================
OIL & GAS DRILLING--1.25%
-- 139,000 139,000 ENSCO International Inc. -- 3,530,600 3,530,600
===================================================================================================================================
OIL & GAS EXPLORATION & PRODUCTION--0.46
30,400 -- 30,400 Kerr-McGee Corp. 1,280,144 -- 1,280,144
==================================================================================================================================
</Table>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------- ------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
INVESCO LARGE CAP BASIC VALUE FUND INVESCO LARGE CAP BASIC VALUE FUND
VALUE EQUITY BASIC VALUE PRO FORMA VALUE EQUITY BASIC VALUE PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
PAPER PRODUCTS--0.68%
29,000 -- 29,000 Bowater Inc. $ 1,128,970 $ -- $ 1,128,970
- -----------------------------------------------------------------------------------------------------------------------------------
21,600 -- 21,600 International Paper Co. 772,200 -- 772,200
===================================================================================================================================
1,901,170 -- 1,901,170
===================================================================================================================================
PACKAGED FOODS & MEATS--1.08%
34,100 -- 34,100 H.J. Heinz Co. 1,018,908 -- 1,018,908
- -----------------------------------------------------------------------------------------------------------------------------------
14,500 -- 14,500 Hershey Foods Corp. 946,125 -- 946,125
- -----------------------------------------------------------------------------------------------------------------------------------
32,900 -- 32,900 Kellogg Co. 1,077,146 -- 1,077,146
===================================================================================================================================
3,042,179 -- 3,042,179
===================================================================================================================================
PHARMACEUTICALS--5.54%
41,600 -- 41,600 Bristol-Myers Squibb Co. 1,062,464 -- 1,062,464
- -----------------------------------------------------------------------------------------------------------------------------------
16,000 -- 16,000 Eli Lilly & Co. 1,021,120 -- 1,021,120
- -----------------------------------------------------------------------------------------------------------------------------------
39,200 -- 39,200 Merck & Co. Inc. 2,280,656 -- 2,280,656
- -----------------------------------------------------------------------------------------------------------------------------------
88,480 110,399 198,879 Pfizer Inc. 2,720,760 3,394,769 6,115,529
- -----------------------------------------------------------------------------------------------------------------------------------
-- 117,200 117,200 Wyeth -- 5,101,716 5,101,716
===================================================================================================================================
7,085,000 8,496,485 15,581,485
===================================================================================================================================
PHOTOGRAPHIC PRODUCTS--0.98%
-- 92,100 92,100 Eastman Kodak Co. -- 2,754,711 2,754,711
===================================================================================================================================
PROPERTY & CASUALTY INSURANCE--0.23%
18,800 -- 18,800 St. Paul Cos., Inc. (The) 645,592 -- 645,592
===================================================================================================================================
PUBLISHING & PRINTING--1.29%
17,500 -- 17,500 Gannett Co., Inc. 1,325,100 -- 1,325,100
- -----------------------------------------------------------------------------------------------------------------------------------
6,900 -- 6,900 Knight-Ridder, Inc. 445,395 -- 445,395
- -----------------------------------------------------------------------------------------------------------------------------------
32,000 -- 32,000 McGraw-Hill Cos., Inc. (The) 1,868,480 -- 1,868,480
===================================================================================================================================
3,638,975 -- 3,638,975
===================================================================================================================================
RAILROADS--0.42%
19,900 -- 19,900 Union Pacific Corp. 1,184,448 -- 1,184,448
===================================================================================================================================
REAL ESTATE INVESTMENT TRUSTS--0.16%
15,400 -- 15,400 iStar Financial Inc. 460,922 -- 460,922
===================================================================================================================================
RESTAURANTS--0.35%
57,200 -- 57,200 McDonald's Corp. 978,120 -- 978,120
===================================================================================================================================
</Table>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------- ------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
INVESCO LARGE CAP BASIC VALUE FUND INVESCO LARGE CAP BASIC VALUE FUND
VALUE EQUITY BASIC VALUE PRO FORMA VALUE EQUITY BASIC VALUE PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
SEMICONDUCTOR EQUIPMENT--2.16%
41,500 375,000 416,500 Applied Materials, Inc.(a) $ 605,900 $ 5,475,000 $ 6,080,900
===================================================================================================================================
SEMICONDUCTORS--1.13%
8,000 -- 8,000 Analog Devices, Inc.(a) 264,960 -- 264,960
- -----------------------------------------------------------------------------------------------------------------------------------
75,300 -- 75,300 Intel Corp. 1,385,520 -- 1,385,520
- -----------------------------------------------------------------------------------------------------------------------------------
82,500 -- 82,500 Texas Instruments Inc. 1,525,425 -- 1,525,425
===================================================================================================================================
3,175,905 -- 3,175,905
===================================================================================================================================
SYSTEMS SOFTWARE--1.78%
-- 308,500 308,500 Computer Associates International, Inc. -- 5,010,040 5,010,040
===================================================================================================================================
TELECOMMUNICATIONS EQUIPMENT--0.71%
-- 252,500 252,500 Motorola, Inc. -- 1,997,275 1,997,275
===================================================================================================================================
Total Domestic Common Stocks
(Cost $247,174,314) 83,079,119 156,477,052 239,556,171
===================================================================================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS--11.22%
BERMUDA--3.80%
43,600 -- 43,600 Bunge Limited (Agricultural Products) 1,221,236 -- 1,221,236
- -----------------------------------------------------------------------------------------------------------------------------------
191,400 -- 191,400 Tsakos Energy Navigation Ltd. (Marine) 2,335,080 -- 2,335,080
- -----------------------------------------------------------------------------------------------------------------------------------
Tyco International Ltd. (Industrial
-- 458,400 458,400 Conglomerates) -- 7,151,040 7,151,040
===================================================================================================================================
3,556,316 7,151,040 10,707,356
===================================================================================================================================
CANADA--0.23%
Potash Corp. of Saskatchewan Inc.
