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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file
number 811-1424
--------------------------------------------------------------------------
AIM Equity Funds
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Robert H. Graham 11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
-----------------------------
Date of fiscal year end: 10/31
-----------------
Date of reporting period: 10/31/03
-----------------
AIM AGGRESSIVE GROWTH FUND
Annual Report to Shareholders o October 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. AIM LOGO
--Servicemark--
================================================================================
AIM AGGRESSIVE GROWTH FUND SEEKS TO PROVIDE GROWTH OF CAPITAL.
================================================================================
ABOUT INFORMATION THROUGHOUT THIS REPORT:
o Unless otherwise stated, information o Class R shares are available only to o The unmanaged Standard & Poor's
presented is as of 10/31/03 and is based certain retirement plans. Please see the Composite Index of 500 Stocks (the S&P
on total net assets. prospectus for more information. They 500--Registered Trademark--) is an index of
are sold at net asset value, that is, common stocks frequently used as a general
o AIM Aggressive Growth Fund's without up-front sales charges. measure of U.S. stock market performance.
performance figures are historical, and
they reflect fund expenses, the o The fund's investment return and o Bloomberg, Inc. is a well-known
reinvestment of distributions, and principal value will fluctuate, so an independent financial research and
changes in net asset value. investor's shares, when redeemed, may be reporting firm.
worth more or less than their original
o Had the advisor not waived fees and/or cost. o A direct investment cannot be made in
reimbursed expenses in the past, returns an index. Unless otherwise indicated,
for Class A and Class R shares would o Investing in small and mid-size index results include reinvested
have been lower. companies may involve risks not dividends, and they do not reflect sales
associated with investing in more charges or fund expenses.
o When sales charges are included in established companies. Also, small
performance figures, Class A share companies may have business risk, A description of the policies and
performance reflects the maximum 5.50% significant stock price fluctuations and procedures that the fund uses to
sales charge, and Class B and Class C illiquidity. determine how to vote proxies relating
share performance reflects the to portfolio securities is available
applicable contingent deferred sales o Industry classifications used in this without charge, upon request, by calling
charge (CDSC) for the period involved. report are generally according to the 800-959-4246, or on the AIM Web site,
The CDSC on Class B shares declines from Global Industry Classification Standard, AIMinvestments.com.
5% beginning at the time of purchase to which was developed by and is the
0% at the beginning of the seventh year. exclusive property and a service mark of
The CDSC on Class C shares is 1% for the Morgan Stanley Capital International
first year after purchase. The Inc. and Standard & Poor's.
performance of the fund's share classes
will differ due to different sales o The unmanaged Russell 2500TM Index
charge structures and class expenses. measures the performance of the 2,500
smallest companies in the Russell
o Effective 9/30/03, Class B shares are 3000(--Registered Trademark--) Index,
not available as an investment for which measures the performance of the
retirement plans maintained pursuant to 3,000 largest companies based on market
Section 401 of the Internal Revenue capitalization.
Code, including 401(k) plans, money
purchase pension plans and profit
sharing plans. Plans that have existing
accounts invested in Class B shares will
continue to be allowed to make
additional purchases.
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE This report may be distributed only to shareholders or
to persons who have received a current prospectus of
the fund.
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN new policies and strengthened existing ones--to discourage
THE AIM FAMILY OF FUNDS--registered harmful short-term trading. These steps include:
Trademark--:
o Strengthening daily monitoring of trading activities.
[PHOTO OF As you may be aware, there has been a
ROBERT H. great deal of media coverage recently o Imposing redemption fees on additional funds we
GRAHAM] about the mutual fund industry and believe may be vulnerable to harmful short-term
allegations of improper activities by trading activity.
ROBERT H. GRAHAM certain individuals and companies. As
part of these widespread investigations, o Implementing an enhanced exchange policy (effective on
INVESCO Funds Group (IFG), the former or about March 1, 2004) designed to limit exchanges
[PHOTO OF adviser to certain INVESCO Funds, was between funds.
MARK H. recently named as a defendant in
WILLIAMSON] separate civil enforcement actions by o Employing an enhanced fair value pricing policy on
the U.S. Securities and Exchange certain foreign securities as well as certain illiquid
MARK H. WILLIAMSON Commission (SEC), the Office of the New securities.
York Attorney General and the State of
Colorado over an issue known as "market timing." A number of None of these tools alone, nor all of them taken
private class or derivative actions also were filed in the together, eliminate the possibility of short-term trading
wake of the regulators' actions. strategies that may be detrimental to a fund. Moreover, each
of these tools involves judgments that are inherently
Investors are understandably concerned and frustrated subjective. We have always sought and continue to seek to
about these reports, and we would like to take this make these judgments to the best of our abilities and in a
opportunity to assure you that, based on an investigation manner that we believe is consistent with the best interests
conducted by an outside firm, IFG and its parent company, of our fund shareholders. And we remain committed to being
AMVESCAP PLC, believe that these civil actions are without as vigilant as possible in the future to identify and
merit. IFG is contesting the charges. address any harmful market timing investors who have the
potential to harm our long-term fund shareholders.
We encourage you to continue to monitor this situation,
particularly as IFG has the opportunity to address the We sincerely hope these developments and the media
allegations that have been made. Current information will be coverage surrounding them do not result in you or other
posted on our Web site at AIMinvestments.com. We will shareholders losing confidence in AIM or INVESCO Funds.
continue to communicate to you on our Web site about our Amidst this storm of controversy in the mutual fund
finding, and the actions we are taking to protect and industry, we believe we can find encouragement in the
promote the interests of our shareholders. The independent recovering economy and rising equity markets. As we write
trustees of the funds are receiving regular reports from this letter, for instance, the S&P 500(--Registered Trademark--)
their independent counsel and outside counsel hired by Index is up approximately 23% year-to-date. Although past
AMVESCAP PLC, the parent of AIM and IFG, to perform an performance is no guarantee of future results, there appear to be
ongoing investigation of market timing. indicators that the economy and stock markets are showing
signs of welcomed improvement. We encourage you to read the
A COMPLEX ISSUE enclosed discussion of your fund's performance during this
past reporting period.
Market timing is an investment technique not defined in any
regulation that involves frequent short-term trading of OUR UNWAVERING COMMITMENT
mutual fund shares, sometimes with a goal to exploit
inefficiencies in the way mutual funds price their shares. At AIM Investments, we have never wavered in our commitment
We recognize that fund management companies have tried to to helping you build solutions for your financial goals. Our
deal with this complex issue in various ways and believe company was founded on a core principle of integrity, and we
that industry-wide guidance is in order. To that end, we have always worked hard to earn the trust of our
welcome SEC Chairman William Donaldson's pledge to adopt new shareholders. We are committed to doing all we can to
rules designed to curb market timing abuses. Comprehensive maintain your trust and confidence.
rulemaking is necessary and is the best way to establish new
industry responsibilities designed to protect shareholders. Thank you for your continued participation in AIM
We support practical rule changes and structural Investments. Please call your financial advisor or one of
modifications that are fair, enforceable and, most our Client Service representatives at 800-959-4246 if you
importantly, beneficial for investors. have any further questions or concerns about your AIM
Investments account.
AIM Investments has policies in place designed to
identify, prevent and eliminate harmful trading or other Sincerely,
activities deemed to be detrimental to the funds. We have
also recently taken additional steps--implemented /s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Chairman and President President and CEO
The AIM Family of Funds AIM Investments
--Registered Trademark--
December 18, 2003
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
FUND DELIVERS POSITIVE RETURN weakest-performing sectors.
This report covers the fiscal year ended generally considered the broadest measure While the performance of large-cap
October 31, 2003. During this period, of economic activity, expanded at an growth and large-cap value stocks was
your fund recorded positive returns. At annualized rate of 3.3% in the second similar, mid- and small-cap growth stocks
net asset value, Class A shares produced quarter and 8.2% in the third quarter of generally outperformed their value
a total return of 23.32%. By comparison, 2003. As of the close of the fiscal year, counterparts by wider margins.
the Russell 2500 Index and the S&P 500 405 companies in the S&P 500 had reported
Index returned 41.69% and 20.79%, third-quarter earnings. A total of 65.4% =========================================
respectively, over the same period. The of those companies reported earnings that
fund's focus on mid-cap stocks helped it exceeded expectations compared to 60.2% WITHIN THE FINANCIAL
outperform the S&P 500, which is composed for the third quarter of 2002, according
mostly of large-cap stocks. We believe to Bloomberg. The job market remained SECTOR, FOR EXAMPLE, WE
the fund underperformed the Russell 2500 weak, however, as the nation's
Index because of the more defensive unemployment rate stood at 6.0% at the FOCUSED ON THE STOCKS
positioning of the portfolio earlier in close of the reporting period.
the fiscal year. OF BROKERAGE FIRMS AND
For most of the fiscal year, the
MARKET CONDITIONS Federal Reserve (the Fed) kept the INVESTMENT COMPANIES,
short-term federal funds rate at 1.25%.
Amid a backdrop of generally improving On June 25, 2003, it lowered that rate to WHICH GENERALLY PERFORM
economic conditions, the S&P 500 produced 1.00%, its lowest level since 1958. At
positive returns for the year ended the time, the Fed said it favored a more BETTER WHEN MARKETS
October 31, 2003. The index rose in expansive monetary policy because the
November 2002, then declined over the economy had not yet exhibited sustainable ARE RISING.
next three months, dropping to its lowest growth. By October, the Fed reported that
level for the fiscal year on March 11, economic expansion had increased and =========================================
2003. The index then rallied, posting a consumer spending was generally stronger,
gain of 32.67% from its low on March 11 although the job market remained weak. YOUR FUND
through the end of the reporting period.
During this rally, the United States and All sectors of the S&P 500 recorded At close of the fiscal year, the
its allies took military action against gains for the fiscal year. Information portfolio's three largest sector
Iraq and ousted the regime of Saddam technology, materials and utilities were weightings were in information
Hussein. The nation's gross domestic the top-performing sectors while technology, consumer discretionary and
product, telecommunication services, consumer health care. By comparison, consumer
staples and health care were the discretionary, industrials and health
care were the fund's three largest sector
weightings at the beginning of the
reporting period. The sectors that
contributed the most to fund performance
were information technology, consumer
discretionary and health care while those
that
=================================================================================================================================
TOP 10 HOLDINGS* TOP 10 INDUSTRIES*
1. Legg Mason, Inc. 2.3% 1. Data Processing Services 8.4%
2. Zimmer Holdings, Inc. 2.2 2. Specialty Stores 6.0
3. Fisher Scientific International Inc. 2.2 3. Health Care Equipment 5.8
4. Danaher Corp. 2.1 4. Asset Management & Custody Banks 5.3
5. Fiserv, Inc. 2.0 5. Semiconductors 5.1
6. CDW Corp. 1.9 6. Oil & Gas Drilling 3.8
7. Fastnel Co. 1.9 7. Communications Equipment 3.7
8. Investors Financial Services Corp. 1.9 8. Application Software 3.6
9. ResMed Inc. 1.8 9. Investment Banking & Brokerage 3.3
10. Lehman Brothers Holdings Inc. 1.7 10. Health Care Services 3.0
*Excludes money market fund holdings.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular
security.
=================================================================================================================================
2
contributed the least were materials, represented in the portfolio. KARL FARMER
energy and financials. The portfolio was [PHOTO OF Prior to joining
overweight in health care compared to the Stocks that enhanced performance KARL AIM in July of
Russell 2500 Index and the S&P 500, so included UTStarcom, a producer of FARMER] 1998, Mr. Farmer
its contribution to fund performance was telecommunications equipment, and Jacobs spent six years
greater. Although materials was one of Engineering, a global technical services as a pension actuary with William M.
the better-performing sectors, the company. In October, UTStarcom reported Mercer, Inc., focusing on retirement
portfolio had little exposure to this its 15th consecutive quarter of record plans and other benefit programs. He
sector, so its impact on performance was earnings. Jacobs Engineering also earned a B.S. in economics from Texas
minimal. reported record earnings for its 2003 A&M University, graduating magna cum
fiscal year. laude. He subsequently earned his M.B.A.
At the beginning of market rally, the in finance from The Wharton School at
fund was more defensively positioned, Detracting from performance was the University of Pennsylvania. He is a
with a larger weighting in health care AmerisourceBergen, a pharmaceutical Chartered Financial Analyst.
than the Russell 2500 Index. On the other supply company. Although the firm
hand, the index had greater exposure to reported record earnings for the 2003 ROBERT M. KIPPES
financials and information technology, fiscal year, we believe its stock was [PHOTO OF Mr. Kippes is lead
two sectors that performed better than adversely affected by the general ROBERT M. portfolio manager of AIM
health care at the outset of the market decline in value of KIPPES] Aggressive Growth Fund.
rally. Consequently, the fund lagged the pharmaceutical-company stocks. The fund He joined AIM in 1989 as
index. no longer owns this stock. a research assistant. In 1992, he was
named head of equity research and became
In response to improving economic IN CLOSING a portfolio manager later that year. In
conditions, we increased the number of 1994 he was promoted to senior portfolio
holdings in the portfolio, concentrating We continue to work diligently to meet manager. A Chicago native, Mr. Kippes
on the stocks of more economically the fund's investment objective of received a B.B.A. in finance from
sensitive companies. These stocks tend to growth of capital. Regardless of market Stephen F. Austin State University.
perform better in an improving economic trends, we will adhere to the fund's
environment. Within the financial sector, strategy as outlined in its prospectus. JAY K. RUSHIN
for example, we focused on the stocks of We will continue to focus on the stocks [PHOTO OF Mr. Rushin began his
brokerage firms and investment companies, of companies that we believe have JAY K. investment career in 1994
which generally perform better when favorable growth prospects. RUSHIN] when he joined AIM as a
markets are rising. However, core-growth portfolio administrator.
holdings, the stocks of companies with See important fund and index In 1996, he left AIM to work as an
long-term records of attractive earnings, disclosures inside front cover. associate equity analyst at Prudential
continued to be well Securities. He returned to AIM as an
equity analyst on AIM's small-cap funds
in 1998 and was promoted to senior
analyst in 2000. He assumed his current
duties as portfolio manager in 2001. A
native of Gaithersburg, MD, Mr. Rushin
holds a B.A. in English from Florida
State University. He is a Chartered
Financial Analyst.
Assisted by Mid-Cap Growth Team
FUND VS. INDEXES
- ----------------------------------------
Total Returns 10/31/02-10/31/03,
excluding sales charge
========================================
CLASS A SHARES 23.32% PORTFOLIO COMPOSITION BY
INVESTMENT TYPE
CLASS B SHARES 22.44 ------------------------
Total Number of Holdings* 115
CLASS C SHARES 22.44 TOTAL NET ASSETS $2.33 Billion
CLASS R SHARES 22.91
RUSSELL 2500 INDEX 41.69
Source: Lipper, Inc.
*Excludes money market fund.
========================================
[GRAPHIC]
For More Information Visit
AIMinvestments.com
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
5/1/84-10/31/03
DATE AIM AGGRESSIVE GROWTH FUND RUSSELL 2500
CLASS A SHARES INDEX
5/1/1984 9450 10000
10/31/1984 9584 10391
10/31/1985 10680 12368
10/31/1986 12467 15869
10/31/1987 10038 14274
10/31/1988 12099 18023
10/31/1989 14280 21324
10/31/1990 11410 16218
[MOUNTAIN CHART] 10/31/1991 21333 25594
10/31/1992 23382 28425
10/31/1993 35285 36336
10/31/1994 41974 36994
10/31/1995 59377 44906
10/31/1996 68138 53343
10/31/1997 79962 68877
10/31/1998 66885 63574
10/31/1999 93434 75017
10/31/2000 137878 92475
10/31/2001 82050 81227
10/31/2002 68908 73805
10/31/2003 84949 104573
Source: Lipper, Inc.
Your fund's total return includes sales charges, expenses and management fees.
The performance of the fund's share classes 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 and table does not reflect deduction of taxes a shareholder
would pay on fund distributions or sale of fund shares. Performance of 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 create the potential for
the original investment to grow to very large numbers.
Past performance cannot guarantee comparable future results. DUE TO 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.
=================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------- In addition to returns as of the close -----------------------------------------
including sales charges, as of 10/31/03 of the fiscal year, industry regulations including sales charges, as of 9/30/03
require us to provide average annual
CLASS A SHARES total returns as of 9/30/03, the most CLASS A SHARES
10 Years 8.57% recent calendar quarter-end. 10 Years 7.94%
5 Years 3.72 5 Years 2.90
1 Year 16.60 *The returns shown for these periods are 1 Year 12.72
the blended returns of the historical
CLASS B SHARES performance of the fund's Class R shares CLASS B SHARES
Inception (3/1/99) 2.19% since their inception and the restated Inception (3/1/99) 0.56%
1 Year 17.44 historical performance of the fund's 1 Year 13.37
Class A shares (for the periods prior to
inception of the Class R shares) at net
CLASS C SHARES asset value, adjusted to reflect the CLASS C SHARES
Inception (3/1/99) 2.51% higher Rule 12b-1 fees applicable to the Inception (3/1/99) 0.87%
1 Year 21.44 Class R shares. The inception date of 1 Year 17.37
Class A shares is 5/1/84. The inception
CLASS R SHARES* date of the fund's Class R shares is CLASS R SHARES*
10 Years 8.92% 6/3/02. Calculation of blended returns 10 Years 8.27%
5 Years 4.64 as of 10/31/03 is from 10/31/93. 5 Years 3.80
1 Year 22.91 Calculation of blended returns as of 1 Year 19.08
9/30/03 is from 9/30/93.
=================================================================================================================================
4
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/03
AIM AGGRESSIVE GROWTH FUND
<Table>
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is not
For periods ended 10/31/03 indicative of future results. More
The following information has been recent returns may be more or less than
prepared to provide Institutional Class INCEPTION (3/15/02) -2.92% those shown. All returns assume
shareholders with a performance overview 1 Year 24.04 reinvestment of distributions at net
specific to their holdings. asset value. Investment return and
Institutional Class shares are offered principal value will fluctuate so your
exclusively to institutional investors, AVERAGE ANNUAL TOTAL RETURNS shares, when redeemed, may be worth more
including defined contribution plans For periods ended 9/30/03 or less than their original cost. See
that meet certain criteria. Performance (most recent calendar quarter-end) full report for information on
of Institutional Class shares will comparative benchmarks. If you have
differ from performance of Class A INCEPTION (3/15/02) -7.84% questions, please consult your fund
shares due to differing sales charges 1 Year 20.00 prospectus or call 800-451-4246. A I M
and class expenses. Distributors, Inc.