10,700 -- 10,700 (Specialty Chemicals) 658,585 -- 658,585
===================================================================================================================================
CAYMAN ISLANDS--3.23%
-- 148,300 148,300 ACE Ltd. (Property & Casualty Insurance) -- 4,905,764 4,905,764
- -----------------------------------------------------------------------------------------------------------------------------------
11,600 -- 11,600 Noble Corp. (Oil & Gas Drilling)(a) 359,020 -- 359,020
- -----------------------------------------------------------------------------------------------------------------------------------
-- 200,277 200,277 Transocean Inc. (Oil & Gas Drilling) -- 3,815,277 3,815,277
===================================================================================================================================
359,020 8,721,041 9,080,061
===================================================================================================================================
</Table>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------- ------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
INVESCO LARGE CAP BASIC VALUE FUND INVESCO LARGE CAP BASIC VALUE FUND
VALUE EQUITY BASIC VALUE PRO FORMA VALUE EQUITY BASIC VALUE PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
FINLAND--0.57%
Nokia Oyj-ADR
97,400 -- 97,400 (Telecommunications Equipment) $ 1,613,918 $ -- $ 1,613,918
===================================================================================================================================
NETHERLANDS--2.71%
Koninklijke (Royal) Philips
Electronics N.V.-New York Shares
-- 129,270 129,270 (Consumer Electronics) -- 2,414,763 2,414,763
- -----------------------------------------------------------------------------------------------------------------------------------
Schlumberger Ltd. (Oil & Gas
-- 124,200 124,200 Equipment & Services) -- 5,207,706 5,207,706
===================================================================================================================================
-- 7,622,469 7,622,469
===================================================================================================================================
UNITED KINGDOM--0.68%
49,300 -- 49,300 BP PLC-ADR (Integrated Oil & Gas) 1,900,022 -- 1,900,022
===================================================================================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $41,364,950) 8,087,861 23,494,550 31,582,411
===================================================================================================================================
PAR
- -------------------------------------------
REPURCHASE AGREEMENTS--1.24%
State Street Bank & Trust Co.
$3,481,000 $ -- $ 3,481,000 1.26%, 05/01/03 (Cost $3,481,000)(b) 3,481,000 -- 3,481,000
===================================================================================================================================
SHARES
- -------------------------------------------
MONEY MARKET FUNDS--2.51%
-- 3,536,898 3,536,898 STIC Liquid Assets Portfolio(c) -- 3,536,898 3,536,898
- -----------------------------------------------------------------------------------------------------------------------------------
-- 3,536,898 3,536,898 STIC Prime Portfolio(c) -- 3,536,898 3,536,898
===================================================================================================================================
Total Money Market Funds
(Cost $7,073,796) -- 7,073,796 7,073,796
===================================================================================================================================
TOTAL INVESTMENTS--100.08%
(excluding investments purchased
with cash collateral from securities
loaned) (Cost $299,094,060) 94,647,980 187,045,398 281,693,378
===================================================================================================================================
</Table>
<Table>
<Caption>
SHARES MARKET VALUE
- ------------------------------------------- ------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
INVESCO LARGE CAP BASIC VALUE FUND INVESCO LARGE CAP BASIC VALUE FUND
VALUE EQUITY BASIC VALUE PRO FORMA VALUE EQUITY BASIC VALUE PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
INVESTMENTS PURCHASED WITH
CASH COLLATERAL FROM SECURITIES
LOANED
MONEY MARKET FUNDS--0.05%
-- 150,000 150,000 STIC Liquid Assets Portfolio(c)(d) $ -- $ 150,000 $ 150,000
===================================================================================================================================
Total Money Market Funds
(purchased with cash collateral from
securities loaned) (Cost $150,000) -- 150,000 150,000
===================================================================================================================================
TOTAL INVESTMENTS--100.13%
(Cost $299,244,060) 94,647,980 187,195,398 281,843,378
===================================================================================================================================
OTHER ASSETS LESS
LIABILITIES--(0.13%) (2,401) (363,544) (365,945)
===================================================================================================================================
NET ASSETS--100.00% $ 94,645,579 186,831,854 $ 281,477,433
===================================================================================================================================
</Table>
Investment Abbreviations:
ADR American Depositary Receipt
Notes to Pro Forma Combining Schedule of Investments:
(a) Non-income producing security.
(b) Repurchase agreement entered into 04/30/03 with a maturing
value of $3,481,122 and collateralized by U.S. Government
obligations.
(c) STIC Liquid Assets Portfolio, STIC Prime Portfolio and AIM
Large Cap Basic Value Fund are affiliated by having the same
investment advisor.
(d) The security has been segregated to satisfy the forward
commitment to return the cash collateral received in
securities lending transactions upon the borrower's return of
the securities loaned.
* As of 4/30/03, all of the securities held by the INVESCO Value
Equity Fund would comply with the compliance guidelines and/or
investment restrictions of the AIM Large Cap Basic Value Fund.
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES
OF INVESCO VALUE EQUITY FUND INTO AIM LARGE CAP BASIC VALUE FUND
APRIL 30, 2003
(UNAUDITED)
<Table>
<Caption>
AIM AIM LARGE CAP
INVESCO LARGE CAP BASIC VALUE FUND
VALUE EQUITY BASIC VALUE PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
----------------------------------------------------------------------
ASSETS:
Investments, at market value* $ 94,647,980 $ 187,195,398 $ -- $ 281,843,378
(cost $90,340,508 - INVESCO Value Equity Fund)
(cost $208,903,552 - AIM Large Cap Basic Value Fund)
(cost $299,244,060 - Pro Forma Combining)
- -------------------------------------------------------------------------------------------------------------------------------
Cash 895 -- -- 895
- -------------------------------------------------------------------------------------------------------------------------------
Receivables for:
Investments sold 228,739 -- -- 228,739
- -------------------------------------------------------------------------------------------------------------------------------
Fund shares sold 14,442 447,490 -- 461,932
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and interest 115,580 108,286 -- 223,866
- -------------------------------------------------------------------------------------------------------------------------------
Due from advisor -- -- 82,250 82,250
- -------------------------------------------------------------------------------------------------------------------------------
Investment for deferred compensation plan 4,735 16,310 -- 21,045
- -------------------------------------------------------------------------------------------------------------------------------
Other assets 31,297 35,201 -- 66,498
===============================================================================================================================
Total assets 95,043,668 187,802,685 82,250 282,928,603
===============================================================================================================================
LIABILITIES:
Payables for:
Fund shares reacquired 342,262 499,944 -- 842,206
- -------------------------------------------------------------------------------------------------------------------------------
Dividends 3,739 -- -- 3,739
- -------------------------------------------------------------------------------------------------------------------------------
Deferred compensation plan 4,735 16,310 -- 21,045
- -------------------------------------------------------------------------------------------------------------------------------
Collateral upon return of securities loaned -- 150,000 -- 150,000
- -------------------------------------------------------------------------------------------------------------------------------
Accrued distribution fees 20,007 176,166 -- 196,173
- -------------------------------------------------------------------------------------------------------------------------------
Accrued directors' / trustees' fees 950 967 -- 1,917
- -------------------------------------------------------------------------------------------------------------------------------
Accrued merger costs -- -- 82,250 82,250
- -------------------------------------------------------------------------------------------------------------------------------
Accrued transfer agent fees -- 85,767 85,767
- -------------------------------------------------------------------------------------------------------------------------------
Accrued operating expenses 26,396 41,677 -- 68,073
===============================================================================================================================
Total liabilities 398,089 970,831 82,250 1,451,170
===============================================================================================================================
Net assets applicable to shares outstanding $ 94,645,579 $ 186,831,854 $ -- $ 281,477,433
===============================================================================================================================
NET ASSETS:
Class A $ 265,672 $ 99,590,036 $ -- $ 99,855,708
===============================================================================================================================
Class B $ 298,794 $ 64,419,202 $ -- $ 64,717,996
===============================================================================================================================
Class C $ 1,308,241 $ 22,720,301 $ -- $ 24,028,542
===============================================================================================================================
Class R $ -- $ 102,315 $ -- $ 102,315
===============================================================================================================================
Investor Class $ 92,772,872 $ -- $ -- $ 92,772,872
===============================================================================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE
PER SHARE (INVESCO VALUE EQUITY FUND):
SHARES OUTSTANDING, $0.001 PAR VALUE
PER SHARE (AIM LARGE CAP BASIC VALUE FUND):
Class A 16,677 10,395,007 27,731 10,422,738
===============================================================================================================================
Class B 18,569 6,845,240 31,751 6,876,991
===============================================================================================================================
Class C 82,702 2,414,684 139,038 2,553,722
===============================================================================================================================
Class R -- 10,695 -- 10,695
===============================================================================================================================
Investor Class 5,748,876 -- 9,685,476 9,685,476
===============================================================================================================================
Class A:
Net asset value per share $ 15.93 $ 9.58 $ -- $ 9.58
- -------------------------------------------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $15.93 / 94.50% -
INVESCO Value Equity Fund)
(Net asset value of $9.58 / 94.50% -
AIM Large Cap Basic Value Fund)
$ 16.86 $ 10.14 $ -- $ 10.14
===============================================================================================================================
Class B:
Net asset value and offering price per share $ 16.09 $ 9.41 $ -- $ 9.41
===============================================================================================================================
Class C:
Net asset value and offering price per share $ 15.82 $ 9.41 $ -- $ 9.41
===============================================================================================================================
Class R:
Net asset value and offering price per share $ -- $ 9.57 $ -- $ 9.57
===============================================================================================================================
Investor Class:
Net asset value and offering price per share $ 16.14 $ -- $ -- $ 9.58
===============================================================================================================================
</Table>
* At April 30, 2003, securities with an aggregate market value of $139,500 were
on loan to brokers
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
PRO FORMA COMBINING STATEMENT OF OPERATIONS
OF INVESCO VALUE EQUITY FUND INTO AIM LARGE CAP BASIC VALUE FUND
FOR THE YEAR ENDED APRIL 30, 2003
(UNAUDITED)
<Table>
<Caption>
AIM AIM LARGE CAP
INVESCO LARGE CAP BASIC VALUE FUND
VALUE EQUITY BASIC VALUE PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 2,413,165 $ 2,813,126 $ -- $ 5,226,291
(net of foreign withholding tax of $20,695
- INVESCO Value Equity Fund)
(net of foreign withholding tax of $3,623
- AIM Large Cap Basic Value Fund)
(net of foreign withholding tax of $24,318
- Pro Forma Combining)
- ---------------------------------------------------------------------------------------------------------------------------
Dividends from affiliated money market funds 892 127,776 -- 128,668
- ---------------------------------------------------------------------------------------------------------------------------
Interest 81,239 48 -- 81,287
- ---------------------------------------------------------------------------------------------------------------------------
Security lending income -- 1,456 -- 1,456
===========================================================================================================================
Interest 2,495,296 2,942,406 -- 5,437,702
===========================================================================================================================
EXPENSES:
Advisory fees 840,160 1,128,865 (170,634) 1,798,391
- ---------------------------------------------------------------------------------------------------------------------------
Administrative services fees 60,409 50,000 (9,054) 101,355
- ---------------------------------------------------------------------------------------------------------------------------
Custodian fees 22,841 39,636 -- 62,477
- ---------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class A 808 343,778 -- 344,586
- ---------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class B 2,504 659,758 -- 662,262
- ---------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class C 12,860 234,798 -- 247,658
- ---------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class R -- 164 -- 164
- ---------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Investor Class 275,635 -- -- 275,635
- ---------------------------------------------------------------------------------------------------------------------------
Interest Expenses 2,569 -- -- 2,569
- ---------------------------------------------------------------------------------------------------------------------------
Reports to shareholders 124,382 72,599 (65,490) 131,491
- ---------------------------------------------------------------------------------------------------------------------------
Professional fees 31,571 27,896 (20,667) 38,800
- ---------------------------------------------------------------------------------------------------------------------------
Registration and filing fees 30,080 71,949 -- 102,029
- ---------------------------------------------------------------------------------------------------------------------------
Directors' / trustees' fees 17,133 9,771 (12,247) 14,657
- ---------------------------------------------------------------------------------------------------------------------------
Transfer agent fees 677,332 628,804 (230,256) 1,075,880
- ---------------------------------------------------------------------------------------------------------------------------
Other 8,894 14,635 -- 23,529
===========================================================================================================================
Total expenses 2,107,178 3,282,653 (508,348) 4,881,483
===========================================================================================================================
Less: Fee waived (640,267) (1,597) 640,267 (1,597)
- ---------------------------------------------------------------------------------------------------------------------------
Expenses paid indirectly (196) (3,350) -- (3,546)
===========================================================================================================================
Net expenses 1,466,715 3,277,706 131,919 4,876,340
===========================================================================================================================
Net investment income (loss) 1,028,581 (335,300) (131,919) 561,362
===========================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES:
Net realized gain (loss) from investment securities (9,476,564) (22,385,418) -- (31,861,982)
- ---------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation)
of investment securities (13,806,932) (26,633,109) -- (40,440,041)
===========================================================================================================================
Net gain (loss) from investment securities (23,283,496) (49,018,527) -- (72,302,023)
===========================================================================================================================
Net increase (decrease) in net assets resulting
from operations $(22,254,915) $(49,353,827) $ (131,919) $(71,740,661)
===========================================================================================================================
</Table>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
OF INVESCO VALUE EQUITY FUND INTO AIM LARGE CAP BASIC VALUE FUND
APRIL 30, 2003
(UNAUDITED)
NOTE 1 - BASIS OF PRO FORMA PRESENTATION
The pro forma financial statements and the accompanying pro forma schedule of
investments give effect to the proposed Agreement and Plan of Reorganization
(the "Agreement and Plan") between AIM Large Cap Basic Value Fund and INVESCO
Value Equity Fund and the consummation of the transactions contemplated therein
to be accounted for as a tax-free reorganization of investment companies. The
Agreement and Plan would be accomplished by an exchange of shares of AIM Large
Cap Basic Value Fund for the net assets of INVESCO Value Equity Fund and the
distribution of AIM Large Cap Basic Value Fund shares to INVESCO Value Equity
Fund shareholders. If the Agreement and Plan were to have taken place at April
30, 2003, INVESCO Value Equity Fund - Class A shareholders would have received
27,731 shares of AIM Large Cap Basic Value Fund - Class A shares, INVESCO Value
Equity Fund - Class B shareholders would have received 31,751 shares of AIM
Large Cap Basic Value Fund - Class B shares, INVESCO Value Equity Fund - Class C
shareholders would have received 139,038 shares of AIM Large Cap Basic Value
Fund - Class C shares and INVESCO Value Equity Fund - Investor Class
shareholders would have received 9,685,476 shares of AIM Large Cap Basic Value
Fund - Investor Class shares.