</Table>
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is prepared for institutional investor use only and may not be
quoted, reproduced or shown to members of the public, nor used in written form
as sales literature for public use.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
AIMinvestments.com AGRO-INS-1 10/03
AGGRESSIVE GROWTH FUND
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.79%
AEROSPACE & DEFENSE-0.25%
L-3 Communications Holdings, Inc.(a) 125,000 $ 5,842,500
===========================================================================
AIR FREIGHT & LOGISTICS-1.65%
C.H. Robinson Worldwide, Inc. 500,000 19,590,000
- ---------------------------------------------------------------------------
Expeditors International of Washington, Inc. 500,000 18,770,000
===========================================================================
38,360,000
===========================================================================
APPAREL RETAIL-2.06%
Aeropostale, Inc.(a) 200,000 6,170,000
- ---------------------------------------------------------------------------
Chico's FAS, Inc.(a) 200,000 7,508,000
- ---------------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 575,000 16,939,500
- ---------------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 750,000 17,317,500
===========================================================================
47,935,000
===========================================================================
APPLICATION SOFTWARE-3.58%
Cognos, Inc. (Canada)(a) 500,000 17,235,000
- ---------------------------------------------------------------------------
Fair Isaac Corp.(a) 400,000 25,512,000
- ---------------------------------------------------------------------------
Macromedia, Inc.(a) 600,000 11,466,000
- ---------------------------------------------------------------------------
Mercury Interactive Corp.(a) 300,000 13,932,000
- ---------------------------------------------------------------------------
PeopleSoft, Inc.(a) 575,000 11,937,000
- ---------------------------------------------------------------------------
Reynolds & Reynolds Co. (The)-Class A 126,550 3,437,098
===========================================================================
83,519,098
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-5.28%
Investors Financial Services Corp. 1,250,000 44,162,500
- ---------------------------------------------------------------------------
Legg Mason, Inc. 650,000 54,112,500
- ---------------------------------------------------------------------------
T. Rowe Price Group Inc. 600,000 24,690,000
===========================================================================
122,965,000
===========================================================================
AUTO PARTS & EQUIPMENT-2.05%
Gentex Corp. 927,000 36,199,350
- ---------------------------------------------------------------------------
Lear Corp.(a) 200,000 11,618,000
===========================================================================
47,817,350
===========================================================================
BIOTECHNOLOGY-0.61%
Invitrogen Corp.(a) 225,000 14,307,750
===========================================================================
BROADCASTING & CABLE TV-0.88%
Univision Communications Inc.-Class A(a) 425,000 14,428,750
- ---------------------------------------------------------------------------
Westwood One, Inc.(a) 200,000 5,986,000
===========================================================================
20,414,750
===========================================================================
COMMUNICATIONS EQUIPMENT-3.72%
Avocent Corp.(a) 600,000 22,680,000
- ---------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Comverse Technology, Inc.(a) 1,000,000 $ 18,040,000
- ---------------------------------------------------------------------------
Polycom, Inc.(a) 325,000 6,509,750
- ---------------------------------------------------------------------------
QLogic Corp.(a) 225,000 12,611,250
- ---------------------------------------------------------------------------
UTStarcom, Inc.(a) 850,000 26,775,000
===========================================================================
86,616,000
===========================================================================
COMPUTER & ELECTRONICS RETAIL-1.50%
Best Buy Co., Inc. 600,000 34,986,000
===========================================================================
CONSTRUCTION & ENGINEERING-1.69%
Jacobs Engineering Group Inc.(a) 850,000 39,372,000
===========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.93%
AGCO Corp.(a) 1,200,000 21,600,000
===========================================================================
CONSUMER ELECTRONICS-0.55%
Harman International Industries, Inc. 100,000 12,820,000
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-8.39%
Affiliated Computer Services, Inc.-Class A(a) 500,000 24,465,000
- ---------------------------------------------------------------------------
Alliance Data Systems Corp.(a) 850,000 23,613,000
- ---------------------------------------------------------------------------
CheckFree Corp.(a) 500,000 13,765,000
- ---------------------------------------------------------------------------
DST Systems, Inc.(a) 300,000 11,346,000
- ---------------------------------------------------------------------------
Fiserv, Inc.(a) 1,300,000 45,916,000
- ---------------------------------------------------------------------------
Iron Mountain Inc.(a) 500,000 19,120,000
- ---------------------------------------------------------------------------
Paychex, Inc. 750,000 29,190,000
- ---------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 1,000,000 28,050,000
===========================================================================
195,465,000
===========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.83%
Apollo Group, Inc.-Class A(a) 400,000 25,412,000
- ---------------------------------------------------------------------------
Corporate Executive Board Co. (The)(a) 300,000 15,303,000
- ---------------------------------------------------------------------------
CoStar Group Inc.(a) 52,100 1,961,565
===========================================================================
42,676,565
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.67%
Rockwell Automation, Inc. 500,000 15,525,000
===========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.96%
National Instruments Corp. 250,000 10,645,000
- ---------------------------------------------------------------------------
Waters Corp.(a) 375,000 11,786,250
===========================================================================
22,431,250
===========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
EMPLOYMENT SERVICES-1.22%
Robert Half International Inc.(a) 1,200,000 $ 28,332,000
===========================================================================
GENERAL MERCHANDISE STORES-0.50%
99 Cents Only Stores(a) 200,000 5,954,000
- ---------------------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 150,000 5,727,000
===========================================================================
11,681,000
===========================================================================
HEALTH CARE DISTRIBUTORS-2.47%
Omnicare, Inc. 1,000,000 38,340,000
- ---------------------------------------------------------------------------
Patterson Dental Co.(a) 300,000 19,194,000
===========================================================================
57,534,000
===========================================================================
HEALTH CARE EQUIPMENT-5.80%
ResMed Inc.(a) 1,000,000 41,770,000
- ---------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 400,000 23,264,000
- ---------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 300,000 19,182,000
- ---------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 800,000 51,048,000
===========================================================================
135,264,000
===========================================================================
HEALTH CARE FACILITIES-1.19%
Health Management Associates, Inc.-Class A 1,250,000 27,687,500
===========================================================================
HEALTH CARE SERVICES-3.02%
Caremark Rx, Inc.(a) 1,250,000 31,312,500
- ---------------------------------------------------------------------------
Express Scripts, Inc.(a) 500,000 27,460,000
- ---------------------------------------------------------------------------
Lincare Holdings Inc.(a) 300,000 11,682,000
===========================================================================
70,454,500
===========================================================================
HEALTH CARE SUPPLIES-2.86%
Coopers Cos., Inc. (The) 375,000 16,293,750
- ---------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 1,250,000 50,312,500
===========================================================================
66,606,250
===========================================================================
INDUSTRIAL CONGLOMERATES-0.22%
Carlisle Cos. Inc. 88,300 5,064,005
===========================================================================
INDUSTRIAL MACHINERY-2.78%
Danaher Corp. 600,000 49,710,000
- ---------------------------------------------------------------------------
Eaton Corp. 150,000 15,036,000
===========================================================================
64,746,000
===========================================================================
INTERNET RETAIL-0.24%
eBay Inc.(a) 100,000 5,594,000
===========================================================================
INVESTMENT BANKING & BROKERAGE-3.34%
Bear Stearns Cos. Inc. (The) 500,000 38,125,000
- ---------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 550,000 39,600,000
===========================================================================
77,725,000
===========================================================================
IT CONSULTING & OTHER SERVICES-0.96%
CACI International Inc.-Class A(a) 450,000 22,288,500
===========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
LEISURE PRODUCTS-0.84%
Marvel Enterprises, Inc.(a) 666,200 $ 19,619,590
===========================================================================
MANAGED HEALTH CARE-0.25%
Aetna Inc. 100,000 5,741,000
===========================================================================
MULTI-LINE INSURANCE-0.21%
HCC Insurance Holdings, Inc. 167,600 4,883,864
===========================================================================
OFFICE SERVICES & SUPPLIES-0.61%
Moore Wallace Inc. (Canada)(a) 1,000,000 14,300,000
===========================================================================
OIL & GAS DRILLING-3.77%
ENSCO International Inc. 1,000,000 26,350,000
- ---------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 700,000 26,460,000
- ---------------------------------------------------------------------------
Patterson-UTI Energy, Inc.(a) 800,000 22,872,000
- ---------------------------------------------------------------------------
Pride International, Inc.(a) 750,000 12,285,000
===========================================================================
87,967,000
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.24%
Cooper Cameron Corp.(a) 450,000 19,269,000
- ---------------------------------------------------------------------------
National-Oilwell, Inc.(a) 750,000 14,302,500
- ---------------------------------------------------------------------------
Smith International, Inc.(a) 500,000 18,615,000
===========================================================================
52,186,500
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.33%
Newfield Exploration Co.(a) 425,000 16,885,250
- ---------------------------------------------------------------------------
XTO Energy, Inc. 600,000 14,202,000
===========================================================================
31,087,250
===========================================================================
PHARMACEUTICALS-1.91%
Medicis Pharmaceutical Corp.-Class A 500,000 31,675,000
- ---------------------------------------------------------------------------
Taro Pharmaceutical Industries Ltd.
(Israel)(a) 200,000 12,850,000
===========================================================================
44,525,000
===========================================================================
PUBLISHING-1.64%
Belo Corp.-Class A 500,000 13,630,000
- ---------------------------------------------------------------------------
Getty Images, Inc.(a) 550,000 24,585,000
===========================================================================
38,215,000
===========================================================================
REGIONAL BANKS-0.74%
Southwest Bancorp. of Texas, Inc. 300,000 10,773,000
- ---------------------------------------------------------------------------
TCF Financial Corp. 125,000 6,522,500
===========================================================================
17,295,500
===========================================================================
RESTAURANTS-2.35%
Brinker International, Inc.(a) 500,000 15,915,000
- ---------------------------------------------------------------------------
CBRL Group, Inc. 71,500 2,770,625
- ---------------------------------------------------------------------------
Cheesecake Factory Inc. (The)(a) 300,000 11,982,000
- ---------------------------------------------------------------------------
Sonic Corp.(a) 300,050 8,344,391
- ---------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
RESTAURANTS-(CONTINUED)
Starbucks Corp.(a) 500,000 $ 15,800,000
===========================================================================
54,812,016
===========================================================================
SEMICONDUCTORS-5.13%
Altera Corp.(a) 750,000 15,172,500
- ---------------------------------------------------------------------------
AMIS Holdings, Inc.(a) 343,300 6,917,495
- ---------------------------------------------------------------------------
Broadcom Corp.-Class A(a) 350,000 11,182,500
- ---------------------------------------------------------------------------
Integrated Circuit Systems, Inc.(a) 350,000 11,749,500
- ---------------------------------------------------------------------------
Intersil Corp.-Class A 500,000 12,895,000
- ---------------------------------------------------------------------------
Linear Technology Corp. 575,000 24,500,750
- ---------------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 400,000 17,548,000
- ---------------------------------------------------------------------------
Microchip Technology Inc. 600,000 19,626,000
===========================================================================
119,591,745
===========================================================================
SPECIALIZED FINANCE-1.60%
Chicago Mercantile Exchange (The) 250,000 16,987,500
- ---------------------------------------------------------------------------
Moody's Corp. 350,000 20,240,500
===========================================================================
37,228,000
===========================================================================
SPECIALTY CHEMICALS-0.72%
Valspar Corp. (The) 350,000 16,695,000
===========================================================================
SPECIALTY STORES-5.99%
Bed Bath & Beyond Inc.(a) 750,000 31,680,000
- ---------------------------------------------------------------------------
CarMax, Inc.(a) 300,000 9,453,000
- ---------------------------------------------------------------------------
Pep Boys-Manny, Moe & Jack 150,000 2,884,500
- ---------------------------------------------------------------------------
Regis Corp. 303,000 11,520,060
- ---------------------------------------------------------------------------
Staples, Inc.(a) 1,300,000 34,866,000
- ---------------------------------------------------------------------------
Tractor Supply Co.(a) 500,000 20,955,000
- ---------------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 800,000 28,264,000
===========================================================================
139,622,560
===========================================================================
SYSTEMS SOFTWARE-1.42%
Adobe Systems Inc. 300,000 13,152,000
- ---------------------------------------------------------------------------
Symantec Corp.(a) 300,000 19,995,000
===========================================================================
33,147,000
===========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
<Caption>
- ---------------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS-1.93%
CDW Corp. 750,000 $ 45,037,500
===========================================================================
THRIFTS & MORTGAGE FINANCE-2.01%
Doral Financial Corp. (Puerto Rico) 350,000 17,675,000
- ---------------------------------------------------------------------------
New York Community Bancorp, Inc. 400,000 14,480,000
- ---------------------------------------------------------------------------
Radian Group Inc. 278,600 14,737,940
===========================================================================
46,892,940
===========================================================================
TRADING COMPANIES & DISTRIBUTORS-1.91%
Fastenal Co. 1,000,000 44,470,000
===========================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,724,243,328) 2,278,947,483
===========================================================================
MONEY MARKET FUNDS-3.24%
STIC Liquid Assets Portfolio(b) 37,783,111 37,783,111
- ---------------------------------------------------------------------------
STIC Prime Portfolio(b) 37,783,111 37,783,111
===========================================================================
Total Money Market Funds (Cost
$75,566,222) 75,566,222
===========================================================================
TOTAL INVESTMENTS-101.03% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,799,809,550) 2,354,513,705
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-22.43%
STIC Liquid Assets Portfolio(b)(c) 261,330,936 261,330,936
- ---------------------------------------------------------------------------
STIC Prime Portfolio(b)(c) 261,330,936 261,330,936
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $522,661,872) 522,661,872
===========================================================================
TOTAL INVESTMENTS-123.46% (Cost
$2,322,471,422) 2,877,175,577
===========================================================================
OTHER ASSETS LESS LIABILITIES-(23.46%) (546,645,008)
===========================================================================
NET ASSETS-100.00% $2,330,530,569
___________________________________________________________________________
===========================================================================
</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.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$1,724,243,328)* $ 2,278,947,483
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $598,228,094) 598,228,094
- ------------------------------------------------------------
Cash 1,198,825
- ------------------------------------------------------------
Receivables for:
Investments sold 49,660,832
- ------------------------------------------------------------
Fund shares sold 1,158,837
- ------------------------------------------------------------
Dividends 324,508
- ------------------------------------------------------------
Investment for deferred compensation plan 102,238
- ------------------------------------------------------------
Other assets 65,615
============================================================
Total assets 2,929,686,432
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 68,040,705
- ------------------------------------------------------------
Fund shares reacquired 5,872,672
- ------------------------------------------------------------
Deferred compensation plan 102,238
- ------------------------------------------------------------
Collateral upon return of securities
loaned 522,661,872
- ------------------------------------------------------------
Accrued distribution fees 697,507
- ------------------------------------------------------------
Accrued trustees' fees 133,783
- ------------------------------------------------------------
Accrued transfer agent fees 1,310,137
- ------------------------------------------------------------
Accrued operating expenses 336,949
============================================================
Total liabilities 599,155,863
============================================================
Net assets applicable to shares outstanding $ 2,330,530,569
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 2,823,914,593
- ------------------------------------------------------------
Undistributed net investment income (loss) (235,341)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (1,047,852,838)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 554,704,155
============================================================
$ 2,330,530,569
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 1,983,599,801
____________________________________________________________
============================================================
Class B $ 262,098,347
____________________________________________________________
============================================================
Class C $ 81,079,129
____________________________________________________________
============================================================
Class R $ 1,164,264
____________________________________________________________
============================================================
Institutional Class $ 2,589,028
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED
NUMBER OF SHARES AUTHORIZED:
Class A 220,535,728
____________________________________________________________
============================================================
Class B 30,408,663
____________________________________________________________
============================================================
Class C 9,408,893
____________________________________________________________
============================================================
Class R 129,953
____________________________________________________________
============================================================
Institutional Class 285,210
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 8.99
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $8.99 divided by
94.50%) $ 9.51
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 8.62
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 8.62
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 8.96
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.08
____________________________________________________________
============================================================
</Table>
* At October 31, 2003, securities with an aggregate market value of $513,411,417
were on loan to brokers.
See Notes to Financial Statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $25,050) $ 5,010,187
- --------------------------------------------------------------------------
Dividends from affiliated money market funds 966,680
- --------------------------------------------------------------------------
Securities lending 1,187,469
==========================================================================
Total investment income 7,164,336
==========================================================================
EXPENSES:
Advisory fees 13,458,191
- --------------------------------------------------------------------------
Administrative services fees 453,825
- --------------------------------------------------------------------------
Custodian fees 148,987
- --------------------------------------------------------------------------
Distribution fees -- Class A 4,512,997
- --------------------------------------------------------------------------
Distribution fees -- Class B 2,320,962
- --------------------------------------------------------------------------
Distribution fees -- Class C 720,696
- --------------------------------------------------------------------------
Distribution fees -- Class R 2,722
- --------------------------------------------------------------------------
Transfer agent fees 7,339,962
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 69
- --------------------------------------------------------------------------
Trustees' fees 45,972
- --------------------------------------------------------------------------
Other 767,241
==========================================================================
Total expenses 29,771,624
==========================================================================
Less: Fees waived and expense offset arrangements (51,005)
==========================================================================
Net expenses 29,720,619
==========================================================================
Net investment income (loss) (22,556,283)
==========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from investment securities 61,969,001
- --------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 408,592,565
==========================================================================
Net gain from investment securities 470,561,566
==========================================================================
Net increase in net assets resulting from operations $448,005,283
__________________________________________________________________________
==========================================================================
</Table>
See Notes to Financial Statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (22,556,283) $ (29,737,807)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 61,969,001 (454,400,428)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 408,592,565 70,396,760
==============================================================================================
Net increase (decrease) in net assets resulting from
operations 448,005,283 (413,741,475)
==============================================================================================
Share transactions-net:
Class A (198,927,862) (368,156,521)
- ----------------------------------------------------------------------------------------------
Class B (13,011,938) (19,209,543)
- ----------------------------------------------------------------------------------------------
Class C (6,417,966) (8,446,307)
- ----------------------------------------------------------------------------------------------
Class R 879,113 133,795
- ----------------------------------------------------------------------------------------------
Institutional Class 1,928,983 145,043
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (215,549,670) (395,533,533)
==============================================================================================
Net increase (decrease) in net assets 232,455,613 (809,275,008)
==============================================================================================
NET ASSETS:
Beginning of year 2,098,074,956 2,907,349,964
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(235,341) and $(208,878) for 2003 and 2002,
respectively) $2,330,530,569 $2,098,074,956
______________________________________________________________________________________________
==============================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Market trends, movement in exchange traded funds and ADRs, and
the bid/ask quotes of brokers and information providers may be reviewed in
the course of making a good faith determination of a security's fair value.
Short-term obligations having 60 days or less to maturity and
F-6
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
ordinarily 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
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses relating to all other classes are
allocated among those classes based on relative net assets. All other
expenses are allocated among the classes based on relative net assets.
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 0.80% 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 year ended October 31,
2003, AIM waived fees of $16,521
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, 2003, AIM was
paid $453,825 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") formerly known as A I M Funds
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. For the Institutional Class, the transfer agent has contractually
agreed to reimburse class specific transfer agent fees to the extent necessary
to limit transfer agent fees to 0.10% of the average net assets. During the year
ended October 31, 2003, AISI retained $3,664,649 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, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, AIM Distributors may pay a service fee up to 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 shares of such classes. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the year ended October 31, 2003,
the Class A, Class B, Class C and Class R shares paid $4,512,997, $2,320,962
$720,696 and $2,722, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2003, AIM Distributors retained $247,028 in front-end sales
commissions from the sale of Class A shares and $54,841, $0, $8,182 and $0 from
Class A,
F-7
Class B and Class C and Class R shares, respectively, for CDSC imposed upon
redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
For the year ended October 31, 2003, the Fund received reductions in transfer
agency fees from AISI (an affiliate of AIM) of $33,957 and reductions in
custodian fees of $527 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $34,484.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. The Trustees deferring compensation have the
option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. Certain former Trustees also
participate in a retirement plan and receive benefits under such plan.
During the year ended October 31, 2003, the Fund paid legal fees of $5,599
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds. An interfund loan will be
made under this facility only if the loan rate (an average of the rate available
on bank loans and the rate available on investments in overnight repurchase
agreements) is favorable to both the lending fund and the borrowing fund. Under
certain circumstances, a loan will be secured by collateral. To the extent that
the loan is required to be secured by collateral, the collateral is marked to
market daily to ensure that the market value is at least 102% of the outstanding
principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the 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 year ended October 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving line of credit facility or the committed line of credit
facility.