NOTE 2 - PRO FORMA ADJUSTMENTS
(a) Under the terms of the investment advisory agreement of AIM Large Cap Basic
Value Fund, the advisory fees based on pro forma combined assets for the year
ended April 30, 2003 were $1,798,391. The advisory fees were adjusted to reflect
the advisory fee rates in effect for AIM Large Cap Basic Value Fund.
Correspondingly, the advisory fee waivers have been adjusted to reflect the
termination of the INVESCO Value Equity Fund expense limitations.
(b) Pursuant to the master administrative services agreement for AIM Large Cap
Basic Value Fund, fees paid on pro forma combined assets for the year ended
April 30, 2003 were $101,355. The administrative services fees were adjusted to
reflect the fees in effect under the administrative services agreement for the
AIM Large Cap Basic Value Fund.
(c) Reports to shareholders were reduced by $65,490 to eliminate the effects of
duplicative fixed costs of production of reports to shareholders.
(d) Professional fees were reduced by $20,667 to eliminate the effects of
duplicative fixed costs of professional services fees.
(e) Directors' / trustees' fees have been reduced to reflect the governance of
the pro forma combined entity.
(f) Transfer agency fees were reduced by $230,256 to reflect the fees on the pro
forma combined number of open accounts under the transfer agency and service
agreement for AIM Large Cap Basic Value Fund.
NOTE 3 - MERGER COSTS
Merger costs related to the Agreement and Plan are estimated at approximately
$82,250 and because these are non recurring costs they have not been included in
the unaudited pro forma statement of operations. These costs represent the
estimated expense of INVESCO Value Equity Fund carrying out its obligation under
the Agreement and Plan and consist of management's estimate of legal fees,
accounting fees, printing costs and mailing charges related to the proposed
merger. INVESCO Funds Group, Inc. has agreed to pay 100% of these costs.
PART C. OTHER INFORMATION
Item 15 Indemnification
The Registrant's Amended and Restated Agreement and Declaration
of Trust, dated May 15, 2002, as amended, provides, among other
things (i) that trustees and officers of the Registrant, when
acting as such, shall not be personally liable for any act,
omission or obligation of the Registrant or any trustee or
officer (except for liabilities to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard to duty); (ii) for the
indemnification by the Registrant of the trustees, officers,
employees and agents of the Registrant to the fullest extent
permitted by the Delaware Statutory Trust Act and Bylaws and
other applicable law; (iii) that shareholders of the Registrant
shall not be personally liable for the debts, liabilities,
obligations or expenses of the Registrant or any portfolio or
class; and (iv) for the indemnification by the Registrant, out
of the assets belonging to the applicable portfolio, of
shareholders and former shareholders of the Registrant in case
they are held personally liable solely by reason of being or
having been shareholders of the Registrant or any portfolio or
class and not because of their acts or omissions or for some
other reason.
A I M Advisors, Inc. ("AIM"), the Registrant and other
investment companies managed by AIM, their respective officers,
trustees, directors and employees (the "Insured Parties") are
insured under a joint Mutual Fund & Investment Advisory
Professional and Directors & Officers Liability Policy, issued
by ICI Mutual Insurance Company, with a $35,000,000 limit of
liability.
Section 16 of the Master Investment Advisory Agreement between
the Registrant and AIM provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard
of obligations or duties hereunder on the part of AIM or any of
its officers, directors or employees, that AIM shall not be
subject to liability to the Registrant or to any series of the
Registrant, or to any shareholder of any series of the
Registrant for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any
security. Any liability of AIM to any series of the Registrant
shall not automatically impart liability on the part of AIM to
any other series of the Registrant. No series of the Registrant
shall be liable for the obligations of any other series of the
Registrant.
Section 10 of the Sub-Advisory Agreement between AIM and A I M
Capital Management, Inc. and Section 11 of the Sub-Advisory
Agreement between AIM and H.S. Dent Advisors, Inc.,
(collectively, the "Sub-Advisory Agreements") provide that the
Sub-advisors shall not be liable for any costs or liabilities
arising from any error of judgment or mistake of law or any
loss suffered by any series of the Registrant or the Registrant
in connection with the matters to which the Sub-Advisory
Agreements relate except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the
Sub-advisors in the performance by the Sub-advisors of their
duties or from reckless disregard by the Sub-advisors of their
obligations and duties under the Sub-Advisory Agreements.
C-1
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to
trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Item 16. Exhibits.
1 (a) - (1) Amended and Restated Agreement and Declaration of
Trust of Registrant, dated May 15, 2002 was filed
electronically as an Exhibit to Post-Effective Amendment
No. 2, filed on May 22, 2002, and is hereby incorporated
by reference.
- (2) Amendment No. 1 dated June 11, 2002, to the Amended
and Restated Agreement and Declaration of Trust of
Registrant, dated May 15, 2002 was filed electronically
as an Exhibit to Post-Effective Amendment No. 73, filed
on June 13, 2002, and is hereby incorporated by
reference.