Additionally the Fund is permitted to carry a negative or overdrawn balance
in its account with the custodian bank. To compensate the custodian bank for
such overdrafts, the overdrawn Fund may either (i) leave funds in the account so
the custodian can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank. In either case, the custodian bank will
be compensated an amount equal to the Federal Funds rate plus 100 basis points.
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral 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
held may be temporarily less than the value of the securities on loan.
At October 31, 2003, securities with an aggregate value of $513,411,417 were
on loan to brokers. The loans were secured by cash collateral of $522,661,872
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2003, the Fund received fees of $1,187,469 for
securities lending.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
- ------------------------------
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2003 and 2002.
Tax Components of Net Assets:
- -----------------------------
As of October 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 547,008,172
- ------------------------------------------------------------
Temporary book/tax differences (235,341)
- ------------------------------------------------------------
Capital loss carryforward (1,040,156,855)
- ------------------------------------------------------------
Shares of beneficial interest 2,823,914,593
============================================================
Total net assets $ 2,330,530,569
____________________________________________________________
============================================================
</Table>
F-8
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.
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
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ------------------------------------------------------------
October 31, 2009 $ 576,417,831
- ------------------------------------------------------------
October 31, 2010 463,739,024
============================================================
Total capital loss carryforward $1,040,156,855
____________________________________________________________
============================================================
</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 year ended
October 31, 2003 was $1,591,626,604 and $1,744,731,182, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $554,050,882
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (7,042,710)
===========================================================
Net unrealized appreciation of investment
securities $547,008,172
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $2,330,167,405.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of the disallowance of net operating
losses on October 31, 2003, undistributed net investment income (loss) was
increased by $22,529,820, undistributed net realized gains remained unchanged
and shares of beneficial interest decreased by $22,529,820. This
reclassification had no effect on the net assets of the Fund.
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 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 CDSC. Generally, Class B shares will
automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2003 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 35,791,336 $ 277,895,468 44,066,976 $ 384,377,775
- --------------------------------------------------------------------------------------------------------------------------
Class B 4,508,173 33,128,293 6,507,666 55,189,130
- --------------------------------------------------------------------------------------------------------------------------
Class C 2,072,120 15,430,661 2,934,855 24,752,456
- --------------------------------------------------------------------------------------------------------------------------
Class R* 162,296 1,283,289 18,814 133,820
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class** 275,456 2,002,058 18,865 145,043
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 337,998 2,617,107 182,647 1,563,408
- --------------------------------------------------------------------------------------------------------------------------
Class B (351,540) (2,617,107) (188,487) (1,563,408)
==========================================================================================================================
Reacquired:
Class A (62,095,032) (479,440,437) (87,574,389) (754,097,704)
- --------------------------------------------------------------------------------------------------------------------------
Class B (5,947,043) (43,523,124) (8,963,129) (72,835,265)
- --------------------------------------------------------------------------------------------------------------------------
Class C (2,982,429) (21,848,627) (4,058,002) (33,198,763)
- --------------------------------------------------------------------------------------------------------------------------
Class R* (51,154) (404,176) (3) (25)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class** (9,111) (73,075) -- --
==========================================================================================================================
(28,288,930) $(215,549,670) (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.
F-9
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,
---------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.30 $ 8.68 $ 18.41 $ 13.90 $ 10.04
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(b) (0.09)(b) (0.09)(b) (0.13) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.76 (1.29) (6.34) 11.08 4.05
=================================================================================================================================
Total from investment operations 1.69 (1.38) (6.43) 10.95 3.96
=================================================================================================================================
Less distributions:
Distributions from net realized gains -- -- (3.30) (6.44) (0.10)
=================================================================================================================================
Net asset value, end of period $ 8.99 $ 7.30 $ 8.68 $ 18.41 $ 13.90
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 23.15% (15.90)% (40.51)% 47.53% 39.73%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,983,600 $1,798,318 $2,516,407 $4,444,515 $2,808,451
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.30%(d) 1.32% 1.17% 1.04% 1.09%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.96)%(d) (1.00)% (0.79)% (0.77)% (0.69)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 78% 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 and does not include sales
charges.
(d) Ratios are based on average daily net assets of $1,805,198,791.
<Table>
<Caption>
CLASS B(a)
----------------------------------------------------------------
MARCH 1, 1999
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------------------- 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) (0.13)(b) (0.15)(b) (0.17)(b) (0.29) (0.07)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.71 (1.26) (6.20) 11.04 3.03
==============================================================================================================================
Total from investment operations 1.58 (1.41) (6.37) 10.75 2.96
==============================================================================================================================
Less distributions:
Distributions from net realized gains -- -- (3.30) (6.44) --
==============================================================================================================================
Net asset value, end of period $ 8.62 $ 7.04 $ 8.45 $ 18.12 $ 13.81
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(c) 22.44% (16.69)% (40.90)% 46.29% 27.27%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $262,098 $226,806 $294,303 $374,010 $24,914
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets 2.05%(d) 2.07% 1.94% 1.86% 2.08%(e)
==============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.71)%(d) (1.75)% (1.55)% (1.59)% (1.68)%(e)
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate(f) 78% 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 based on average daily net assets of $232,096,158.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-10
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C(a)
-------------------------------------------------------------
MARCH 1, 1999
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------------------- 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) (0.13)(b) (0.15)(b) (0.17)(b) (0.29) (0.07)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.71 (1.26) (6.19) 11.03 3.03
===========================================================================================================================
Total from investment operations 1.58 (1.41) (6.36) 10.74 2.96
===========================================================================================================================
Less distributions:
Distributions from net realized gains -- -- (3.30) (6.44) --
===========================================================================================================================
Net asset value, end of period $ 8.62 $ 7.04 $ 8.45 $ 18.11 $13.81
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(c) 22.44% (16.69)% (40.86)% 46.21% 27.27%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $81,079 $72,676 $96,640 $120,591 $6,807
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 2.05%(d) 2.07% 1.94% 1.86% 2.08%(e)
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.71)%(d) (1.75)% (1.55)% (1.59)% (1.68)%(e)
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(f) 78% 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 based on average daily net assets of $72,069,646.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
-------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.29 $ 8.89
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.04)(a)
- ---------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.77 (1.56)
=============================================================================================
Total from investment operations 1.67 (1.60)
=============================================================================================
Net asset value, end of period $ 8.96 $ 7.29
_____________________________________________________________________________________________
=============================================================================================
Total return(b) 22.91% (18.00)%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,164 $ 137
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets 1.55%(c) 1.62%(d)
=============================================================================================
Ratio of net investment income (loss) to average net assets (1.21)%(c) (1.30)%(d)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(e) 78% 68%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $544,422.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-11
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------
MARCH 15, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.32 $ 9.53
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.02)(a)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.79 (2.19)
==============================================================================================
Total from investment operations 1.76 (2.21)
==============================================================================================
Net asset value, end of period $ 9.08 $ 7.32
______________________________________________________________________________________________
==============================================================================================
Total return(b) 24.04% (23.19)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,589 $ 138
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets 0.71%(c) 0.81%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (0.37)%(c) (0.49)%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate(e) 78% 68%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$1,401,489.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-12
NOTE 12--SUBSEQUENT EVENTS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM") is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("INVESCO"), was, until
recently, the investment advisor to the INVESCO Funds.
On December 2, 2003, each of the Securities and Exchange Commission ("SEC")
and the Office of the Attorney General of the State of New York ("NYAG") filed
civil proceedings against INVESCO and Raymond R. Cunningham, in his capacity as
the Chief Executive Officer of INVESCO. Mr. Cunningham currently holds the
positions of Chief Operating Officer and Senior Vice President of A I M
Management Group, Inc., the parent company of AIM, and he also holds the
position of Senior Vice President with AIM. In addition, on December 2, 2003,
the State of Colorado filed civil proceedings against INVESCO. Neither your Fund
nor any of the funds in the AIM Family of Funds(R), which includes the INVESCO
Funds (the "Funds") has been named as a defendant in any of these proceedings.
The SEC proceeding alleges that INVESCO failed to disclose in the INVESCO
Funds' prospectuses and to the INVESCO Funds' independent directors that INVESCO
had entered into certain arrangements permitting market timing of the INVESCO
Funds. The SEC is seeking injunctions, including permanent injunctions from
serving as an investment advisor, officer or director of an investment company;
an accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG proceeding is also based on the circumstances described above. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief.
The Colorado proceeding is also based on the circumstances described above.
The State of Colorado is seeking injunctions; restitution, disgorgement and
other equitable relief; civil monetary penalties; and other relief.
If INVESCO is unsuccessful in its defense of these proceedings, it could be
barred from serving as an investment advisor for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Similarly, if Mr. Cunningham is unsuccessful in his
defense of these proceedings, he could be barred from serving as an officer or
director of any registered investment company. Such results could also affect
the ability of AIM, or any other investment advisor directly or indirectly owned
by AMVESCAP, from serving as an investment advisor to any registered investment
company, including your Fund. Your Fund has been informed by AIM that, if either
of these results occurs, AIM will seek exemptive relief from the SEC to permit
it to continue to serve as your Fund's investment advisor. There can be no
assurance that such exemptive relief will be granted.
AIM has received inquiries from the SEC, the NASD, Inc., the NYAG and the
Secretary of the Commonwealth of Massachusetts with respect to market timing,
late trading, fair value pricing and other similar issues and AIM has been
providing full cooperation with respect to these inquiries.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
certain Funds, INVESCO, AIM, AMVESCAP and certain related parties, primarily
based upon the allegations in the complaints described above, but also regarding
the funds' fair valuation pricing methodology. Such lawsuits allege a variety of
theories for recovery including, but not limited to: (i) violation of various
provisions of the Federal securities laws; (ii) breach of fiduciary duty; and
(iii) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; interest and the payment of attorneys'
and experts' fees. Additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
Funds, INVESCO, AIM, AMVESCAP and related parties in the future.
As a result of these developments, investors in the Funds might react by
redeeming their investments. This might require the Funds to sell investments to
provide for sufficient liquidity and could also have an adverse effect on the
investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of these matters described above may have on
the Fund or AIM's financial condition.
F-13
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 of AIM Equity Funds), including the schedule
of investments, as of October 31, 2003, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
three years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. 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. Our procedures included confirmation of securities
owned as of October 31, 2003, by correspondence with the custodian and brokers
or by other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Aggressive Growth Fund as of October 31, 2003, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the three years
in the period then ended, in conformity with accounting principles generally
accepted in the United States.
Houston, Texas /s/ ERNST & YOUNG LLP
December 16, 2003
F-14
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Equity Funds, a Delaware statutory
trust, was held on October 21, 2003. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHOLDING
DIRECTORS/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 983,597,298 14,109,942
Frank S. Bayley.............................. 983,595,385 14,111,855
James T. Bunch............................... 983,970,384 13,736,856
Bruce L. Crockett............................ 983,967,974 13,739,266
Albert R. Dowden............................. 983,892,850 13,814,390
Edward K. Dunn, Jr........................... 983,672,087 14,035,153
Jack M. Fields............................... 983,987,281 13,719,959
Carl Frischling.............................. 983,352,244 14,354,996
Robert H. Graham............................. 983,794,290 13,912,950
Gerald J. Lewis.............................. 983,317,525 14,389,715
Prema Mathai-Davis........................... 983,676,086 14,031,154
Lewis F. Pennock............................. 983,703,651 14,003,589
Ruth H. Quigley.............................. 983,356,521 14,350,719
Louis S. Sklar............................... 983,812,619 13,894,621
Larry Soll, Ph.D............................. 983,820,425 13,886,815
Mark H. Williamson........................... 983,676,844 14,030,396
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Equity Funds
F-15
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (the "Trust") is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S)
TRUST SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management Group Inc.
Trustee, Chairman and (financial services holding company); and Director and Vice
President 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); and
Director and Chairman, A I M Capital Management, Inc.
(registered investment advisor), A I M Distributors, Inc.
(registered broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management Company
(registered broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ----------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President Director, Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor) and A I M
Distributors, Inc. (registered broker dealer); Director and
Chairman, AIM Investment Services, Inc. (registered transfer
agent); and Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global investment management
firm)
Formerly: Director, Chairman, President and Chief Executive
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 2003 Consultant
Trustee
Formerly: President and Chief Executive Officer, AMC Cancer
Research Center; and Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie
Trustee
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd.,
Trustee (investment banking firm); and Director, Policy Studies,
Inc. and Van Gilder Insurance Corporation
Formerly: General Counsel and Director, Boettcher & Co.; and
Chairman and Managing Partner, law firm of Davis, Graham &
Stubbs
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology
Trustee consulting company)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business
Trustee corporations, including the Boss Group Ltd. (private
investment and management) and Magellan 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 Group
companies
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and
Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares Corp.
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc.
Trustee (government affairs company) and Texana Timber LP
- ----------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S)
TRUST HELD BY TRUSTEE
- -------------------------------- ----------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 None
Trustee, Chairman and
President
- ------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 Director and Chairman,
Trustee and Executive Vice INVESCO Bond Funds,
President Inc., INVESCO
Combination Stock &
Bond Funds, Inc.,
INVESCO Counselor
Series Funds, Inc.,
INVESCO International
Funds, Inc., INVESCO
Manager Series Funds,
Inc., INVESCO Money
Market Funds, Inc.,
INVESCO Sector Funds,
Inc., INVESCO Stock
Funds, Inc., INVESCO
Treasurer's Series
Funds, Inc. and
INVESCO Variable
Investment Funds, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 Badgley Funds, Inc.
Trustee (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 ACE Limited (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 Cortland Trust, Inc.
Trustee (Chairman) (registered
investment company);
Annuity and Life Re
(Holdings), Ltd.
(insurance company)
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 Administaff
Trustee
- ----------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust. Mr. Williamson became Executive Vice President of
the Trust on March 4, 2003.
(3) Elected trustee of the Trust on October 21, 2003.
Trustees and Officers (continued)
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President Counsel, A I M Management Group Inc. (financial services
holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and 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(5) -- 1947 1988 Director, Chairman and Director of Investments, A I M
Senior Vice President 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 -- Fixed
Vice President 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 M Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 1999 Vice President, A I M Advisors, Inc., and President, Chief
Vice President 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 Advisors, Inc.
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Gary T. Crum(5) -- 1947 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Dana R. Sutton -- 1959 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
</Table>
(3) Elected trustee of the Trust on October 21, 2003.
(4) Mr. Carome became Senior Vice President of the Trust on May 13, 2003.
(5) Information is current as of January 10, 2003.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center
Houston, TX 77046 Suite 100 Suite 100 1401 McKinney, Suite 1200
Houston, TX 77046 Houston, TX 77046-1173 Houston, TX 77010-4035
COUNSEL TO THE FUND
Ballard Spahr COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
1735 Market Street Frankel LLP P.O. Box 4739 Trust Company
Philadelphia, PA 19103 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(4) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(5)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) AIM Small Cap Equity Fund was closed to most
investors on December 19, 2003. For information on who may continue to invest in
AIM Small Cap Equity Fund, please contact your financial advisor. (3) AIM Small
Cap Growth Fund was closed to most investors on March 18, 2002. For information
on who may continue to invest in AIM Small Cap Growth Fund, please contact your
financial advisor. (4) Effective April 30, 2003, AIM Worldwide Spectrum Fund was
renamed AIM Global Value Fund. (5) Effective November 24, 2003, INVESCO
International Blue Chip Value Fund was renamed INVESCO International Core Equity
Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
it carefully before investing. If used after January 20, 2004, this brochure
must be accompanied by a fund Performance & Commentary or by an AIM Quarterly
Performance Review for the most recent quarter-end. Mutual funds distributed by
A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $142 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $345 billion in assets
under management. Data as of September 30, 2003.
AIMinvestments.com AGRO-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- ------------------------------------------------------------------------------------------
MUTUAL RETIREMENT ANNUITIES COLLEGE SEPARATELY OFFSHORE ALTERNATIVE CASH [AIM INVESTMENTS LOGO APPEARS HERE]
FUNDS PRODUCTS SAVINGS MANAGED PRODUCTS INVESTMENTS MANAGEMENT --Servicemark--
PLANS ACCOUNTS
</Table>
AIM BLUE CHIP FUND
Annual Report to Shareholders o October 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM BLUE CHIP FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL AND,
SECONDARILY, CURRENT INCOME.
================================================================================
ABOUT INFORMATION THROUGHOUT THIS REPORT:
<Table>
o Unless otherwise stated, information o The fund's investment return and In addition to fund returns as of the
presented is as of 10/31/03 and is principal value will fluctuate, so an close of the fiscal year, industry
based on total net assets. investor's shares, when redeemed, may regulations require us to provide
be worth more or less than their average annual total returns
o AIM Blue Chip Fund's performance original cost. (including sales charges) for
figures are historical, and they periods ended 9/30/03, the most
reflect fund expenses, the reinvestment o The unmanaged Standard & Poor's recent calendar quarter-end,
of distributions, and changes in net Composite Index of 500 Stocks (the which were as follows.
asset value. S&P 500--Registered Trademark--)
is an index of common stocks AVERAGE ANNUAL TOTAL RETURNS
o When sales charges are included in frequently used as a general measure
performance figures, Class A share of U.S. stock market performance. As of 9/30/03, including sales charges
performance reflects the maximum
5.50% sales charge, and Class B and o The unmanaged Russell 1000 Class A Shares
Class C share performance reflects the --Registered Trademark-- Index Inception (2/4/87) 8.39%
applicable contingent deferred sales represents the performance of the 10 Years 7.84
charge (CDSC) for the period involved. stocks of large-capitalization 5 Years -2.88
The CDSC on Class B shares declines companies. 1 Year 13.14
from 5% beginning at the time of
purchase to 0% at the beginning of the o The unmanaged Lipper Large-Cap Core Class B Shares
seventh year. The CDSC on Class C Fund Index represents an average of Inception (10/1/96) 3.48%
shares is 1% for the first year after the performance of the 30 largest 5 Years -2.83
purchase. The performance of the large-capitalization core equity 1 Year 13.83
fund's share classes will differ due funds tracked by Lipper, Inc., an
to different sales charge structures independent mutual fund performance Class C Shares
and class expenses. monitor. Inception (8/4/87) -1.00%
5 Years -2.43
o Effective 9/30/03, Class B shares o A direct investment cannot be made 1 Year 17.83
are not available as an investment in an index. Unless otherwise
for retirement plans maintained indicated, index results include Class R Shares*
pursuant to Section 401 of the reinvested dividends, and they do not 10 Years 8.30%
Internal Revenue Code, including reflect sales charges. Performance of 5 Years -1.90
401(k) plans, money purchase pension an index of funds reflects fund 1 Year 17.83
plans and profit sharing plans. Plans expenses; performance of a market
that have existing accounts invested index does not. Investor Class Shares**
in Class B shares will continue to 10 Years 8.45%
be allowed to make additional A description of the policies and 5 Years -1.77
purchases. procedures that the fund uses to 1 Year 19.67
determine how to vote proxies
o Class R shares are available only to relating to portfolio securities
certain retirement plans. Please see the is available without charge, upon *The returns shown for these periods
prospectus for more information. Class R request, by calling 800-959-4246, are the blended returns of the historical
shares are sold at net asset value, that or on the AIM Web site, performance of the fund's Class R shares
is, without up-front sales charges. n AIMinvestments.com. since their inception and the restated
Investor Class shares are closed to most historical performance of the fund's
investors. For more information on who Class A shares (for the periods prior to
may continue to invest in the Investor the inception of the Class R shares) at
Class shares, please see the appropriate net asset value, adjusted to reflect the
prospectus. higher Rule 12b-1 fees applicable to the
Class R shares. The inception date of
o Industry classifications used in this Class A shares is 2/4/87. The inception
report are generally according to the date of the fund's Class R shares is
Global Industry Classification Standard, 6/3/02. Calculation of blended returns
which was developed by and is the as of 10/31/03 is from 10/31/93.
exclusive property and a service mark of Calculation of blended returns as of
Morgan Stanley Capital International 9/30/03 is from 9/30/93.
Inc. and Standard & Poor's.
**The returns shown for these periods
are the blended returns of the
historical performance of Investor Class
shares since their inception and the
restated historical performance of the
fund's Class A shares (for the periods
prior to inception of the Investor Class
shares) at net asset value, adjusted to
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 of the fund's Class A
shares is 2/4/87. The inception date of
the fund's Investor Class shares is
9/30/03. Calculation of blended returns
as of 10/31/03 is from 10/31/93.
Calculation of returns as of 9/30/03 is
the restated historical performance of
the fund's Class A shares as described.
Past performance cannot guarantee
comparable future results. Due to
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.
</Table>
<Table>
=====================================================
Not FDIC Insured MAY LOSE VALUE NO BANK GUARANTEE This report may be distributed only to shareholders or to persons
who have received a current prospectus of the fund.
=====================================================
</Table>
AIMinvestments.com
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER IN new policies and strengthened existing ones--to discourage
THE AIM FAMILY OF FUNDS harmful short-term trading. These steps include:
--Registered Trademark--:
o Strengthening daily monitoring of trading activities.
As you may be aware, there has been a
[PHOTO OF great deal of media coverage recently o Imposing redemption fees on additional funds we believe
ROBERT H. about the mutual fund industry and may be vulnerable to harmful short-term trading activity.
GRAHAM allegations of improper activities by
certain individuals and companies. As o Implementing an enhanced exchange policy (effective on
ROBERT H. GRAHAM part of these widespread investigations, or about March 1, 2004) designed to limit exchanges
FINVESCO Funds Group (IFG), the former between funds.
[PHOTO OF adviser to certain INVESCO Funds, was
MARK H. recently named as a defendant in o Employing an enhanced fair value pricing policy on
WILLIAMSON separate civil enforcement actions by certain foreign securities as well as certain illiquid
the U.S. Securities and Exchange securities.
MARK H. WILLIAMSON Commission (SEC), the Office of the New
York Attorney General and the State of None of these tools alone, nor all of them taken
Colorado over an issue known as "market timing." A number together, eliminate the possibility of short-term trading
of private class or derivative actions also were filed in strategies that may be detrimental to a fund. Moreover, each
the wake of the regulators' actions. of these tools involves judgments that are inherently
subjective. We have always sought and continue to seek to
Investors are understandably concerned and frustrated make these judgments to the best of our abilities and in a
about these reports, and we would like to take this manner that we believe is consistent with the best interests
opportunity to assure you that, based on an investigation of our fund shareholders. And we remain committed to being
conducted by an outside firm, IFG and its parent company, as vigilant as possible in the future to identify and
AMVESCAP PLC, believe that these civil actions are without address any harmful market timing investors who have the
merit. IFG is contesting the charges. We encourage you to potential to harm our long-term fund shareholders.
continue to monitor this situation, particularly as IFG has
the opportunity to address the allegations that have been We sincerely hope these developments and the media
made. Current information will be posted on our Web site at coverage surrounding them do not result in you or other
AIMinvestments.com. We will continue to communicate to you shareholders losing confidence in AIM or INVESCO Funds.
on our Web site about our finding, and the actions we are Amidst this storm of controversy in the mutual fund
taking to protect and promote the interests of our industry, we believe we can find encouragement in the
shareholders. The independent trustees of the funds are recovering economy and rising equity markets. As we write
receiving regular reports from their independent counsel and this letter, for instance, the S&P 500--Registered Trademark--
outside counsel hired by AMVESCAP PLC, the parent of AIM and Index is up approximately 23% year-to-date. Although past
IFG, to perform an ongoing investigation of market timing. performance is no guarantee of future results, there appear
to be indicators that the economy and stock markets are
A COMPLEX ISSUE showing signs of welcomed improvement. We encourage you to
read the enclosed discussion of your fund's performance
Market timing is an investment technique not defined in any during this past reporting period.
regulation that involves frequent short-term trading of
mutual fund shares, sometimes with a goal to exploit OUR UNWAVERING COMMITMENT
inefficiencies in the way mutual funds price their shares.
We recognize that fund management companies have tried to At AIM Investments, we have never wavered in our commitment
deal with this complex issue in various ways and believe to helping you build solutions for your financial goals. Our
that industry-wide guidance is in order. To that end, we company was founded on a core principle of integrity, and we
welcome SEC Chairman William Donaldson's pledge to adopt new have always worked hard to earn the trust of our
rules designed to curb market timing abuses. Comprehensive shareholders. We are committed to doing all we can to
rulemaking is necessary and is the best way to establish new maintain your trust and confidence.
industry responsibilities designed to protect shareholders.
We support practical rule changes and structural Thank you for your continued participation in AIM
modifications that are fair, enforceable and, most Investments. Please call your financial advisor or one of
importantly, beneficial for investors. our Client Service representatives at 800-959-4246 if you
have any further questions or concerns about your AIM
AIM Investments has policies in place designed to Investments account.
identify, prevent and eliminate harmful trading or other
activities deemed to be detrimental to the funds. We have
also recently taken additional steps--implemented Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Chairman and President President and CEO
The AIM Family of Funds AIM Investments
--Registered Trademark--
December 18, 2003
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
BLUE-CHIP COMPANIES BENEFIT
FROM SIGNS OF ECONOMIC RECOVERY
<Table>
This report covers the fiscal year ended it lowered that rate to 1.00%, its lowest low debt and a high return on equity
October 31, 2003. Class A shares of AIM level since 1958. The Fed met three times relative to its competitors.
Blue Chip Fund returned 15.94% at net between June 25 and the close of the
asset value for the year. This return is fiscal year, but it did not change the Our target allocation to any one of
slightly less than the return for the federal funds rate. the 10 market sectors was a range from
same period of the fund's peer-group 50% to 150% of the sector's weighting in
index, the Lipper Large-Cap Core Fund The job market was comparatively weak the Russell 1000. If we found a number of
Index, which returned 16.86%. throughout the period, with the U.S. stocks that met our selection criteria,
unemployment rate measuring 6.0% for the we were overweight in that sector. At
MARKET CONDITIONS last two months of 2002, reaching a high times when our stock-selection process
for the reporting period of 6.4% in June, identified only a few qualifying stocks
The growth of the gross domestic product and declining in August and October to within a particular sector, we were
(GDP) improved over the reporting period. end the period at 6.0%. underweight in that sector.
The annualized GDP growth for both the
last quarter of 2002 and the first YOUR FUND Companies that we have identified as
quarter of 2003 was 1.4%. For market leaders often have already
second-quarter 2003, it was 3.3%, AIM Blue Chip Fund continued to focus captured sales leadership, acquired or
annualized. On November 25, after the on market-leading companies. developed preferred technologies, and
close of the reporting period, the Market-leading companies are defined by established strong cash flow. Therefore
preliminary estimate for third-quarter prospectus as large and medium-sized we can take a long-term investment
GDP growth was announced as 8.2%, companies having certain market and perspective, which tends to result in
annualized. financial characteristics. The market long holding periods and relatively low
characteristics of a market leader within fund turnover. Six of the top-10 holdings
The S&P 500 Index, frequently cited as an industry include sales leadership, that were listed in the fund's annual
a measure of the performance of the U.S. superior growth prospects, and ownership report dated October 31, 2002, can be
stock market in general, returned 20.79% of proprietary technology that could found in the top-10 list in this report.
for the year ended October 31, 2003. All impact the industry. The financial The fund's turnover rate remains
sectors of the S&P 500 recorded gains for characteristics of a market leader relatively low. As of October 31, 2003,
the year. include faster earnings growth and/or the annual turnover rate was 27.8%.
higher profit margins than its
For most of the fiscal year, the competitors, strong cash flow, and a During the fiscal year covered by this
Federal Reserve Board (the Fed) kept the balance sheet with relatively report, we have made some changes to the
short-term federal funds rate at 1.25%. sector weightings within the portfolio.
On June 25, 2003, Through both the appreciation of the
fund's holdings and additional purchases,
the fund's technology holdings have
increased. Applying current GICS industry
and sector classifications to the fund's
</Table>
<Table>
==================================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
1. Citigroup Inc. 3.9% 1. Semiconductors 6.9%
2. Microsoft Corp. 3.5 2. Pharmaceuticals 6.7
3. Wal-Mart Stores, Inc. 3.3 3. Systems Software 6.5
4. Cisco Systems, Inc. 2.9 4. Investment Banking & Brokerage 4.8
5. Intel Corp. 2.8 5. Health Care Equipment 4.7
6. Pfizer Inc. 2.5 6. Other Diversified Financial Services 3.9
7. General Electric Co. 2.5 7. Hypermarkets & Super Centers 3.3
8. Exxon Mobil Corp. 2.3 8. Industrial Conglomerates 3.0
9. Procter & Gamble Co. (The) 2.1 9. Semiconductor Equipment 2.9
10. Home Depot, Inc. (The) 1.9 10. Communications Equipment 2.9
* Excludes money market funds.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
==================================================================================================================================
</Table>
2
<Table>
holdings as of October 31, 2002, 16.9% or 25 cents per share for the quarter MONIKA DEGAN
was in technology, but at the end of ended September 30, 2003. This compared [PHOTO OF Monika Degan is the lead
this fiscal year, technology accounted to $686 million, or 10 cents per share, MONIKA manager of AIM Blue Chip
for 24.5%. Technology was the for the same quarter of the previous H. DEGAN] Fund. Ms. Degan joined
best-performing sector in the S&P 500 year. AIM in 1995 as an
for the period. investment officer and portfolio analyst
Stocks that lagged the market during for equity securities and was promoted
Our focus on earnings fundamentals the period included Lockheed Martin (an to her current position in 1997. She has
led us to consciously reduce the aerospace and defense holding in the been in the investment business since
percentage of the fund's holdings in industrials sector), and Johnson & 1991.
health care. Of the remaining eight Johnson (a pharmaceutical company). We
sectors in the index, four are weighted have reduced our holdings in both of Ms. Degan received a B.B.A. in
similarly to the index weighting. These these stocks. finance and an M.B.A. in finance and
sectors include consumer staples, international business, both from the
consumer discretionary, energy and IN CLOSING University of Houston. She is a
financials. The fund remains underweight Chartered Financial Analyst.
in four sectors--materials, We are encouraged by the recent earnings
telecommunications, and reports and some of the economic news of KIRK L. ANDERSON
utilities--because fewer stocks in these late. We are pleased to be able to [PHOTO OF Kirk Anderson is a portfolio
sectors meet our selection criteria. For report positive, double-digit returns KIRK L. manager of AIM Blue Chip
the year ended October 31, 2003, for the fiscal year. We believe that ANDERSON] Fund. He joined AIM in 1994
telecommunications was the market volatility will continue to be a and assumed his current position in 2003.
worst-performing sector in the S&P 500. factor and that complete recovery may be
slow. However, we feel the fund is well Mr. Anderson earned a B.A. in
The fund's holdings in the health positioned, and we strongly believe political science from Texas A&M
care and technology sectors were the that, for most investors, the inclusion University and an M.S. in finance from
strongest contributors to fund of an actively managed, the University of Houston.
performance during the fiscal year. sector-diversified fund that invests in
Within technology, the most important market leaders can be an important part Assisted by the Large Cap Growth Team.
contributors to the fund's return were of a diversified investment portfolio.
Cisco and Intel. Both companies far We appreciate your continued investment
exceeded the returns of the S&P 500's in AIM Blue Chip Fund.
technology sector. Cisco, the dominant
provider of equipment that powers the See important fund and index
Internet and connects networks, posted disclosures inside front cover.
an 89% increase in one-year net income
growth as of its fiscal year-end in July
2003. Intel, the world's largest maker
of semiconductors, reported earnings of
$1.7 billion,
</Table>
For Information Visit
AIMinvestments.com
<Table>
<Caption>
==================================================================================================================================
FUND VS. INDEXES TOTAL NUMBER OF HOLDINGS* 87
PORTFOLIO COMPOSITION BY SECTOR* Total returns 10/31/02-10/31/03, excluding sales charges TOTAL NET ASSETS $2.96 billion
Consumer Discretionary 12.0% Class A Shares 15.94% *Excludes money market funds.
Consumer Staples 8.8 Class B Shares 15.09 ** The one-year return shown for
Investor Class shares is the
Energy 4.0 Class C Shares 15.09 blended return of Investor
Class shares since their
Financials 20.8 Class R Shares 15.62 inception and the restated
one-year performance of the
Health Care 14.7 Investor Class Shares** 15.94 fund's Class A shares at the
net asset value, adjusted to
Industrials 7.8 S&P 500 Index reflect the higher Rule 12b-1
(Broad Market and Style-Specific Index) 20.79 fees applicable to Class A
Information Technology 24.5 shares. Investor Class shares
Lipper Large-Cap Core Fund Index would have different returns
Materials 1.5 (Peer Group Index) 16.86 because, although the shares
are invested in the same
Telecommunication Services 1.6 portfolio of securities, the
Investor Class has a
Utilities 1.6 different expense structure.
The inception date of the
fund's Class A shares is
2/4/87. The inception date
of the fund's Investor
Class shares is 9/30/03.
SOURCE: LIPPER, INC.
==================================================================================================================================
</Table>
[GRAPHIC]
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
10/31/93-10/31/03
[MOUNTAIN CHART]
<Table>
<Caption>
DATE AIM BLUE CHIP FUND RUSSELL 1000 LIPPER LARGE-CAP S&P 500
CLASS A SHARES INDEX CORE FUND INDEX INDEX
10/31/1993 9450 10000 10000 10000
1/31/1994 9830 10349 10392 10365
4/30/1994 9456 9762 9822 9769
7/31/1994 9873 9941 9927 10003
10/31/1994 10228 10311 10228 10386
1/31/1995 10378 10342 10135 10419
4/30/1995 11375 11333 10981 11472
7/31/1995 12296 12542 12030 12611
10/31/1995 12659 13096 12441 13128
1/31/1996 13570 14338 13508 14443
4/30/1996 14383 14878 13998 14934
7/31/1996 14301 14516 13714 14698
10/31/1996 15934 16098 15046 16290
1/31/1997 17459 18015 16585 18245
4/30/1997 17647 18204 16735 18686
7/31/1997 21359 21823 19983 22358
10/31/1997 20665 21224 19327 21519
1/31/1998 22040 22762 20522 23153
4/30/1998 25074 25878 23297 26360
7/31/1998 25437 25939 23793 26674
10/31/1998 24666 25408 22831 26256
1/31/1999 29492 29723 26697 30681
4/30/1999 30176 31132 27634 32114
7/31/1999 30266 31034 27569 32063
10/31/1999 31820 31908 28175 32993
1/31/2000 34504 33280 29541 33853
4/30/2000 36504 35008 31051 35364
7/31/2000 36661 34391 30879 34937
10/31/2000 35512 34798 30889 34999
1/31/2001 33030 33050 29325 33549
4/30/2001 28552 30225 26860 30779
7/31/2001 26497 29336 25913 29934
10/31/2001 23043 25737 23067 26288
1/31/2002 24437 27658 24465 28135
4/30/2002 22712 26604 23573 26896
7/31/2002 19262 22616 20166 22865
10/31/2002 18933 21979 19784 22319
1/31/2003 17843 21416 19065 21663
4/30/2003 19423 23023 20369 23317
7/31/2003 20861 25147 21907 25297
10/31/2003 21951 26884 23120 26959
Source: Lipper, Inc.
</Table>
Past performance cannot guarantee comparable future results. DUE TO 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.
Since the last reporting period, the fund has elected to use the S&P 500 as
its broad-based market index since the S&P 500 is such a widely recognized gauge
of the U.S. equity market. The fund will no longer measure its performance
against the Russell 1000 Index, the index published in previous reports to
shareholders. Because this is the first reporting period since we have adopted
the new index, SEC guidelines require that we compare the fund's performance to
both the old and the new index. In addition, the unmanaged Lipper Large-Cap Core
Fund Index, which may or may not include AIM Blue Chip Fund, is included for
comparison to a peer group.
Your fund's total return includes sales charges, expenses and management
fees. The performance of the fund's share classes 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 and table does not reflect deduction of taxes a shareholder
would pay on fund distributions or sale of fund shares. Performance of the
indexes does not reflect the effects of taxes.
This 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 create the potential for
the original investment to grow to very large numbers.
<Table>
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 10/31/03, including sales charges
Class A Shares Class R Shares*
Inception (2/4/87) 8.67% 10 Years 8.62%
10 Years 8.18 5 Years -2.46
5 Years -3.40 1 Year 15.62
1 Year 9.53
Investor Class Shares**
Class B Shares 10 Years 8.80%
Inception (10/1/96) 4.17% 5 Years -2.30
5 Years -3.36 1 Year 15.94
1 Year 10.09
Class C Shares
Inception (8/4/97) -0.18%
5 Years -2.96
1 Year 14.09
================================================================================
</Table>
*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 the periods prior to
the inception of the Class R shares) at
net asset value, adjusted to reflect the
higher Rule 12b-1 fees applicable to the
Class R shares. The inception date of
Class A shares is 2/4/87. The inception
date of the fund's Class R shares is
6/3/02. Calculation of blended returns
as of 10/31/03 is from 10/31/93.
**The returns shown as of 10/31/03 are
the blended returns of the historical
performance of Investor Class shares
since their inception and the restated
historical performance of the fund's
Class A shares (for the periods prior to
inception of the Investor Class shares)
at net asset value, adjusted to 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 of the
fund's Class A shares is 2/4/87. The
inception date of the fund's Investor
Class shares is 9/30/03. Calculation of
blended returns as of 10/31/03 is from
10/31/93.
4
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/03
AIM BLUE CHIP FUND
<Table>
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is not
For periods ended 10/31/03 indicative of future results. More
The following information has been recent returns may be more or less than
prepared to provide Institutional Class INCEPTION (3/15/02) -6.82% those shown. All returns assume
shareholders with a performance overview 1 Year 16.74 reinvestment of distributions at net
specific to their holdings. asset value. Investment return and
Institutional Class shares are offered principal value will fluctuate so your
exclusively to institutional investors, AVERAGE ANNUAL TOTAL RETURNS shares, when redeemed, may be worth more
including defined contribution plans For periods ended 9/30/03 or less than their original cost. See
that meet certain criteria. Performance (most recent calendar quarter-end) full report for information on
of Institutional Class shares will comparative benchmarks. If you have
differ from performance of Class A INCEPTION (3/15/02) -10.21% questions, please consult your fund
shares due to differing sales charges 1 Year 20.54 prospectus or call 800-451-4246. A I M
and class expenses. Distributors, Inc.