- (3) Amendment No. 2 dated February 6, 2003, to the
Amended and Restated Declaration of Trust of Registrant,
dated May 15, 2002, as amended June 11, 2002 was filed
electronically as an Exhibit to Post-Effective Amendment
No. 75, filed on February 24, 2003, and is hereby
incorporated by reference.
- (4) Amendment No. 3, dated May 14, 2003, to the Amended
and Restated Agreement and Declaration of Trust, dated
May 15, 2002 was filed electronically as an Exhibit to
Post-Effective Amendment No. 77, filed on July 7, 2003,
and is hereby incorporated by reference.
2 - Amended and Restated By-Laws of Registrant, adopted
effective May 15, 2002 was filed electronically as an
Exhibit to Post-Effective Amendment No. 72, filed on
May 22, 2002, and is hereby incorporated by reference.
3 - Voting Trust Agreements - None.
4 (a) - Form of Agreement and Plan of Reorganization by and
between the Registrant on behalf of AIM Large Cap Growth
Fund, INVESCO Stock Funds, Inc. on behalf of INVESCO
Growth Fund, A I M Advisors, Inc. and INVESCO Funds
Group, Inc. is attached as Appendix I to the Combined
Proxy Statement and Prospectus contained in this
Registration Statement.
(b) - Form of Agreement and Plan of Reorganization by and
between the Registrant on behalf of AIM Blue Chip Fund,
INVESCO Stock Funds, Inc. on behalf of INVESCO Growth &
Income Fund, A I M Advisors, Inc. and INVESCO Funds
Group, Inc. is attached as Appendix I to the Combined
Proxy Statement and Prospectus contained in this
Registration Statement.
(c) - Form of Agreement and Plan of Reorganization by and
between the Registrant on behalf of AIM Large Cap Basic
Value Fund, INVESCO Stock Funds, Inc. on behalf of
C-2
INVESCO Value Equity Fund, A I M Advisors, Inc. and
INVESCO Funds Group, Inc. is attached Appendix I to the
Combined Proxy Statement and Prospectus contained in
this Registration Statement.
5 - Articles II, VI, VII, VIII and IX of the Amended and
Restated Agreement and Declaration of Trust and Articles
IV, V and VI of the Amended and Restated Bylaws, attached
as Exhibit 1 and 2, respectively, to this Registration
Statement, define the rights of holders of shares.
6 (a) - (1) Master Investment Advisory Agreement, dated June 21,
2000, between Registrant and A I M Advisors, Inc was
filed electronically as an Exhibit to Post-Effective
Amendment No. 67, filed on February 23, 2001, and is
hereby incorporated by reference.
- (2) Amendment No. 1, dated December 28, 2001, to Master
Investment Advisory Agreement, dated June 21, 2000,
between Registrant and A I M Advisors, Inc was filed
electronically as an Exhibit to Post-Effective Amendment
No. 71, filed on April 26, 2002, and is hereby
incorporated by reference.
- (3) Amendment No. 2, dated August 29, 2002, to Master
Investment Advisory Agreement, dated June 21, 2000,
between Registrant and A I M Advisors, Inc was filed
electronically as an Exhibit to Post-Effective Amendment
No. 75, filed on February 24, 2003, and is hereby
incorporated by reference.
- (4) Amendment No. 3, dated May 2, 2003 to Master
Investment Advisory Agreement, dated June 21, 2000,
between Registrant and A I M Advisors, Inc was filed
electronically as an Exhibit to Post-Effective Amendment
No. 77, filed on July 7, 2003, and is hereby incorporated
by reference.
(b) - Master Sub-Advisory Agreement, dated June 21, 2000,
between A I M Advisors, Inc. and A I M Capital
Management, Inc was filed electronically as an Exhibit to
Post-Effective Amendment No. 67, filed on February 23,
2001, and is hereby incorporated by reference.
(c) - Sub-Advisory Agreement, dated June 21, 2000, between
A I M Advisors, Inc. and H.S. Dent Advisors, Inc was
filed electronically as an Exhibit to Post-Effective
Amendment No. 67, filed on February 23, 2001, and is
hereby incorporated by reference.
7 (a) - (1) First Amended and Restated Master Distribution
Agreement, dated July 1, 2000 between Registrant (on
behalf of its Class A and Class C shares) and A I M
Distributors, Inc was filed electronically as an Exhibit
to Post-Effective Amendment No. 67, filed on February 23,
2001, and is hereby incorporated by reference.
- (2) Amendment No. 1, dated November 28, 2000, to the
First Amended and Restated Master Distribution Agreement
dated July 1, 2000, between Registrant (on behalf of its
Class A and Class C shares) and A I M Distributors, Inc
was filed electronically as an Exhibit to Post-Effective
Amendment No. 67, filed on February 23, 2001, and is
hereby incorporated by reference.
- (3) Amendment No. 2, dated December 28, 2001, to the
First Amended and Restated Master Distribution Agreement,
dated July 1, 2000, between Registrant (on behalf of its
Class A and Class C shares) and A I M Distributors, Inc
was filed electronically as an Exhibit to Post-Effective
Amendment No. 71, filed on April 26, 2002, and is hereby
incorporated by reference.
C-3
- (4) Amendment No. 3, dated March 15, 2002, to the First
Amended and Restated Master Distribution Agreement, dated
July 1, 2000, between Registrant (on behalf of its Class
A, Class C and Institutional Class shares) and A I M
Distributors, Inc was filed electronically as an Exhibit
to Post-Effective Amendment No. 72, filed on May 22,
2002, and is hereby incorporated by reference.
- (5) Amendment No. 4, dated June 3, 2002, to the First
Amended and Restated Master Distribution Agreement, dated
July 1, 2000, between Registrant (on behalf of its Class
A, Class C and Institutional Class shares) and A I M
Distributors, Inc was filed electronically as an Exhibit
to Post-Effective Amendment No. 73, filed on June 13,
2002, and is hereby incorporated by reference.
- (6) Amendment No. 5, dated August 29, 2002, to the First
Amended and Restated Master Distribution Agreement, dated
July 1, 2000, between Registrant (on behalf of its Class
A, Class C, Class R and Institutional Class shares) and
A I M Distributors, Inc was filed electronically as an
Exhibit to Post-Effective Amendment No. 75, filed on
February 24, 2003, and is hereby incorporated by
reference.