</Table>
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is prepared for institutional investor use only and may not be
quoted, reproduced or shown to members of the public, nor used in written form
as sales literature for public use.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
AIMinvestments.com BCH-INS-1 10/03
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.27%
ADVERTISING-1.08%
Omnicom Group Inc. 400,000 $ 31,920,000
==========================================================================
AEROSPACE & DEFENSE-1.94%
Lockheed Martin Corp. 325,000 15,067,000
- --------------------------------------------------------------------------
United Technologies Corp. 500,000 42,345,000
==========================================================================
57,412,000
==========================================================================
ALUMINUM-0.64%
Alcoa Inc. 600,000 18,942,000
==========================================================================
APPAREL RETAIL-0.61%
Gap, Inc. (The) 950,000 18,126,000
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.48%
Franklin Resources, Inc. 300,000 14,226,000
==========================================================================
BIOTECHNOLOGY-1.88%
Amgen Inc.(a) 900,000 55,584,000
==========================================================================
BREWERS-0.50%
Anheuser-Busch Cos., Inc. 300,000 14,778,000
==========================================================================
BROADCASTING & CABLE TV-0.52%
Clear Channel Communications, Inc. 375,000 15,307,500
==========================================================================
CASINOS & GAMING-0.69%
International Game Technology 625,000 20,468,750
==========================================================================
COMMUNICATIONS EQUIPMENT-2.91%
Cisco Systems, Inc.(a) 4,100,000 86,018,000
==========================================================================
COMPUTER & ELECTRONICS RETAIL-0.99%
Best Buy Co., Inc. 500,000 29,155,000
==========================================================================
COMPUTER HARDWARE-2.76%
Dell Inc.(a) 1,450,000 52,374,000
- --------------------------------------------------------------------------
International Business Machines Corp. 325,000 29,081,000
==========================================================================
81,455,000
==========================================================================
COMPUTER STORAGE & PERIPHERALS-0.84%
EMC Corp.(a) 1,800,000 24,912,000
==========================================================================
CONSUMER FINANCE-2.90%
American Express Co. 900,000 42,237,000
- --------------------------------------------------------------------------
MBNA Corp. 850,000 21,037,500
- --------------------------------------------------------------------------
SLM Corp. 575,000 22,517,000
==========================================================================
85,791,500
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
DATA PROCESSING & OUTSOURCED SERVICES-1.68%
First Data Corp. 850,000 $ 30,345,000
- --------------------------------------------------------------------------
Fiserv, Inc.(a) 550,000 19,426,000
==========================================================================
49,771,000
==========================================================================
DIVERSIFIED BANKS-2.66%
Bank of America Corp. 425,000 32,185,250
- --------------------------------------------------------------------------
Wells Fargo & Co. 825,000 46,464,000
==========================================================================
78,649,250
==========================================================================
DIVERSIFIED CAPITAL MARKETS-1.76%
J.P. Morgan Chase & Co. 1,450,000 52,055,000
==========================================================================
DIVERSIFIED CHEMICALS-0.27%
E. I. du Pont de Nemours & Co. 200,000 8,080,000
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.61%
Apollo Group, Inc.-Class A(a) 525,000 33,353,250
- --------------------------------------------------------------------------
H&R Block, Inc. 300,000 14,127,000
==========================================================================
47,480,250
==========================================================================
ELECTRIC UTILITIES-1.56%
Dominion Resources, Inc. 250,000 15,400,000
- --------------------------------------------------------------------------
FPL Group, Inc. 250,000 15,935,000
- --------------------------------------------------------------------------
Southern Co. (The) 500,000 14,900,000
==========================================================================
46,235,000
==========================================================================
FOOD DISTRIBUTORS-0.85%
Sysco Corp. 750,000 25,245,000
==========================================================================
FOOTWEAR-0.54%
NIKE, Inc.-Class B 250,000 15,975,000
==========================================================================
GENERAL MERCHANDISE STORES-0.74%
Target Corp. 550,000 21,857,000
==========================================================================
HEALTH CARE EQUIPMENT-4.70%
Boston Scientific Corp.(a) 700,000 47,404,000
- --------------------------------------------------------------------------
Medtronic, Inc. 850,000 38,734,500
- --------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 275,000 15,994,000
- --------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 575,000 36,690,750
==========================================================================
138,823,250
==========================================================================
HOME IMPROVEMENT RETAIL-1.94%
Home Depot, Inc. (The) 1,550,000 57,458,500
==========================================================================
HOTELS, RESORTS & CRUISE LINES-0.56%
Carnival Corp. (Panama) 475,000 16,582,250
==========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
HOUSEHOLD PRODUCTS-2.89%
Colgate-Palmolive Co. 450,000 $ 23,935,500
- --------------------------------------------------------------------------
Procter & Gamble Co. (The) 625,000 61,431,250
==========================================================================
85,366,750
==========================================================================
HYPERMARKETS & SUPER CENTERS-3.29%
Wal-Mart Stores, Inc. 1,650,000 97,267,500
==========================================================================
INDUSTRIAL CONGLOMERATES-3.02%
3M Co. 195,000 15,379,650
- --------------------------------------------------------------------------
General Electric Co. 2,550,000 73,975,500
==========================================================================
89,355,150
==========================================================================
INDUSTRIAL GASES-0.54%
Air Products & Chemicals, Inc. 350,000 15,893,500
==========================================================================
INDUSTRIAL MACHINERY-0.52%
Danaher Corp. 185,000 15,327,250
==========================================================================
INTEGRATED OIL & GAS-2.29%
Exxon Mobil Corp. 1,850,000 67,673,000
==========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.61%
SBC Communications Inc. 750,000 17,985,000
==========================================================================
INTERNET RETAIL-0.76%
eBay Inc.(a) 400,000 22,376,000
==========================================================================
INVESTMENT BANKING & BROKERAGE-4.77%
Goldman Sachs Group, Inc. (The) 500,000 46,950,000
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 800,000 47,360,000
- --------------------------------------------------------------------------
Morgan Stanley 850,000 46,639,500
==========================================================================
140,949,500
==========================================================================
LIFE & HEALTH INSURANCE-0.75%
Prudential Financial, Inc. 575,000 22,218,000
==========================================================================
MANAGED HEALTH CARE-1.46%
UnitedHealth Group Inc. 850,000 43,248,000
==========================================================================
MOVIES & ENTERTAINMENT-1.48%
Viacom Inc.-Class B 1,100,000 43,857,000
==========================================================================
MULTI-LINE INSURANCE-1.75%
American International Group, Inc. 850,000 51,705,500
==========================================================================
OIL & GAS DRILLING-1.00%
ENSCO International Inc. 550,000 14,492,500
- --------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 400,000 15,120,000
==========================================================================
29,612,500
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
OIL & GAS EQUIPMENT & SERVICES-0.76%
Schlumberger Ltd. (Netherlands) 475,000 $ 22,310,750
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-3.85%
Citigroup Inc. 2,400,000 113,760,000
==========================================================================
PHARMACEUTICALS-6.69%
Allergan, Inc. 325,000 24,576,500
- --------------------------------------------------------------------------
Johnson & Johnson 750,000 37,747,500
- --------------------------------------------------------------------------
Pfizer Inc. 2,350,000 74,260,000
- --------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 375,000 21,333,750
- --------------------------------------------------------------------------
Wyeth 900,000 39,726,000
==========================================================================
197,643,750
==========================================================================
RAILROADS-0.66%
Canadian National Railway Co. (Canada) 325,000 19,565,000
==========================================================================
REGIONAL BANKS-0.74%
Fifth Third Bancorp 375,000 21,735,000
==========================================================================
RESTAURANTS-0.34%
McDonald's Corp. 400,000 10,004,000
==========================================================================
SEMICONDUCTOR EQUIPMENT-2.93%
Applied Materials, Inc.(a) 1,500,000 35,055,000
- --------------------------------------------------------------------------
KLA-Tencor Corp.(a) 450,000 25,798,500
- --------------------------------------------------------------------------
Novellus Systems, Inc.(a) 625,000 25,806,250
==========================================================================
86,659,750
==========================================================================
SEMICONDUCTORS-6.94%
Analog Devices, Inc.(a) 650,000 28,814,500
- --------------------------------------------------------------------------
Intel Corp. 2,500,000 82,625,000
- --------------------------------------------------------------------------
Linear Technology Corp. 650,000 27,696,500
- --------------------------------------------------------------------------
Microchip Technology Inc. 800,000 26,168,000
- --------------------------------------------------------------------------
Texas Instruments Inc. 500,000 14,460,000
- --------------------------------------------------------------------------
Xilinx, Inc.(a) 800,000 25,360,000
==========================================================================
205,124,000
==========================================================================
SOFT DRINKS-1.28%
Coca-Cola Co. (The) 400,000 18,560,000
- --------------------------------------------------------------------------
PepsiCo, Inc. 400,000 19,128,000
==========================================================================
37,688,000
==========================================================================
SPECIALTY STORES-1.79%
Bed Bath & Beyond Inc.(a) 725,000 30,624,000
- --------------------------------------------------------------------------
Staples, Inc.(a) 825,000 22,126,500
==========================================================================
52,750,500
==========================================================================
SYSTEMS SOFTWARE-6.47%
Computer Associates International, Inc. 675,000 15,876,000
- --------------------------------------------------------------------------
Microsoft Corp. 3,900,000 101,985,000
- --------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
SYSTEMS SOFTWARE-(CONTINUED)
Oracle Corp.(a) 2,500,000 $ 29,900,000
- --------------------------------------------------------------------------
VERITAS Software Corp.(a) 1,200,000 43,380,000
==========================================================================
191,141,000
==========================================================================
THRIFTS & MORTGAGE FINANCE-1.09%
Fannie Mae 450,000 32,260,500
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.99%
AT&T Wireless Services Inc.(a) 1,100,000 7,975,000
- --------------------------------------------------------------------------
Vodafone Group PLC-ADR (United Kingdom) 1,000,000 21,150,000
==========================================================================
29,125,000
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $2,273,576,585) 2,874,909,150
==========================================================================
MONEY MARKET FUNDS-2.18%
STIC Liquid Assets Portfolio(b) 32,255,406 32,255,406
- --------------------------------------------------------------------------
STIC Prime Portfolio(b) 32,255,406 32,255,406
==========================================================================
Total Money Market Funds (Cost
$64,510,812) 64,510,812
==========================================================================
TOTAL INVESTMENTS-99.45% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$2,338,087,397) 2,939,419,962
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
<Caption>
- --------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.02%
STIC Liquid Assets Portfolio(b)(c) 447,700 $ 447,700
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $447,700) 447,700
==========================================================================
TOTAL INVESTMENTS-99.47% (Cost
$2,338,535,097) 2,939,867,662
==========================================================================
OTHER ASSETS LESS LIABILITIES-0.53% 15,680,944
==========================================================================
NET ASSETS-100.00% $2,955,548,606
__________________________________________________________________________
==========================================================================
</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.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$2,273,576,585)* $2,874,909,150
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $64,958,512) 64,958,512
- ------------------------------------------------------------
Receivables for:
Investments sold 24,683,025
- ------------------------------------------------------------
Fund shares sold 2,304,821
- ------------------------------------------------------------
Dividends 3,002,219
- ------------------------------------------------------------
Investment for deferred compensation plan 85,703
- ------------------------------------------------------------
Other assets 89,262
============================================================
Total assets 2,970,032,692
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 2,960,690
- ------------------------------------------------------------
Fund shares reacquired 6,778,210
- ------------------------------------------------------------
Deferred compensation plan 85,703
- ------------------------------------------------------------
Collateral upon return of securities
loaned 447,700
- ------------------------------------------------------------
Accrued distribution fees 1,754,494
- ------------------------------------------------------------
Accrued trustees' fees 113,708
- ------------------------------------------------------------
Accrued transfer agent fees 1,879,182
- ------------------------------------------------------------
Accrued operating expenses 464,399
============================================================
Total liabilities 14,484,086
============================================================
Net assets applicable to shares outstanding $2,955,548,606
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $4,174,409,315
- ------------------------------------------------------------
Undistributed net investment income (loss) (193,930)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (1,819,999,344)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and futures
contracts 601,332,565
============================================================
$2,955,548,606
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,439,517,589
____________________________________________________________
============================================================
Class B $1,223,820,934
____________________________________________________________
============================================================
Class C $ 290,396,300
____________________________________________________________
============================================================
Class R $ 1,577,836
____________________________________________________________
============================================================
Investor Class $ 100,222
____________________________________________________________
============================================================
Institutional Class $ 135,725
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 134,716,761
____________________________________________________________
============================================================
Class B 119,762,062
____________________________________________________________
============================================================
Class C 28,419,655
____________________________________________________________
============================================================
Class R 147,951
____________________________________________________________
============================================================
Investor Class 9,378
____________________________________________________________
============================================================
Institutional Class 12,560
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 10.69
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $10.69 divided by
94.50%) $ 11.31
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 10.22
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 10.22
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 10.66
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 10.69
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 10.81
____________________________________________________________
============================================================
</Table>
* At October 31, 2003, securities with an aggregate market value of $431,970
were on loan to brokers.
See Notes to Financial Statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $79,735) $ 35,405,963
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds 985,598
- ---------------------------------------------------------------------------
Interest 35,871
- ---------------------------------------------------------------------------
Securities lending 34,455
===========================================================================
Total investment income 36,461,887
===========================================================================
EXPENSES:
Advisory fees 17,924,075
- ---------------------------------------------------------------------------
Administrative services fees 540,113
- ---------------------------------------------------------------------------
Custodian fees 190,013
- ---------------------------------------------------------------------------
Distribution fees:
Class A 4,741,551
- ---------------------------------------------------------------------------
Class B 11,597,496
- ---------------------------------------------------------------------------
Class C 2,827,049
- ---------------------------------------------------------------------------
Class R 2,613
- ---------------------------------------------------------------------------
Investor Class 10
- ---------------------------------------------------------------------------
Transfer agent fees 11,540,164
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 81
- ---------------------------------------------------------------------------
Trustees' fees 58,866
- ---------------------------------------------------------------------------
Other 1,213,386
===========================================================================
Total expenses 50,635,417
===========================================================================
Less: Fees waived and expense offset arrangements (72,046)
===========================================================================
Net expenses 50,563,371
===========================================================================
Net investment income (loss) (14,101,484)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (109,521,399)
- ---------------------------------------------------------------------------
Foreign currencies 1,362
- ---------------------------------------------------------------------------
Futures contracts 4,362,825
===========================================================================
(105,157,212)
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 520,451,864
- ---------------------------------------------------------------------------
Foreign currencies (538)
- ---------------------------------------------------------------------------
Futures contracts (1,164,391)
===========================================================================
519,286,935
===========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 414,129,723
===========================================================================
Net increase in net assets resulting from operations $ 400,028,239
___________________________________________________________________________
===========================================================================
</Table>
See Notes to Financial Statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (14,101,484) $ (26,181,399)
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and futures contracts (105,157,212) (605,224,882)
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and futures
contracts 519,286,935 (87,627,440)
===============================================================================================
Net increase (decrease) in net assets resulting from
operations 400,028,239 (719,033,721)
===============================================================================================
Share transactions-net:
Class A (162,460,380) (325,975,435)
- -----------------------------------------------------------------------------------------------
Class B (136,334,779) (303,773,409)
- -----------------------------------------------------------------------------------------------
Class C (51,018,964) (109,471,968)
- -----------------------------------------------------------------------------------------------
Class R 1,425,250 36,356
- -----------------------------------------------------------------------------------------------
Investor Class 99,068 --
- -----------------------------------------------------------------------------------------------
Institutional Class (43,881) 168,155
===============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (348,333,686) (739,016,301)
===============================================================================================
Net increase (decrease) in net assets 51,694,553 (1,458,050,022)
===============================================================================================
NET ASSETS:
Beginning of year 2,903,854,053 4,361,904,075
===============================================================================================
End of year (including undistributed net investment income
(loss) of ($193,930) and ($154,369) for 2003 and 2002,
respectively) $2,955,548,606 $ 2,903,854,053
_______________________________________________________________________________________________
===============================================================================================
</Table>
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Market trends, movement in exchange traded funds and ADRs, and
the bid/ask quotes of brokers and information providers may be reviewed in
the course of making a good faith determination of a security's fair value.
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
ordinarily 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
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are
F-7
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. Reported net realized foreign currency
gains or losses arise from sales of foreign currencies, currency gains or
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
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.
H. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses relating to all other classes are
allocated among those classes based on relative net assets. All other
expenses are allocated among the classes based on relative net assets.
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
$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 year ended October 31,
2003, AIM waived fees of $21,702.
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, 2003, AIM was
paid $540,113 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. For the Institutional Class, the transfer agent has contractually
agreed to reimburse specific transfer agent fees to the extent necessary to
limit transfer agent fees to 0.10% of the average net assets. During the year
ended October 31, 2003, AISI retained $6,046,387 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, the Institutional Class and the Investor
Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1
under the 1940 Act with respect to the Fund's Class A, Class B, Class C, Class R
and the Investor Class shares (collectively the "Plans"). The Fund, pursuant to
the Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the
Fund's average daily net assets of Class A shares, 1.00% of the average daily
net assets of Class B and Class C shares, 0.50% of the average daily net assets
of Class R shares and 0.25% of the average daily net assets of the Investor
Class shares. Of these amounts, AIM Distributors may pay a service fee up to
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 shares of
such classes. Any amounts not paid as a service fee under the Plans would
constitute an asset-based sales charge. NASD Rules also impose a cap on the
total sales charges, including asset-based sales charges that may be paid by any
class of shares of the Fund. Pursuant to the Plans, for the year ended October
31, 2003, the Class A, Class B, Class C, Class R and the Investor Class shares
paid $4,741,551, $11,597,496, $2,827,049, $2,613 and $10, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2003, AIM Distributors retained $345,660 in front-end sales
commissions from the sale of Class A shares and $27,553, $3,029, $17,172 and $0
from
F-8
Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed
upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
For the year ended October 31, 2003, the Fund received reductions in transfer
agency fees from AISI (an affiliate of AIM) of $48,392 and reductions in
custodian fees of $1,952 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $50,344.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. The Trustees deferring compensation have the
option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. Certain former Trustees also
participate in a retirement plan and receive benefits under such plan.
During the year ended October 31, 2003, the Fund paid legal fees of $6,755
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds. An interfund loan will be
made under this facility only if the loan rate (an average of the rate available
on bank loans and the rate available on investments in overnight repurchase
agreements) is favorable to both the lending fund and the borrowing fund. Under
certain circumstances, a loan will be secured by collateral. To the extent that
the loan is required to be secured by collateral, the collateral is marked to
market daily to ensure that the market value is at least 102% of the outstanding
principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the 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 year ended October 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving line of credit facility or the committed line of credit
facility.
Additionally the Fund is permitted to carry a negative or overdrawn balance
in its account with the custodian bank. To compensate the custodian bank for
such overdrafts, the overdrawn Fund may either (i) leave funds in the account so
the custodian can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank. In either case, the custodian bank will
be compensated an amount equal to the Federal Funds rate plus 100 basis points.
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in 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 held may be temporarily less than the
value of the securities on loan.
At October 31, 2003, securities with an aggregate value of $431,970 were on
loan to brokers. The loans were secured by cash collateral of $447,700 received
by the Fund and subsequently invested in an affiliated money market fund. For
the year ended October 31, 2003, the Fund received fees of $34,455 for
securities lending.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2003 and 2002.
Tax Components of Net Assets:
As of October 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 557,955,231
- ------------------------------------------------------------
Temporary book/tax differences (193,930)
- ------------------------------------------------------------
Capital loss carryforward (1,776,622,010)
- ------------------------------------------------------------
Shares of beneficial interest 4,174,409,315
============================================================
Total net assets $ 2,955,548,606
____________________________________________________________
============================================================
</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
F-9
unrealized appreciation 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
trustee retirement plan expenses.
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
- ------------------------------------------------------------
October 31, 2011 102,882,323
============================================================
Total capital loss carryforward $1,776,622,010
____________________________________________________________
============================================================
</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 year ended
October 31, 2003 was $752,061,350 and $1,056,490,615, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $611,034,149
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (53,078,918)
===========================================================
Net unrealized appreciation of investment
securities $557,955,231
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $2,381,912,431.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on October 31, 2003, undistributed net
investment income was increased by $14,061,923, undistributed net realized gains
decreased by $1,362 and shares of beneficial interest decreased by $14,060,561.
This reclassification had no effect on net assets of the Fund.
F-10
NOTE 10--SHARE INFORMATION
The Fund currently consists of six different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares, the Institutional Class shares
and the Investor Class shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with CDSC. Class R shares,
the Institutional Class shares and the Investor Class shares are sold at net
asset value. Under some circumstances, Class A shares and Class R shares are
subject to CDSC. Generally, Class B shares will automatically convert to Class A
shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2003 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 30,092,109 $ 289,868,346 35,714,782 $ 388,117,102
- --------------------------------------------------------------------------------------------------------------------------
Class B 12,053,281 111,049,162 15,784,454 168,633,848
- --------------------------------------------------------------------------------------------------------------------------
Class C 4,161,204 38,212,257 5,922,957 63,436,977
- --------------------------------------------------------------------------------------------------------------------------
Class R* 164,023 1,619,420 3,975 36,381
- --------------------------------------------------------------------------------------------------------------------------
Investor Class** 12,285 130,138 -- --
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class*** -- -- 19,795 192,879
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 1,670,042 16,099,491 1,132,609 12,298,772
- --------------------------------------------------------------------------------------------------------------------------
Class B (1,741,215) (16,099,491) (1,170,222) (12,298,772)
==========================================================================================================================
Reacquired:
Class A (49,132,867) (468,428,217) (68,970,741) (726,391,309)
- --------------------------------------------------------------------------------------------------------------------------
Class B (25,556,829) (231,284,450) (45,721,299) (460,108,485)
- --------------------------------------------------------------------------------------------------------------------------
Class C (9,824,798) (89,231,221) (16,701,794) (172,908,945)
- --------------------------------------------------------------------------------------------------------------------------
Class R* (20,044) (194,170) (3) (25)
- --------------------------------------------------------------------------------------------------------------------------
Investor Class** (2,907) (31,070) -- --
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class*** (4,720) (43,881) (2,515) (24,724)
==========================================================================================================================
(38,130,436) $(348,333,686) (73,988,002) $(739,016,301)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
** Investor Class shares commenced sales on September 30, 2003.
*** Institutional Class shares commenced sales on March 15, 2002.
F-11
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,
-----------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.22 $ 11.22 $ 17.29 $ 15.49 $ 12.05
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.04)(b) (0.04) (0.05)(b) 0.01
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 1.49 (1.96) (6.03) 1.85 3.47
=================================================================================================================================
Total from investment operations 1.47 (2.00) (6.07) 1.80 3.48
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gains -- -- -- -- (0.03)
=================================================================================================================================
Total distributions -- -- -- -- (0.04)
=================================================================================================================================
Net asset value, end of period $ 10.69 $ 9.22 $ 11.22 $ 17.29 $ 15.49
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 15.94% (17.82)% (35.11)% 11.60% 29.01%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,439,518 $1,402,589 $2,067,602 $3,163,453 $2,299,551
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.47%(d) 1.40% 1.28% 1.19% 1.19%
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (0.17)%(d) (0.33)% (0.29)% (0.31)% 0.03%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 28% 28% 31% 22% 22%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information for all periods prior to October 31, 2000 has 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 and does not include sales
charges.
(d) Ratios are based on average daily net assets of $1,354,728,865.
<Table>
<Caption>
CLASS B(a)
-----------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.88 $ 10.87 $ 16.87 $ 15.22 $ 11.91
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08) (0.10)(b) (0.13) (0.17)(b) (0.10)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 1.42 (1.89) (5.87) 1.82 3.44
=================================================================================================================================
Total from investment operations 1.34 (1.99) (6.00) 1.65 3.34
=================================================================================================================================
Less distributions from net realized
gains -- -- -- -- (0.03)
=================================================================================================================================
Net asset value, end of period $ 10.22 $ 8.88 $ 10.87 $ 16.87 $ 15.22
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 15.09% (18.31)% (35.57)% 10.87% 28.08%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,223,821 $1,198,513 $1,806,464 $2,746,149 $1,891,171
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 2.12%(d) 2.05% 1.94% 1.88% 1.91%
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (0.82)%(d) (0.98)% (0.94)% (1.00)% (0.68)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 28% 28% 31% 22% 22%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information for all periods prior to October 31, 2000 has 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 and does not include sales
charges.
(d) Ratios are based on average daily net assets of $1,159,749,563.
F-12
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C(a)
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.88 $ 10.87 $ 16.86 $ 15.21 $ 11.91
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08) (0.10)(b) (0.13) (0.17)(b) (0.10)(b)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.42 (1.89) (5.86) 1.82 3.43
=========================================================================================================================
Total from investment operations 1.34 (1.99) (5.99) 1.65 3.33
=========================================================================================================================
Less distributions from net realized gains -- -- -- -- (0.03)
=========================================================================================================================
Net asset value, end of period $ 10.22 $ 8.88 $ 10.87 $ 16.86 $ 15.21
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 15.09% (18.31)% (35.53)% 10.82% 28.09%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $290,396 $302,555 $487,838 $720,186 $349,951
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 2.12%(d) 2.05% 1.94% 1.88% 1.90%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.82)%(d) (0.98)% (0.94)% (1.00)% (0.68)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 28% 28% 31% 22% 22%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</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 and does not include sales
charges.
(d) Ratios are based on average daily net assets of $282,704,852.
<Table>
<Caption>
CLASS R
----------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- ------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.22 $ 10.53
- ------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00) (0.02)(a)
- ------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.44 (1.29)
==========================================================================================
Total from investment operations 1.44 (1.31)
==========================================================================================
Net asset value, end of period $10.66 $ 9.22
__________________________________________________________________________________________
==========================================================================================
Total return(b) 15.62% (12.44)%
__________________________________________________________________________________________
==========================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,578 $ 37
__________________________________________________________________________________________
==========================================================================================
Ratio of expenses to average net assets 1.62%(c) 1.55%(d)
==========================================================================================
Ratio of net investment income (loss) to average net assets (0.32)%(c) (0.49)%(d)
__________________________________________________________________________________________
==========================================================================================
Portfolio turnover rate(e) 28% 28%
__________________________________________________________________________________________
==========================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $522,665.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-13
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
------------------
SEPTEMBER 30, 2003
(DATE SALES
COMMENCED)
TO OCTOBER 31,
2003
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $10.16
- ----------------------------------------------------------------------------------
Income from investment operations:
Net Investment income (loss) (0.00)
- ----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.53
==================================================================================
Total from investment operations 0.53
==================================================================================
Net asset value, end of period $10.69
__________________________________________________________________________________
==================================================================================
Total return(a) 5.22%
__________________________________________________________________________________
==================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 100
__________________________________________________________________________________
==================================================================================
Ratio of expenses to average net assets 1.29%(b)
==================================================================================
Ratio of net investment income (loss) to average net assets (0.01)%(b)
__________________________________________________________________________________
==================================================================================
Portfolio turnover rate(c) 28%
__________________________________________________________________________________
==================================================================================
</Table>
(a) 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.
(b) Ratios are annualized and based on average daily net assets of $49,231.
(c) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------
MARCH 15, 2002
(DATE SALES
YEAR ENDED COMMENCED)
OCTOBER 31, TO OCTOBER 31,
2003 2002
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.26 $ 12.13
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.06 0.02(a)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.49 (2.89)
==============================================================================================
Total from investment operations 1.55 (2.87)
==============================================================================================
Net asset value, end of period $10.81 $ 9.26
______________________________________________________________________________________________
==============================================================================================
Total return(b) 16.74% (23.66)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 136 $ 160
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets 0.77%(c) 0.77%(d)
==============================================================================================
Ratio of net investment income to average net assets 0.53%(c) 0.30%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate(e) 28% 28%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $141,917.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-14
NOTE 12--SUBSEQUENT EVENTS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM") is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("INVESCO"), was, until
recently, the investment advisor to the INVESCO Funds.
On December 2, 2003, each of the Securities and Exchange Commission ("SEC")
and the Office of the Attorney General of the State of New York ("NYAG") filed
civil proceedings against INVESCO and Raymond R. Cunningham, in his capacity as
the Chief Executive Officer of INVESCO. Mr. Cunningham currently holds the
positions of Chief Operating Officer and Senior Vice President of A I M
Management Group, Inc., the parent company of AIM, and he also holds the
position of Senior Vice President with AIM. In addition, on December 2, 2003,
the State of Colorado filed civil proceedings against INVESCO. Neither your Fund
nor any of the funds in the AIM Family of Funds(R), which includes the INVESCO
Funds (the "Funds") has been named as a defendant in any of these proceedings.
The SEC proceeding alleges that INVESCO failed to disclose in the INVESCO
Funds' prospectuses and to the INVESCO Funds' independent directors that INVESCO
had entered into certain arrangements permitting market timing of the INVESCO
Funds. The SEC is seeking injunctions, including permanent injunctions from
serving as an investment advisor, officer or director of an investment company;
an accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG proceeding is also based on the circumstances described above. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief.
The Colorado proceeding is also based on the circumstances described above.
The State of Colorado is seeking injunctions; restitution, disgorgement and
other equitable relief; civil monetary penalties; and other relief.
If INVESCO is unsuccessful in its defense of these proceedings, it could be
barred from serving as an investment advisor for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Similarly, if Mr. Cunningham is unsuccessful in his
defense of these proceedings, he could be barred from serving as an officer or
director of any registered investment company. Such results could also affect
the ability of AIM, or any other investment advisor directly or indirectly owned
by AMVESCAP, from serving as an investment advisor to any registered investment
company, including your Fund. Your Fund has been informed by AIM that, if either
of these results occurs, AIM will seek exemptive relief from the SEC to permit
it to continue to serve as your Fund's investment advisor. There can be no
assurance that such exemptive relief will be granted.
AIM has received inquiries from the SEC, the NASD, Inc., the NYAG and the
Secretary of the Commonwealth of Massachusetts with respect to market timing,
late trading, fair value pricing and other similar issues and AIM has been
providing full cooperation with respect to these inquiries.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
certain Funds, INVESCO, AIM, AMVESCAP and certain related parties, primarily
based upon the allegations in the complaints described above, but also regarding
the funds' fair valuation pricing methodology. Such lawsuits allege a variety of
theories for recovery including, but not limited to: (i) violation of various
provisions of the Federal securities laws; (ii) breach of fiduciary duty; and
(iii) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; interest and the payment of attorneys'
and experts' fees. Additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
Funds, INVESCO, AIM, AMVESCAP and related parties in the future.
As a result of these developments, investors in the Funds might react by
redeeming their investments. This might require the Funds to sell investments to
provide for sufficient liquidity and could also have an adverse effect on the
investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of these matters described above may have on
the Fund or AIM's financial condition.
F-15
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 of AIM Equity Funds), including the schedule of
investments, as of October 31, 2003, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
three years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. 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. Our procedures included confirmation of securities
owned as of October 31, 2003, by correspondence with the custodian and brokers
or by other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Blue Chip Fund as of October 31, 2003, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended, in conformity with accounting principles generally
accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
December 16, 2003
F-16
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Equity Funds, a Delaware statutory
trust, was held on October 21, 2003. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHOLDING
DIRECTORS/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 983,597,298 14,109,942
Frank S. Bayley.............................. 983,595,385 14,111,855
James T. Bunch............................... 983,970,384 13,736,856
Bruce L. Crockett............................ 983,967,974 13,739,266
Albert R. Dowden............................. 983,892,850 13,814,390
Edward K. Dunn, Jr........................... 983,672,087 14,035,153
Jack M. Fields............................... 983,987,281 13,719,959
Carl Frischling.............................. 983,352,244 14,354,996
Robert H. Graham............................. 983,794,290 13,912,950
Gerald J. Lewis.............................. 983,317,525 14,389,715
Prema Mathai-Davis........................... 983,676,086 14,031,154
Lewis F. Pennock............................. 983,703,651 14,003,589
Ruth H. Quigley.............................. 983,356,521 14,350,719
Louis S. Sklar............................... 983,812,619 13,894,621
Larry Soll, Ph.D............................. 983,820,425 13,886,815
Mark H. Williamson........................... 983,676,844 14,030,396
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Equity Funds.
F-17
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement,
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S)
TRUST SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management Group Inc.
Trustee, Chairman and (financial services holding company); and Director and Vice
President 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); and
Director and Chairman, A I M Capital Management, Inc.
(registered investment advisor), A I M Distributors, Inc.
(registered broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management Company
(registered broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ----------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President Director, Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor) and A I M
Distributors, Inc. (registered broker dealer); Director and
Chairman, AIM Investment Services, Inc. (registered transfer
agent); and Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global investment management
firm)
Formerly: Director, Chairman, President and Chief Executive
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 2003 Consultant
Trustee
Formerly: President and Chief Executive Officer, AMC Cancer
Research Center; and Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie
Trustee
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd.,
Trustee (investment banking firm); and Director, Policy Studies,
Inc. and Van Gilder Insurance Corporation
Formerly: General Counsel and Director, Boettcher & Co.; and
Chairman and Managing Partner, law firm of Davis, Graham &
Stubbs
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology
Trustee consulting company)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business
Trustee corporations, including the Boss Group Ltd. (private
investment and management) and Magellan 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 Group
companies
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and
Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares Corp.
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc.
Trustee (government affairs company) and Texana Timber LP
- ----------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S)
TRUST HELD BY TRUSTEE
- -------------------------------- ----------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 None
Trustee, Chairman and
President
- ------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 Director and Chairman,
Trustee and Executive Vice INVESCO Bond Funds,
President Inc., INVESCO
Combination Stock &
Bond Funds, Inc.,
INVESCO Counselor
Series Funds, Inc.,
INVESCO International
Funds, Inc., INVESCO
Manager Series Funds,
Inc., INVESCO Money
Market Funds, Inc.,
INVESCO Sector Funds,
Inc., INVESCO Stock
Funds, Inc., INVESCO
Treasurer's Series
Funds, Inc. and
INVESCO Variable
Investment Funds, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 Badgley Funds, Inc.
Trustee (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 ACE Limited (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 Cortland Trust, Inc.
Trustee (Chairman) (registered
investment company);
Annuity and Life Re
(Holdings), Ltd.
(insurance company)
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 Administaff
Trustee
- ----------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust. Mr. Williamson became Executive Vice President of
the Trust on March 4, 2003.
(3) Elected trustee of the Trust on October 21, 2003.
Trustees and Officers (continued)
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement,
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President Counsel, A I M Management Group Inc. (financial services
holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and 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(5) -- 1947 1988 Director, Chairman and Director of Investments, A I M
Senior Vice President 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 -- Fixed
Vice President 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 M Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 1999 Vice President, A I M Advisors, Inc., and President, Chief
Vice President 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 Advisors, Inc.
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Gary T. Crum(5) -- 1947 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Dana R. Sutton -- 1959 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
</Table>
(3) Elected trustee of the Trust on October 21, 2003.
(4) Mr. Carome became Senior Vice President of the Trust on May 13, 2003.
(5) Information is current as of January 10, 2003.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center
Houston, TX 77046 Suite 100 Suite 100 1401 McKinney, Suite 1200
Houston, TX 77046 Houston, TX 77046-1173 Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
Andrews & Ingersoll, LLP Frankel LLP P.O. Box 4739 Trust Company
1735 Market Street 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103 New York, NY 10022-3852 Boston, MA 02110
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(4) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(5)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) AIM Small Cap Equity Fund was closed to most
investors on December 19, 2003. For information on who may continue to invest in
AIM Small Cap Equity Fund, please contact your financial advisor. (3) AIM Small
Cap Growth Fund was closed to most investors on March 18, 2002. For information
on who may continue to invest in AIM Small Cap Growth Fund, please contact your
financial advisor. (4) Effective April 30, 2003, AIM Worldwide Spectrum Fund was
renamed AIM Global Value Fund. (5) Effective November 24, 2003, INVESCO
International Blue Chip Value Fund was renamed INVESCO International Core Equity
Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
it carefully before investing. If used after January 20, 2004, this brochure
must be accompanied by a fund Performance & Commentary or by an AIM Quarterly
Performance Review for the most recent quarter-end. Mutual funds distributed by
A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $142 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $345 billion in assets
under management. Data as of September 30, 2003.
AIMinvestments.com BCH-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- ------------------------------------------------------------------------------------------
MUTUAL RETIREMENT ANNUITIES COLLEGE SEPARATELY OFFSHORE ALTERNATIVE CASH [AIM INVESTMENTS LOGO APPEARS HERE]
FUNDS PRODUCTS SAVINGS MANAGED PRODUCTS INVESTMENTS MANAGEMENT --Servicemark--
PLANS ACCOUNTS
</Table>
AIM CAPITAL DEVELOPMENT FUND
Annual Report to Shareholders o October 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM CAPITAL DEVELOPMENT FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
================================================================================
ABOUT INFORMATION THROUGHOUT THIS REPORT:
<Table>
o Unless otherwise stated, information o Class R shares are available only to o The unmanaged Standard & Poor's
presented is as of 10/31/03 and is based certain retirement plans. Please see the Composite Index of 500 Stocks (the S&P
on total net assets. prospectus for more information. They 500--Registered Trademark--) is an index
are sold at net asset value, that is, of common stocks frequently used as a
o AIM Capital Development Fund's without up-front sales charges. general measure of U.S. stock market
performance figures are historical, and performance.
they reflect fund expenses, the o The fund's investment return and
reinvestment of distributions, and principal value will fluctuate, so an o Bloomberg, Inc. is a well-known
changes in net asset value. investor's shares, when redeemed, may be independent financial research and
worth more or less than their original reporting firm.
o When sales charges are included in cost.
performance figures, Class A share o A direct investment cannot be made in
performance reflects the maximum 5.50% o Investing in small and mid-size an index. Unless otherwise indicated,
sales charge, and Class B and Class C companies may involve risks not index results include reinvested
share performance reflects the associated with investing in more dividends, and they do not reflect sales
applicable contingent deferred sales established companies. Also, small charges or fund expenses. Performance of
charge (CDSC) for the period involved. companies may have business risk, an index of funds reflects fund
The CDSC on Class B shares declines from significant stock price fluctuations and expenses; performance of a market index
5% beginning at the time of purchase to illiquidity. does not.
0% at the beginning of the seventh year.