- (7) Amendment No. 6, dated May 2, 2003, to the First
Amended and Restated Master Distribution Agreement, dated
July 1, 2000, between Registrant (on behalf of its Class
A, Class C, Class R and Institutional Class shares) and
A I M Distributors, Inc was filed electronically as an
Exhibit to Post-Effective Amendment No. 77, filed on July
7, 2003, and is hereby incorporated by reference.
- (8) Form of Amendment No. 7. dated ______________, 2003,
to the First Amended and Restated Master Distribution
Agreement, dated July 1, 2000, between Registrant (on
behalf of its Class A, Class C, Class R and Institutional
Class Shares) and A I M Distributors, Inc was filed
electronically as an Exhibit to Post-Effective Amendment
No. 77, filed on July 7, 2003, and is hereby incorporated
by reference.
(b) - (1) First Amended and Restated Master Distribution
Agreement, dated December 31, 2000, between Registrant
(on behalf of its Class B shares) and A I M Distributors,
Inc was filed electronically as an Exhibit to
Post-Effective Amendment No. 67, filed on February 23,
2001, and is hereby incorporated by reference.
- (2) Amendment No. 1, dated December 28, 2001, to the
First Amended and Restated Master Distribution Agreement,
dated December 31, 2000, between Registrant (on behalf of
its Class B shares) and A I M Distributors, Inc was filed
electronically as an Exhibit to Post-Effective Amendment
No. 71, filed on April 26, 2002, and is hereby
incorporated by reference.
- (3) Amendment No. 2, dated August 29, 2002, to the
First Amended and Restated Master Distribution Agreement,
dated December 31, 2000, between Registrant (on behalf of
its Class B shares) and A I M Distributors, Inc was filed
electronically as an Exhibit to Post-Effective Amendment
No. 75, filed on February 24, 2003, and is hereby
incorporated by reference.
- (4) Amendment No. 3, dated May 2, 2003, to the First
Amended and Restated Master Distribution Agreement, dated
December 31, 2000, between Registrant (on behalf of its
Class B shares) and A I M Distributors, Inc was filed
electronically as an Exhibit to Post-Effective Amendment
No. 77, filed on July 7, 2003, and is hereby incorporated
by reference.
C-4
(c) - Form of Selected Dealer Agreement between A I M
Distributors, Inc. and selected dealers was filed
electronically as an Exhibit to Post-Effective Amendment
No. 68, filed on October 12, 2001, and is hereby
incorporated by reference.
(d) - Form of Bank Selling Group Agreement between A I M
Distributors, Inc. and banks was filed electronically as
an Exhibit to Post-Effective Amendment No. 55, filed on
December 11, 1998, and is hereby incorporated by
reference.
8 (a) - AIM Funds Retirement Plan for Eligible
Directors/Trustees, as restated October 1, 2001 was filed
electronically as an Exhibit to Post-Effective Amendment
No. 70, filed on December 28, 2001, and is hereby
incorporated by reference.
(b) - Form of AIM Funds Director Deferred Compensation
Agreement as amended March 7, 2000, September 28, 2001,
and September 26, 2002 was filed electronically as an
Exhibit to Post-Effective Amendment No. 75, filed on
February 24, 2003, and is hereby incorporated by
reference.
9 (a) - (1) Master Custodian Contract, dated May 1, 2000,
between Registrant and State Street Bank and Trust
Company was filed electronically as an Exhibit to
Post-Effective Amendment No. 67, filed on February 23,
2001, and is hereby incorporated by reference.
- (2) Amendment, dated May 1, 2000 to the Custodian
Contract, dated May 1, 2000, between Registrant and State
Street Bank and Trust Company was filed electronically as
an Exhibit to Post-Effective Amendment No. 67, filed on
February 23, 2001, and is hereby incorporated by
reference.
- (3) Amendment, dated June 29, 2001, to the Master
Custodian Contract, dated May 1, 2000, between Registrant
and State Street Bank and Trust Company was filed
electronically as an Exhibit to Post-Effective Amendment
No. 70, filed on December 28, 2001, and is hereby
incorporated by reference.
- (4) Amendment, dated April 2, 2002, to the Custodian
Contract dated May 1, 2002 between Registrant and State
Street Bank and Trust Company was filed electronically as
an Exhibit to Post-Effective Amendment No. 72, filed on
May 22, 2002, and is hereby incorporated by reference.
(b) - (1) Subcustodian Agreement, dated September 9, 1994,
between Registrant, Texas Commerce Bank National
Association, State Street Bank and Trust Company and
A I M Fund Services, Inc was filed electronically as an
Exhibit to Post-Effective Amendment No. 44, filed on
February 24, 1995, and is hereby incorporated by
reference.
- (2) Amendment No. 1, dated October 2, 1998, to
Subcustodian Agreement between Registrant, Chase Bank of
Texas, N.A. (formerly Texas Commerce Bank), State Street
and Trust Company and A I M Fund Services, Inc was filed
electronically as an Exhibit to Post-Effective Amendment
No. 62, filed on January 6, 2000, and is hereby
incorporated by reference.
- (3) Amendment No. 2, dated March 15, 2002, to the
Subcustodian Agreement, dated September 9, 1994, as
amended October 2, 1998 among JPMorgan Chase Bank
(formerly known as Chase Bank of Texas, N.A.), State
Street Bank and Trust Company and A I M Fund Services,
Inc was filed electronically as an Exhibit to
Post-Effective Amendment No. 76, filed on March 3, 2003,
and is hereby incorporated by reference.
C-5
(c) - Foreign Assets Delegation Agreement, dated June 29,
2001, between A I M Advisors, Inc. and Registrant was
filed electronically as an Exhibit to Post-Effective
Amendment No. 70, filed on December 28, 2001, and is
hereby incorporated by reference.
10(a) - (1) Second Amended and Restated Master Distribution
Plan, dated as of June 3, 2002, for the Class A, Class C
and Class R shares was filed electronically as an
Exhibit to Post-Effective Amendment No. 73, filed on
June 13, 2002, and is hereby incorporated by reference.
- (2) Amendment No. 1, dated August 29, 2002, to the Second
Amended and Restated Master Distribution Plan, dated as
of June 3, 2002, for the Class A, Class C and Class R
shares was filed electronically as an Exhibit to
Post-Effective Amendment No. 75, filed on February 24,
2003, and is hereby incorporated by reference.