The CDSC on Class C shares is 1% for the o Industry classifications used in this A DESCRIPTION OF THE POLICIES AND
first year after purchase. The report are generally according to the PROCEDURES THAT THE FUND USES TO
performance of the fund's share classes Global Industry Classification Standard, DETERMINE HOW TO VOTE PROXIES RELATING
will differ due to different sales which was developed by and is the TO PORTFOLIO SECURITIES IS AVAILABLE
charge structures and class expenses. exclusive property and a service mark of WITHOUT CHARGE, UPON REQUEST, BY CALLING
Morgan Stanley Capital International 800-959-4246, OR ON THE AIM WEB SITE,
o Effective 9/30/03, Class B shares are Inc. and Standard & Poor's. AIMINVESTMENTS.COM.
not available as an investment for
retirement plans maintained pursuant to o The unmanaged Lipper Mid-Cap Core Fund
Section 401 of the Internal Revenue Index represents an average of the
Code, including 401(k) plans, money performance of the 30 largest
purchase pension plans and profit mid-capitalization core funds tracked by
sharing plans. Plans that have existing Lipper, Inc., an independent mutual fund
accounts invested in Class B shares will performance monitor.
continue to be allowed to make
additional purchases. o The unmanaged Russell 2500--Registered
Trademark-- Index measures the
performance of the 2,500 smallest
companies in the Russell
3000--Registered Trademark-- Index,
which measures the performance of the
3,000 largest companies based on market
capitalization.
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<Table>
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE This report may be distributed only to shareholders or
===================================================== to persons who have received a current prospectus of
AIMinvestments.com the fund.
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TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER IN new policies and strengthened existing ones--to discourage
THE AIM FAMILY OF FUNDS harmful short-term trading. These steps include:
--Registered Trademark--:
o Strengthening daily monitoring of trading activities.
As you may be aware, there has been a
[PHOTO OF great deal of media coverage recently o Imposing redemption fees on additional funds we believe
ROBERT H. about the mutual fund industry and may be vulnerable to harmful short-term trading
GRAHAM] allegations of improper activities by activity.
certain individuals and companies. As
ROBERT H. GRAHAM part of these widespread investigations, o Implementing an enhanced exchange policy (effective on
INVESCO Funds Group (IFG), the former or about March 1, 2004) designed to limit exchanges
[PHOTO OF adviser to certain INVESCO Funds, was between funds.
MARK H. recently named as a defendant in
WILLIAMSON] separate civil enforcement actions by o Employing an enhanced fair value pricing policy on
the U.S. Securities and Exchange certain foreign securities as well as certain illiquid
MARK H. WILLIAMSON Commission (SEC), the Office of the New securities.
York Attorney General and the State of
Colorado over an issue known as "market timing." A number of None of these tools alone, nor all of them taken together,
private class or derivative actions also were filed in the eliminate the possibility of short-term trading strategies
wake of the regulators' actions. that may be detrimental to a fund. Moreover, each of these
tools involves judgments that are inherently subjective. We
Investors are understandably concerned and frustrated have always sought and continue to seek to make these
about these reports, and we would like to take this judgments to the best of our abilities and in a manner that
opportunity to assure you that, based on an investigation we believe is consistent with the best interests of our fund
conducted by an outside firm, IFG and its parent company, shareholders. And we remain committed to being as vigilant
AMVESCAP PLC, believe that these civil actions are without as possible in the future to identify and address any
merit. IFG is contesting the charges. harmful market timing investors who have the potential to
harm our long-term fund shareholders.
We encourage you to continue to monitor this situation,
particularly as IFG has the opportunity to address the We sincerely hope these developments and the media
allegations that have been made. Current information will be coverage surrounding them do not result in you or other
posted on our Web site at AIMinvestments.com. We will shareholders losing confidence in AIM or INVESCO Funds.
continue to communicate to you on our Web site about our Amidst this storm of controversy in the mutual fund
finding, and the actions we are taking to protect and industry, we believe we can find encouragement in the
promote the interests of our shareholders. The independent recovering economy and rising equity markets. As we write
trustees of the funds are receiving regular reports from this letter, for instance, the S&P 500--Registered
their independent counsel and outside counsel hired by Trademark-- Index is up approximately 23% year-to-date.
AMVESCAP PLC, the parent of AIM and IFG, to perform an Although past performance is no guarantee of future results,
ongoing investigation of market timing. there appear to be indicators that the economy and stock
markets are showing signs of welcomed improvement. We
A COMPLEX ISSUE encourage you to read the enclosed discussion of your fund's
performance during this past reporting period.
Market timing is an investment technique not defined in any
regulation that involves frequent short-term trading of OUR UNWAVERING COMMITMENT
mutual fund shares, sometimes with a goal to exploit
inefficiencies in the way mutual funds price their shares. At AIM Investments, we have never wavered in our commitment
We recognize that fund management companies have tried to to helping you build solutions for your financial goals. Our
deal with this complex issue in various ways and believe company was founded on a core principle of integrity, and we
that industry-wide guidance is in order. To that end, we have always worked hard to earn the trust of our
welcome SEC Chairman William Donaldson's pledge to adopt new shareholders. We are committed to doing all we can to
rules designed to curb market timing abuses. Comprehensive maintain your trust and confidence.
rulemaking is necessary and is the best way to establish new
industry responsibilities designed to protect shareholders. Thank you for your continued participation in AIM
We support practical rule changes and structural Investments. Please call your financial advisor or one of
modifications that are fair, enforceable and, most our Client Service representatives at 800-959-4246 if you
importantly, beneficial for investors. have any further questions or concerns about your AIM
Investments account.
AIM Investments has policies in place designed to
identify, prevent and eliminate harmful trading or other Sincerely,
activities deemed to be detrimental to the funds. We have
also recently taken additional steps--implemented /s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Chairman and President President and CEO
The AIM Family of Funds AIM Investments
--Registered Trademark--
December 18, 2003
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MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND DELIVERS POSITIVE RETURN services, consumer staples and health
care were the weakest-performing sectors.
This report covers the fiscal year ended to its lowest level for the fiscal year Small- and mid-cap stocks generally
October 31, 2003. During this period, on March 11, 2003. The index then outperformed large-cap stocks. While the
your fund recorded positive returns. At rallied, posting a gain of 32.67% from performance of large-cap growth and
net asset value, Class A shares produced its low on March 11 through the end of large-cap value stocks was similar, mid-
a total return of 30.16%. By comparison, the reporting period. and small-cap growth stocks generally
the Lipper Mid-Cap Core Fund Index, the outperformed their value counterparts by
Russell 2500 Index and the S&P 500 Index During this rally, the United States wider margins.
returned 32.01%, 41.69% and 20.79%, and its allies took military action
respectively, over the same period. The against Iraq and ousted the regime of =========================================
fund outperformed the market in general, Saddam Hussein. The nation's gross
as measured by the S&P 500 Index, because domestic product (GDP), generally SMALL- AND MID-CAP
of its focus on mid-cap stocks while it considered the broadest measure of
performed in line with funds with similar economic activity, expanded at an STOCKS GENERALLY
strategies, as measured by the Lipper annualized rate of 3.3% in the second
Mid-Cap Core Fund Index. We believe the quarter and 8.2% in the third quarter of OUTPERFORMED
fund underperformed the Russell 2500 2003. As of the close of the fiscal year,
Index because of the index's greater 405 companies in the S&P 500 had reported LARGE-CAP STOCKS.
exposure to small-cap stocks, which third-quarter earnings. A total of 65.4%
generally outperformed mid-cap stocks. of those companies reported earnings that =========================================
exceeded expectations compared to 60.2%
MARKET CONDITIONS for the third quarter of 2002, according YOUR FUND
to Bloomberg. The job market remained
Amid a backdrop of generally improving weak, however, as the nation's At the close of the fiscal year, the
economic conditions, the S&P 500 returned unemployment rate stood at 6.0% at the portfolio's three largest sector
20.79% for the year ended October 31, close of the reporting period. weightings were in information
2003. The index rose in November 2002, technology, consumer discretionary and
then declined over the next three months, All sectors of the S&P 500 Index financials. These sectors also had the
dropping recorded gains for the fiscal year. most positive impact on fund performance
Information technology, materials and for the reporting period while the
utilities were the top-performing sectors sectors that contributed the least were
while telecommunication consumer staples, energy and utilities.
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TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
1. Omnicare, Inc. 1.6% 1. Thrifts & Mortgage Finance 5.6%
2. Friedman, Billings, Ramsey Group, Inc.-Class A 1.4 2. Application Software 4.4
3. Advance Auto Parts, Inc. 1.3 3. Semiconductors 3.9
4. American Financial Realty Trust 1.3 4. Data Processing & Outsourced Services 3.6
5. American Standard Cos. Inc. 1.2 5. Specialty Stores 3.4
6. Bard (C.R.) Inc. 1.2 6. Health Care Services 3.3
7. Caremark RX, Inc. 1.2 7. Electronic Equipment Manufacturers 3.2
8. New York Community Bancorp, Inc. 1.2 8. Pharmaceuticals 3.1
9. Ruby Tuesday, Inc. 1.2 9. Health Care Equipment 2.7
10. Fisher Scientific International Inc. 1.2 10. Real Estate 2.6
* Excludes money market fund holdings.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
====================================================================================================================================
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2
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As economic conditions improved, we computer products mainly through [PHOTO OF MICHAEL CHAPMAN
adjusted the portfolio to potentially catalogues and its Web site. We continue MICHAEL Mr. Chapman began his
take advantage of this trend. For to hold this stock because CDW reported CHAPMAN] investment career in 1995
example, the fund's exposure to the record third-quarter earnings, and the as an analyst and then
information technology sector, generally stock outperformed the benchmark since portfolio manager with U.S.
considered more aggressive, increased the market low in March through the end Global Investors, Inc. He joined AIM in
between the beginning and end of the of the reporting period. 2001 and was promoted to his current
reporting period while its weighting in position in 2002. Prior to joining AIM,
the consumer-discretionary sector, also IN CLOSING he was an equity analyst with Chase
considered more economically sensitive, Manhattan Bank and a securities analyst
remained about the same. We also reduced We continue to work diligently to meet with Gulf Investment Management.
the fund's relatively small weighting in the fund's investment objective of growth
large-cap stocks. By the close of the of capital. Regardless of market trends, Mr. Chapman has a B.S. in petroleum
reporting period, mid- and small-cap we will adhere to the fund's strategy as engineering and an M.A. in energy and
stocks, which generally perform better outlined in its prospectus. We will mineral resources from The University of
during economic upturns, composed 99% of continue to focus on the reasonably Texas.
the portfolio. priced stocks of companies that we
believe have favorable growth prospects. PAUL J. RASPLICKA
Stocks that enhanced performance [PHOTO OF Mr. Rasplicka is lead
included Hasbro, one of the nation's See important fund and index disclosures PAUL J. portfolio manager of AIM
largest toy makers, and Rockwell inside front cover. RASPLICKA Capital Development Fund.
Automation, a leading producer of
industrial automation equipment. Hasbro Mr. Rasplicka joined AIM in 1998.
reported an 18% increase in net revenue Prior to joining AIM he was with INVESCO
for the third quarter of 2003 compared to Trust Company, the Denver-based
the same period for the previous year. investment management subsidiary of
Rockwell Automation reported a 5% AMVESCAP PLC, since 1994. He was
increase in sales for its 2003 fiscal responsible for portfolio management of
year compared to its 2002 fiscal year. small-capitalization growth separate
accounts.
Detracting from performance was CDW
Computer Centers, whose stock did not Mr. Rasplicka began his investment
rise as quickly as the benchmark. CDW career in 1982 as an equity research
sells analyst with Fayez Sarofim & Co. He then
joined Daniel Breen & Company L.P. in
1985 as vice president and partner, where
he managed over $1.5 billion of equity,
balanced and fixed-income assets as part
of a team.
A native of Denver, Mr. Rasplicka is a
magna cum laude graduate of the
University of Colorado at Boulder with a
B.S. in business administration. He
received an M.B.A from the University of
Chicago. He is a Chartered Financial
Analyst and a Chartered Investment
Counselor.
Assisted by Small/Mid-Cap Core Team.
[GRAPHIC] For More Information Visit
AIMinvestments.com
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<Table>
FUND VS. INDEXES PORTFOLIO COMPOSITION BY INVESTMENT TYPE
Total Returns 10/31/02-10/31/03,
excluding sales charge Total number of holdings* 115
Total net assets $1.0 billion
Class A Shares 30.16%
Class B Shares 29.32
Class C Shares 29.34
Class R Shares 29.95
Russell 2500 Index 41.69
Source: Lipper, Inc.
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3
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FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
6/17/96-10/31/03
[MOUNTAIN CHART]
<Table>
<Caption>
Date AIM Capital Development Fund Russell 2500
Class A Shares Index
6/17/96 $ 9450 $10000
7/31/96 8977 9268
10/31/96 10480 10158
1/31/97 11131 11094
4/30/97 9648 10566
7/31/97 12766 12714
10/31/97 13768 13117
1/31/98 13503 13219
4/30/98 15744 14857
7/31/98 13797 13210
10/31/98 12180 12107
1/31/99 13974 13453
4/30/99 13302 13987
7/31/99 14144 14649
10/31/99 14400 14286
1/31/00 17811 16345
4/30/00 20296 17429
7/31/00 19835 17232
10/31/00 20591 17611
1/31/01 20387 18017
4/30/01 18927 17339
7/31/01 19047 17467
10/31/01 16108 15469
1/31/02 17787 17438
4/30/02 18949 18270
7/31/02 15178 14738
10/31/02 14038 14055
1/31/03 13971 14129
4/30/03 14815 15162
7/31/03 16670 17883
10/31/03 $18275 $19915
Russell 2500 Index data from 6/30/96
Source: Lipper, Inc.
</Table>
Your fund's total return includes sales charges, expenses and management fees.
The performance of the fund's share classes 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 and table does not reflect deduction of taxes a shareholder
would pay on fund distributions or sale of fund shares. Performance of 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 create the potential for
the original investment to grow to very large numbers.
Past performance cannot guarantee comparable future results. DUE TO
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.
<Table>
====================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS *The returns shown for these periods are AVERAGE ANNUAL TOTAL RETURNS
Including sales charges, as of 10/31/03 the blended returns of the historical Including sales charges, as of 9/30/03
performance of the fund's Class R shares
CLASS A SHARES since their inception and the restated CLASS A SHARES
Inception (6/17/96) 8.52% historical performance of the fund's Inception (6/17/96) 7.53%
5 Years 7.23 Class A shares (for the periods prior to 5 Years 6.34
1 Year 23.04 inception of the Class R shares) at net 1 Year 18.18
asset value, adjusted to reflect the
CLASS B SHARES higher Rule 12b-1 fees applicable to the CLASS B SHARES
Inception (10/1/96) 7.19% Class R shares. The inception date of Inception (10/1/96) 6.16%
5 Years 7.42 Class A shares is 6/17/96. The inception 5 Years 6.53
1 Year 24.32 date of the fund's Class R shares is 1 Year 19.32
6/3/02. Calculation of blended returns as
CLASS C SHARES of 10/31/03 is from 6/17/96. Calculation CLASS C SHARES
Inception (8/4/97) 5.12% of blended returns as of 9/30/03 is from Inception (8/4/97) 3.94%
5 Years 7.72 6/17/96. 5 Years 6.83
1 Year 28.34 1 Year 23.34
In addition to returns as of the close of
CLASS R SHARES* the fiscal year, industry regulations CLASS R SHARES*
Inception 9.19% require us to provide average annual Inception 8.20%
5 Years 8.28 total returns as of 9/30/03, the most 5 Years 7.40
1 Year 29.95 recent calendar quarter-end. 1 Year 24.92
====================================================================================================================================
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4
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/03
AIM CAPITAL DEVELOPMENT FUND
<Table>
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is not
For periods ended 10/31/03 indicative of future results. More
The following information has been recent returns may be more or less than
prepared to provide Institutional Class INCEPTION (3/15/02) -1.50% those shown. All returns assume
shareholders with a performance overview 1 Year 31.08 reinvestment of distributions at net
specific to their holdings. asset value. Investment return and
Institutional Class shares are offered principal value will fluctuate so your
exclusively to institutional investors, AVERAGE ANNUAL TOTAL RETURNS shares, when redeemed, may be worth more
including defined contribution plans For periods ended 9/30/03 or less than their original cost. See
that meet certain criteria. Performance (most recent calendar quarter-end) full report for information on
of Institutional Class shares will comparative benchmarks. If you have
differ from performance of Class A INCEPTION (3/15/02) -6.22% questions, please consult your fund
shares due to differing sales charges 1 Year 25.97 prospectus or call 800-451-4246. A I M
and class expenses. Distributors, Inc.