- (3) Amendment No. 2, dated May 2, 2003, to the Second
Amended and Restated Master Distribution Plan, dated as
of June 3, 2002, for the Class A, Class C and Class R
shares was filed electronically as an Exhibit to
Post-Effective Amendment No. 77, filed on July 7, 2003,
and is hereby incorporated by reference.
- (4) Form of Third Amended and Restated Master
Distribution Plan, dated as of ____________, 2003, for
the Class A, Class C, Class R and Investor Class Shares
was filed electronically as an Exhibit to Post-Effective
Amendment No. 77, filed on July 7, 2003, and is hereby
incorporated by reference.
(b) - (1) First Amended and Restated Master Distribution Plan,
dated December 31, 2000, for the Class B shares was
filed electronically as an Exhibit to Post-Effective
Amendment No. 67, filed on February 23, 2001, and is
hereby incorporated by reference.
- (2) Amendment No. 1, dated December 28, 2001, to
Registrant's First Amended and Restated Master
Distribution Plan, dated December 31, 2000, on behalf of
its Class B shares was filed electronically as an Exhibit
to Post-Effective Amendment No. 71, filed on April 26,
2002, and is hereby incorporated by reference.
- (3) Amendment No. 2, dated August 29, 2002, to the First
Amended and Restated Master Distribution Plan, dated
December 30, 2001, for the Class B shares was filed
electronically as an Exhibit to Post-Effective Amendment
No. 76, filed on March 3, 2003, and is hereby
incorporated by reference.
- (4) Amendment No. 3, dated May 2, 2003, to the First
Amended and Restated Master Distribution Plan, dated
December 30, 2001, for the Class B shares was filed
electronically as an Exhibit to Post-Effective Amendment
No. 77, filed on July 7, 2003, and is hereby incorporated
by reference.
(c) - Form of Shareholder Service Agreement for Sale of Shares
of the AIM Mutual Funds to be used in connection with
Registrant's Master Distribution Plan was filed
electronically as an Exhibit to Post-Effective Amendment
No. 68, filed on October 12, 2001, and is hereby
incorporated by reference.
(d) - Form of Bank Shareholder Service Agreement to be used in
connection with Registrant's Master Distribution Plan
was filed electronically as an Exhibit to Post-Effective
Amendment No. 68, filed on October 12, 2001, and is
hereby incorporated by reference.
C-6
(e) - Form of Variable Group Annuity Contract Holder Service
Agreement to be used in connection with Registrant's
Master Distribution Plan was filed electronically as an
Exhibit to Post-Effective Amendment No. 68, filed on
October 12, 2001, and is hereby incorporated by
reference.
(f) - Form of Agency Pricing Agreement to be used in
connection with Registrant's Master Distribution Plan
was filed electronically as an Exhibit to Post-Effective
Amendment No. 68, filed on October 12, 2001, and is
hereby incorporated by reference.
(g) - Forms of Service Agreements for Bank Trust Departments
and for Brokers for Bank Trust Departments to be used in
connection with Registrant's Master Distribution Plan
was filed electronically as an Exhibit to Post-Effective
Amendment No. 68, filed on October 12, 2001, and is
hereby incorporated by reference.
(h) - Form of Shareholder Service Agreement for shares of the
AIM Mutual Funds to be used in connection with
Registrant's Master Distribution Plan was filed
electronically as an Exhibit to Post-Effective Amendment
No. 68, filed on October 12, 2001, and is hereby
incorporated by reference.
(i) - Multiple Class Plan of The AIM Family of
Funds--Registered Trademark--, effective December 12,
2001 as amended and restated March 4, 2002, and further
amended and restated October 31, 2002 and as further
amended and restated July 21, 2003 was filed
electronically as an Exhibit to Post-Effective Amendment
No. 76, filed on March 3, 2003, and is hereby
incorporated by reference.
11 - Opinion of Counsel and Consent of Ballard Spahr Andrews
& Ingersoll, LLP, as to the legality of the securities
being registered is filed herewith electronically.
12 - Opinion of Ballard Spahr Andrews & Ingersoll, LLP,
supporting the tax matters and consequences to
shareholders will be filed as part of a Post-Effective
Amendment to this Registration Statement.
13(a) - (1) Transfer Agency and Service Agreement, dated June
21, 2000, between Registrant and A I M Fund Services,
Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 67, filed on February 23,
2001, and is hereby incorporated by reference.
- (2) Amendment No. 1, dated July 1, 2000, to the Transfer
Agency and Service Agreement dated June 21, 2000,
between Registrant and A I M Fund Services, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 67, filed on February 23, 2001, and is
hereby incorporated by reference.
- (3) Amendment No. 2, dated January 1, 2002, to the
Transfer Agency and Services Agreement dated June 21,
2000, between Registrant and A I M Fund Services, Inc.
was filed electronically as an Exhibit to Post-Effective
Amendment No. 71, filed on April 26, 2002, and is hereby
incorporated by reference.
- (4) Amendment No. 3, dated March 4, 2002, to the
Transfer Agency and Services Agreement dated June 21,
2000, between Registrant and A I M Fund Services, Inc.
was filed electronically as an Exhibit to Post-Effective
Amendment No. 72, filed on May 22, 2002, and is hereby
incorporated by reference.
- (5) Amendment No. 4, dated May 14, 2003, to the Transfer
Agency and Service Agreement, dated June 21, 2000,
between Registrant and A I M Fund Services, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 77, filed on
C-7
July 7, 2003, and is hereby incorporated by reference.
- (6) Amendment No. 5, dated June 11, 2003, to the
Transfer Agency and Service Agreement, dated June 21,
2000, between Registrant and A I M Fund Services, Inc.
was filed electronically as an Exhibit to Post-Effective
Amendment No. 77, filed on July 7, 2003, and is hereby
incorporated by reference.
(b) - Shareholder Sub-Accounting Services Agreement between
Registrant, First Data Investor Services Group (formerly
The Shareholder Services Group, Inc.), Financial Data
Services Inc. and Merrill Lynch, Pierce, Fenner & Smith
Inc., dated October 1, 1993 was filed electronically as
an Exhibit to Post-Effective Amendment No. 40, filed on
February 26, 1992, and is hereby incorporated by
reference.
(c) - Preferred Registered Technology Escrow Agreement, dated
September 10, 1997, between Registrant and First Data
Investor Services Group, Inc was filed electronically as
an Exhibit to Post-Effective Amendment No. 54, filed on
February 27, 1998, and is hereby incorporated by
reference.
(d) - (1) Master Administrative Services Agreement, dated June
21, 2000, between Registrant and A I M Advisors, Inc.
was filed electronically as an Exhibit to Post-Effective
Amendment No. 67, filed on February 23, 2001, and is
hereby incorporated by reference.
- (2) Amendment No. 1, dated May 9, 2001, to the Master
Administrative Services Agreement, dated June 21, 2000,
between Registrant and A I M Advisors, Inc. was filed
electronically as an Exhibit to Post-Effective Amendment
No. 68, filed on October 12, 2001, and is hereby
incorporated by reference.
- (3) Amendment No. 2, dated December 28, 2001, to the
Master Administrative Services Agreement, dated June 21,
2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 71, filed on April 26, 2002, and is hereby
incorporated by reference.
- (4) Amendment No. 3, dated August 29, 2002, to the
Master Administrative Services Agreement, dated June 21,
2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 75, filed on February 24, 2003, and is
hereby incorporated by reference.
- (5) Amendment No. 4, dated May 2, 2003, to the Master
Administrative Services Agreement, dated June 21, 2000,
between Registrant and A I M Advisors, Inc. was filed
electronically as an Exhibit to Post-Effective Amendment
No. 77, filed on July 7, 2003, and is hereby
incorporated by reference.
(e) - (1) Memorandum of Agreement, regarding securities
lending, dated June 21, 2000, between Registrant, on
behalf of all Funds, and A I M Advisors, Inc. was filed
electronically as an Exhibit to Post-Effective Amendment
No. 67, filed on February 23, 2001, and is hereby
incorporated by reference.
- (2) Memorandum of Agreement, dated July 1, 2001, between
Registrant, on behalf of AIM Large Cap Basic Value Fund,
and A I M Advisors, Inc. was filed electronically as an
Exhibit to Post-Effective Amendment No. 69, filed on
December 14, 2001, and is hereby incorporated by
reference.
- (3) Memorandum of Agreement, dated August 29, 2002,
regarding securities lending, between Registrant, on
behalf of AIM Basic Value II Fund, AIM U.S. Growth
C-8
Fund, and A I M Advisors, Inc. was filed electronically
as an Exhibit to Post-Effective Amendment No. 75, filed
on February 24, 2003, and is hereby incorporated by
reference.
- (4) Memorandum of Agreement, dated May 2, 2003, between
Registrant, on behalf of AIM Diversified Dividend Fund,
and A I M Advisors, Inc. was filed electronically as an
Exhibit to Post-Effective Amendment No. 77, filed on July
7, 2003, and is hereby incorporated by reference.
(f) - Interfund Loan Agreement, dated September 18, 2001,
between all Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 68, filed on October 12, 2001, and is
hereby incorporated by reference.
14(a) - Consent of Ernst & Young, LLP is filed herewith
electronically.
(b) - Consent of PricewaterhouseCoopers LLP is filed herewith
electronically.
15 - Omitted Financial Statements - None.
16 - Manually signed copies of any power of attorney pursuant
to which the name of any person has been signed to the
registration statement - None.
17(a) - Form of Proxy relating to the Special Meeting of
Shareholders of INVESCO Growth Fund is filed herewith
electronically.
(b) - Form of Proxy relating to the Special Meeting of
Shareholders of INVESCO Growth & Income Fund is filed
herewith electronically.
(c) - Form of Proxy relating to the Special Meeting of
Shareholders of INVESCO Value Equity Fund is filed
herewith electronically.
Item 17 Undertakings.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by
any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) of the Securities Act [17 CRF
203.145c], the reoffering prospectus will contain the
information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as a part
of an amendment to the registration statement and will not be
used until the amendment is effective, and that, in determining
any liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the
securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide
offering of them.
(3) The undersigned Registrant undertakes to file an opinion of
counsel supporting the tax matters and consequences to
shareholders discussed in the prospectus in a post-effective
amendment to this registration statement.
C-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement on Form N-14 to be
signed on its behalf by the undersigned, thereto duly authorized, in the City
of Houston, State of Texas, on the 13th day of August, 2003.
Registrant: AIM EQUITY FUNDS
By: /s/ ROBERT H. GRAHAM
---------------------------
Robert H. Graham, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
----------------------- ----------------------------- ---------------
/s/ ROBERT H. GRAHAM Chairman, Trustee & President August 13, 2003
----------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ FRANK S. BAYLEY Trustee August 13, 2003
-----------------------
(Frank S. Bayley)
/s/ BRUCE L. CROCKETT Trustee August 13, 2003
-----------------------
(Bruce L. Crockett)
/s/ ALBERT R. DOWDEN Trustee August 13, 2003
-----------------------
(Albert R. Dowden)
/s/ EDWARD K. DUNN, JR. Trustee August 13, 2003
-----------------------
(Edward K. Dunn, Jr.)
/s/ JACK M. FIELDS Trustee August 13, 2003
-----------------------
(Jack M. Fields)
/s/ CARL FRISCHLING Trustee August 13, 2003
-----------------------
(Carl Frischling)
/s/ PREMA MATHAI-DAVIS Trustee August 13, 2003
-----------------------
(Prema Mathai-Davis)
/s/ LEWIS F. PENNOCK Trustee August 13, 2003
-----------------------
(Lewis F. Pennock)
/s/ RUTH H. QUIGLEY Trustee August 13, 2003
-----------------------
(Ruth H. Quigley)
/s/ LOUIS S. SKLAR Trustee August 13, 2003
-----------------------
(Louis S. Sklar)
/s/ Mark H. Williamson Trustee & August 13, 2003
----------------------- Executive Vice President
(Mark H. Williamson)
/s/ DANA R. SUTTON Vice President & Treasurer August 13, 2003
----------------------- (Principal Financial and
(Dana R. Sutton) Accounting Officer)
INDEX
<Table>
<Caption>
Exhibit
Number Description
- ------ -----------
11 Opinion of Counsel and Consent of Ballard Spahr Andrews & Ingersoll, LLP, as to the
legality of the securities being registered
14(a) Consent of Ernst & Young, LLP
14(b) Consent of PricewaterhouseCoopers LLP
17(a) Form of Proxy relating to the Special Meeting of Shareholders of INVESCO Growth Fund
17(b) Form of Proxy relating to the Special Meeting of Shareholders of INVESCO Growth & Income
Fund
17(c) Form of Proxy relating to the Special Meeting of Shareholders of INVESCO Value Equity Fund
</Table>
C-10