</Table>
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is prepared for institutional investor use only and may not be
quoted, reproduced or shown to members of the public, nor used in written form
as sales literature for public use.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
AIMinvestments.com CDV-INS-1 10/03
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.74%
ADVERTISING-1.14%
Interpublic Group of Cos., Inc. (The)(a) 498,200 $ 7,413,216
- --------------------------------------------------------------------------
Lamar Advertising Co.(a) 136,000 4,120,800
==========================================================================
11,534,016
==========================================================================
AIR FREIGHT & LOGISTICS-1.07%
C.H. Robinson Worldwide, Inc. 274,900 10,770,582
==========================================================================
APPAREL RETAIL-1.50%
Limited Brands 288,000 5,068,800
- --------------------------------------------------------------------------
Ross Stores, Inc. 201,200 10,062,012
==========================================================================
15,130,812
==========================================================================
APPLICATION SOFTWARE-4.41%
Amdocs Ltd. (United Kingdom)(a) 365,400 7,841,484
- --------------------------------------------------------------------------
Autodesk, Inc. 578,100 11,128,425
- --------------------------------------------------------------------------
Hyperion Solutions Corp.(a) 280,500 9,393,945
- --------------------------------------------------------------------------
Intuit Inc.(a) 191,800 9,586,164
- --------------------------------------------------------------------------
Siebel Systems, Inc.(a) 514,600 6,478,814
==========================================================================
44,428,832
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.93%
Affiliated Managers Group, Inc.(a) 141,000 10,222,500
- --------------------------------------------------------------------------
American Capital Strategies, Ltd. 342,400 9,244,800
==========================================================================
19,467,300
==========================================================================
BIOTECHNOLOGY-0.47%
QLT Inc. (Canada)(a) 304,200 4,699,890
==========================================================================
BROADCASTING & CABLE TV-0.86%
Cox Radio, Inc.-Class A(a) 300,000 6,636,000
- --------------------------------------------------------------------------
Westwood One, Inc.(a) 67,200 2,011,296
==========================================================================
8,647,296
==========================================================================
BUILDING PRODUCTS-1.23%
American Standard Cos. Inc.(a) 129,600 12,402,720
==========================================================================
CASINOS & GAMING-2.10%
GTECH Holdings Corp. 245,300 10,960,004
- --------------------------------------------------------------------------
Harrah's Entertainment, Inc. 234,400 10,196,400
==========================================================================
21,156,404
==========================================================================
COMMUNICATIONS EQUIPMENT-2.32%
Avocent Corp.(a) 154,400 5,836,320
- --------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Harris Corp. 284,900 $ 10,603,978
- --------------------------------------------------------------------------
UTStarcom, Inc.(a) 219,900 6,926,850
==========================================================================
23,367,148
==========================================================================
COMPUTER STORAGE & PERIPHERALS-1.50%
Hutchinson Technology Inc.(a) 160,000 5,361,600
- --------------------------------------------------------------------------
Imation Corp. 285,000 9,704,250
==========================================================================
15,065,850
==========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.08%
Cummins Inc. 117,100 5,550,540
- --------------------------------------------------------------------------
Navistar International Corp.(a) 130,900 5,292,287
==========================================================================
10,842,827
==========================================================================
CONSUMER FINANCE-1.76%
AmeriCredit Corp.(a) 602,000 8,066,800
- --------------------------------------------------------------------------
Capital One Financial Corp. 159,000 9,667,200
==========================================================================
17,734,000
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.63%
Alliance Data Systems Corp.(a) 354,200 9,839,676
- --------------------------------------------------------------------------
Certegy Inc. 200,450 6,747,147
- --------------------------------------------------------------------------
DST Systems, Inc.(a) 262,900 9,942,878
- --------------------------------------------------------------------------
Fiserv, Inc.(a) 143,400 5,064,888
- --------------------------------------------------------------------------
Iron Mountain Inc.(a) 131,100 5,013,264
==========================================================================
36,607,853
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.13%
ARAMARK Corp.-Class B(a) 398,700 10,653,264
- --------------------------------------------------------------------------
Career Education Corp.(a) 108,400 5,804,820
- --------------------------------------------------------------------------
United Rentals, Inc.(a) 286,500 4,990,830
==========================================================================
21,448,914
==========================================================================
DIVERSIFIED METALS & MINING-1.06%
CONSOL Energy Inc. (Acquired 9/17/03; Cost
$9,740,412)(a)(b)(c) 546,600 10,650,501
==========================================================================
ELECTRIC UTILITIES-1.10%
Wisconsin Energy Corp. 337,500 11,053,125
==========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT-2.22%
Cooper Industries, Ltd.-Class A (Bermuda) 214,000 $ 11,320,600
- --------------------------------------------------------------------------
Rockwell Automation, Inc. 354,600 11,010,330
==========================================================================
22,330,930
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-3.20%
Amphenol Corp.-Class A(a) 187,600 11,021,500
- --------------------------------------------------------------------------
Varian Inc.(a) 282,800 10,127,068
- --------------------------------------------------------------------------
Waters Corp.(a) 353,400 11,107,362
==========================================================================
32,255,930
==========================================================================
ENVIRONMENTAL SERVICES-1.00%
Republic Services, Inc. 435,000 10,113,750
==========================================================================
FOOTWEAR-1.12%
Reebok International Ltd. 290,800 11,326,660
==========================================================================
FOREST PRODUCTS-1.06%
Louisiana-Pacific Corp.(a) 561,200 10,674,024
==========================================================================
GAS UTILITIES-1.09%
Kinder Morgan, Inc. 205,800 11,020,590
==========================================================================
GENERAL MERCHANDISE STORES-1.49%
Dollar General Corp. 232,100 5,215,287
- --------------------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 255,500 9,754,990
==========================================================================
14,970,277
==========================================================================
HEALTH CARE DISTRIBUTORS-1.61%
Omnicare, Inc. 424,100 16,259,994
==========================================================================
HEALTH CARE EQUIPMENT-2.71%
Bard (C.R.), Inc. 153,800 12,311,690
- --------------------------------------------------------------------------
Hillenbrand Industries, Inc. 177,600 10,572,528
- --------------------------------------------------------------------------
STERIS Corp.(a) 210,000 4,372,200
==========================================================================
27,256,418
==========================================================================
HEALTH CARE FACILITIES-0.47%
Universal Health Services, Inc.-Class B(a) 100,000 4,705,000
==========================================================================
HEALTH CARE SERVICES-3.27%
AdvancePCS(a) 74,200 3,819,074
- --------------------------------------------------------------------------
Caremark Rx, Inc.(a) 490,900 12,297,045
- --------------------------------------------------------------------------
DaVita, Inc.(a) 308,600 10,831,860
- --------------------------------------------------------------------------
Lincare Holdings Inc.(a) 153,100 5,961,714
==========================================================================
32,909,693
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
HEALTH CARE SUPPLIES-1.16%
Fisher Scientific International Inc.(a) 290,000 $ 11,672,500
==========================================================================
HOMEBUILDING-0.63%
Lennar Corp.-Class A 69,100 6,346,835
==========================================================================
HOTELS, RESORTS & CRUISE LINES-0.38%
Starwood Hotels & Resorts Worldwide, Inc. 113,800 3,838,474
==========================================================================
HOUSEWARES & SPECIALTIES-1.13%
Yankee Candle Co., Inc. (The)(a) 408,400 11,427,032
==========================================================================
INDUSTRIAL GASES-0.86%
Airgas, Inc. 455,000 8,713,250
==========================================================================
INDUSTRIAL MACHINERY-2.06%
Parker-Hannifin Corp. 194,400 9,908,568
- --------------------------------------------------------------------------
SPX Corp.(a) 225,900 10,870,308
==========================================================================
20,778,876
==========================================================================
INTEGRATED OIL & GAS-0.76%
Murphy Oil Corp. 129,500 7,637,910
==========================================================================
INTERNET SOFTWARE & SERVICES-0.52%
United Online, Inc.(a) 182,200 5,245,538
==========================================================================
INVESTMENT COMPANIES-ETFS-0.26%
iShares Nasdaq Biotechnology Index Fund(a) 36,400 2,584,036
==========================================================================
LEISURE PRODUCTS-2.28%
Brunswick Corp. 386,100 11,455,587
- --------------------------------------------------------------------------
Hasbro, Inc. 530,300 11,560,540
==========================================================================
23,016,127
==========================================================================
MANAGED HEALTH CARE-1.23%
Anthem, Inc.(a) 73,000 4,995,390
- --------------------------------------------------------------------------
Coventry Health Care, Inc.(a) 135,200 7,402,200
==========================================================================
12,397,590
==========================================================================
MULTI-UTILITIES & UNREGULATED POWER-1.13%
Williams Cos., Inc. (The) 1,120,100 11,425,020
==========================================================================
OFFICE ELECTRONICS-0.91%
Zebra Technologies Corp.-Class A(a) 161,150 9,177,493
==========================================================================
OIL & GAS DRILLING-1.19%
Pride International, Inc.(a) 447,300 7,326,774
- --------------------------------------------------------------------------
Rowan Cos., Inc.(a) 194,300 4,653,485
==========================================================================
11,980,259
==========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-0.83%
BJ Services Co.(a) 111,300 $ 3,651,753
- --------------------------------------------------------------------------
Key Energy Services, Inc.(a) 539,500 4,709,835
==========================================================================
8,361,588
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.83%
XTO Energy, Inc. 351,300 8,315,271
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.30%
CapitalSource Inc.(a) 137,700 2,994,975
==========================================================================
PACKAGED FOODS & MEATS-0.54%
Flowers Foods, Inc. 228,400 5,419,932
==========================================================================
PAPER PACKAGING-2.08%
Sealed Air Corp.(a) 202,200 10,763,106
- --------------------------------------------------------------------------
Smurfit-Stone Container Corp.(a) 659,100 10,216,050
==========================================================================
20,979,156
==========================================================================
PERSONAL PRODUCTS-1.04%
NBTY, Inc.(a) 385,600 10,507,600
==========================================================================
PHARMACEUTICALS-3.14%
Medicis Pharmaceutical Corp.-Class A 97,600 6,182,960
- --------------------------------------------------------------------------
Mylan Laboratories Inc. 215,100 5,194,665
- --------------------------------------------------------------------------
Pharmaceutical Resources, Inc.(a) 149,500 10,805,860
- --------------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom)(a) 413,547 9,470,226
==========================================================================
31,653,711
==========================================================================
PROPERTY & CASUALTY INSURANCE-1.97%
ACE Ltd. (Cayman Islands) 270,617 9,742,212
- --------------------------------------------------------------------------
Quanta Capital Holdings Ltd. (Bermuda)
(Acquired 08/27/03; Cost $10,000,000)(a)(b) 1,000,000 10,100,000
==========================================================================
19,842,212
==========================================================================
PUBLISHING-0.33%
Journal Communications, Inc.-Class A(a) 189,700 3,374,763
==========================================================================
REAL ESTATE-2.63%
American Financial Realty Trust(c) 840,100 12,769,520
- --------------------------------------------------------------------------
Friedman, Billings, Ramsey Group, Inc.-Class
A 689,155 13,727,968
==========================================================================
26,497,488
==========================================================================
REGIONAL BANKS-0.47%
Compass Bancshares, Inc. 125,100 4,726,278
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
REINSURANCE-2.45%
Everest Re Group, Ltd. (Bermuda) 120,800 $ 10,020,360
- --------------------------------------------------------------------------
PartnerRe Ltd. (Bermuda) 91,500 4,965,705
- --------------------------------------------------------------------------
Platinum Underwriters Holdings, Ltd.
(Bermuda) 337,200 9,691,128
==========================================================================
24,677,193
==========================================================================
RESTAURANTS-2.14%
Brinker International, Inc.(a) 305,600 9,727,248
- --------------------------------------------------------------------------
Ruby Tuesday, Inc. 431,500 11,801,525
==========================================================================
21,528,773
==========================================================================
SEMICONDUCTOR EQUIPMENT-0.56%
Novellus Systems, Inc.(a) 136,700 5,644,343
==========================================================================
SEMICONDUCTORS-3.91%
Cypress Semiconductor Corp.(a) 252,000 5,407,920
- --------------------------------------------------------------------------
GlobespanVirata, Inc.(a) 1,087,400 6,698,384
- --------------------------------------------------------------------------
Integrated Circuit Systems, Inc.(a) 297,300 9,980,361
- --------------------------------------------------------------------------
Intersil Corp.-Class A 276,300 7,125,777
- --------------------------------------------------------------------------
Microchip Technology Inc. 311,162 10,178,109
==========================================================================
39,390,551
==========================================================================
SPECIALTY CHEMICALS-0.51%
Great Lakes Chemical Corp. 239,500 5,149,250
==========================================================================
SPECIALTY STORES-3.38%
Advance Auto Parts, Inc.(a) 167,600 13,109,672
- --------------------------------------------------------------------------
Michaels Stores, Inc. 245,700 11,663,379
- --------------------------------------------------------------------------
Rent-A-Center, Inc.(a) 297,500 9,299,850
==========================================================================
34,072,901
==========================================================================
TECHNOLOGY DISTRIBUTORS-1.01%
CDW Corp. 170,100 10,214,505
==========================================================================
THRIFTS & MORTGAGE FINANCE-5.59%
Doral Financial Corp. (Puerto Rico) 222,100 11,216,050
- --------------------------------------------------------------------------
New Century Financial Corp. 153,100 5,676,948
- --------------------------------------------------------------------------
New York Community Bancorp, Inc. 336,666 12,187,309
- --------------------------------------------------------------------------
PMI Group, Inc. (The) 276,900 10,585,887
- --------------------------------------------------------------------------
Radian Group Inc. 209,000 11,056,100
- --------------------------------------------------------------------------
Saxon Capital Acquisition Corp.(a)(c) 296,600 5,582,012
==========================================================================
56,304,306
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $736,403,096) 974,727,072
==========================================================================
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
MONEY MARKET FUNDS-3.25%
STIC Liquid Assets Portfolio(d) 16,395,571 $ 16,395,571
- --------------------------------------------------------------------------
STIC Prime Portfolio(d) 16,395,571 16,395,571
==========================================================================
Total Money Market Funds (Cost
$32,791,142) 32,791,142
==========================================================================
TOTAL INVESTMENTS-99.99% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $769,194,238) 1,007,518,214
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
<Caption>
- --------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-15.47%
STIC Liquid Assets Portfolio(d)(e) 77,943,886 $ 77,943,886
- --------------------------------------------------------------------------
STIC Prime Portfolio(d)(e) 77,943,886 77,943,886
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $155,887,772) 155,887,772
==========================================================================
TOTAL INVESTMENTS-115.46% (Cost $925,082,010) 1,163,405,986
==========================================================================
OTHER ASSETS LESS LIABILITIES-(15.46%) (155,813,164)
==========================================================================
NET ASSETS-100.00% $1,007,592,822
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</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 aggregate market value of these securities at 10/31/03 was $20,750,501,
which represented 2.06% of the Fund's net assets. These securities are
considered to be illiquid.
(c) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
(e) The security has been segregated to satisfy the 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.
F-4
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$736,403,096)* $ 974,727,072
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $188,678,914) 188,678,914
- ------------------------------------------------------------
Receivables for:
Investments sold 14,296,403
- ------------------------------------------------------------
Fund shares sold 495,691
- ------------------------------------------------------------
Dividends 134,758
- ------------------------------------------------------------
Investment for deferred compensation plan 48,771
- ------------------------------------------------------------
Other assets 34,459
============================================================
Total assets 1,178,416,068
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 12,090,192
- ------------------------------------------------------------
Fund shares reacquired 1,282,728
- ------------------------------------------------------------
Deferred compensation plan 48,771
- ------------------------------------------------------------
Collateral upon return of securities
loaned 155,887,772
- ------------------------------------------------------------
Accrued distribution fees 629,898
- ------------------------------------------------------------
Accrued trustees' fees 41,641
- ------------------------------------------------------------
Accrued transfer agent fees 675,452
- ------------------------------------------------------------
Accrued operating expenses 166,792
============================================================
Total liabilities 170,823,246
============================================================
Net assets applicable to shares outstanding $1,007,592,822
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 745,788,184
- ------------------------------------------------------------
Undistributed net investment income (loss) (85,597)
- ------------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies
and option contracts 23,566,260
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 238,323,975
============================================================
$1,007,592,822
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 545,691,273
____________________________________________________________
============================================================
Class B $ 392,381,668
____________________________________________________________
============================================================
Class C $ 68,356,008
____________________________________________________________
============================================================
Class R $ 1,154,117
____________________________________________________________
============================================================
Institutional Class $ 9,756
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 32,748,997
____________________________________________________________
============================================================
Class B 24,853,019
____________________________________________________________
============================================================
Class C 4,332,614
____________________________________________________________
============================================================
Class R 69,441
____________________________________________________________
============================================================
Institutional Class 580
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 16.66
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $16.66 divided by
94.50%) $ 17.63
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 15.79
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 15.78
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 16.62
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 16.83
____________________________________________________________
============================================================
</Table>
* At October 31, 2003, securities with an aggregate market value of $153,631,096
were on loan to brokers.
See Notes to Financial Statements.
F-5
STATEMENT OF OPERATIONS
For the year ended October 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $8,183) $ 7,752,065
- --------------------------------------------------------------------------
Dividends from affiliated money market funds 588,530
- --------------------------------------------------------------------------
Securities lending 307,752
==========================================================================
Total investment income 8,648,347
==========================================================================
EXPENSES:
Advisory fees 6,014,863
- --------------------------------------------------------------------------
Administrative services fees 240,864
- --------------------------------------------------------------------------
Custodian fees 113,090
- --------------------------------------------------------------------------
Distribution fees:
Class A 1,681,630
- --------------------------------------------------------------------------
Class B 3,525,000
- --------------------------------------------------------------------------
Class C 588,010
- --------------------------------------------------------------------------
Class R 3,016
- --------------------------------------------------------------------------
Transfer agent fees 3,582,073
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 39
- --------------------------------------------------------------------------
Trustees' fees 24,521
- --------------------------------------------------------------------------
Other 553,293
==========================================================================
Total expenses 16,326,399
==========================================================================
Less: Fees waived and expense offset arrangements (26,311)
==========================================================================
Net expenses 16,300,088
==========================================================================
Net investment income (loss) (7,651,741)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 64,257,050
- --------------------------------------------------------------------------
Foreign currencies 62,002
- --------------------------------------------------------------------------
Option contracts written 126,096
==========================================================================
64,445,148
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 180,428,278
- --------------------------------------------------------------------------
Foreign currencies (902)
==========================================================================
180,427,376
==========================================================================
Net gain from investment securities, foreign currencies and
option contracts 244,872,524
==========================================================================
Net increase in net assets resulting from operations $237,220,783
__________________________________________________________________________
==========================================================================
</Table>
See Notes to Financial Statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (7,651,741) $ (6,585,862)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts 64,445,148 (27,642,639)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts 180,427,376 (101,615,274)
==============================================================================================
Net increase (decrease) in net assets resulting from
operations 237,220,783 (135,843,775)
==============================================================================================
Share transactions-net:
Class A (40,295,276) (49,872,882)
- ----------------------------------------------------------------------------------------------
Class B (45,852,897) (51,574,661)
- ----------------------------------------------------------------------------------------------
Class C (3,420,452) (497,034)
- ----------------------------------------------------------------------------------------------
Class R 902,244 12,300
- ----------------------------------------------------------------------------------------------
Institutional Class -- 10,000
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (88,666,381) (101,922,277)
==============================================================================================
Net increase (decrease) in net assets 148,554,402 (237,766,052)
==============================================================================================
NET ASSETS:
Beginning of year 859,038,420 1,096,804,472
==============================================================================================
End of year (including undistributed net investment income
(loss) of ($85,597) and ($70,846) for 2003 and 2002,
respectively) $1,007,592,822 $ 859,038,420
______________________________________________________________________________________________
==============================================================================================
</Table>
See Notes to Financial Statements.
F-7
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Market trends, movement in exchange traded funds and ADR's, and
the bid/ask quotes of brokers and information providers may be reviewed in
the course of making a good faith determination of a security's fair value.
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
ordinarily 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
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are
F-8
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. Reported net realized foreign currency
gains or losses arise from sales of foreign currencies, currency gains or
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
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 are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses relating to all other classes are
allocated among those classes based on relative net assets. All other
expenses are allocated among the classes based on relative net assets.
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
$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 year ended October 31,
2003, AIM waived fees of $11,378.
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, 2003, AIM was
paid $240,864 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc. a fee for providing transfer agency and shareholder services to
the Fund. For the Institutional Class, the transfer agent has contractually
agreed to reimburse specific transfer agent fees to the extent necessary to
limit transfer agent fees to 0.10% of the average net assets. During the year
ended October 31, 2003, AISI retained $1,793,309 for such services and
reimbursed fees for the Institutional Class shares of $31.
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, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, AIM Distributors may pay a service fee up to 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 shares of such classes. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the year ended October 31, 2003,
the Class A, Class B, Class C and Class R shares paid $1,681,630, $3,525,000,
$588,010 and $3,016, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to
F-9
remittance to the shareholder. During year ended October 31, 2003, AIM
Distributors retained $104,786 in front-end sales commissions from the sale of
Class A shares and $3,521, $108, $4,404 and $0 from Class A, Class B, Class C
and Class R shares, respectively, for CDSC imposed upon redemptions by
shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
For the year ended October 31, 2003, the Fund received reductions in transfer
agency fees from AISI (an affiliate of AIM) of $13,767 and reductions in
custodian fees of $1,135 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $14,902.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. The Trustees deferring compensation have the
option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. Certain former Trustees also
participate in a retirement plan and receive benefits under such plan.
During the year ended October 31, 2003, the Fund paid legal fees of $3,650
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds. An interfund loan will be
made under this facility only if the loan rate (an average of the rate available
on bank loans and the rate available on investments in overnight repurchase
agreements) is favorable to both the lending fund and the borrowing fund. Under
certain circumstances, a loan will be secured by collateral. To the extent that
the loan is required to be secured by collateral, the collateral is marked to
market daily to ensure that the market value is at least 102% of the outstanding
principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the 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 year ended October 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving line of credit facility or the committed line of credit
facility.
Additionally the Fund is permitted to carry a negative or overdrawn balance
in its account with the custodian bank. To compensate the custodian bank for
such overdrafts, the overdrawn Fund may either (i) leave funds in the account so
the custodian can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank. In either case, the custodian bank will
be compensated an amount equal to the Federal Funds rate plus 100 basis points.
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral 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
held may be temporarily less than the value of the securities on loan.
At October 31, 2003, securities with an aggregate value of $153,631,096 were
on loan to brokers. The loans were secured by cash collateral of $155,887,772
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2003, the Fund received fees of $307,752 for
securities lending.
NOTE 7--OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended October 31, 2003 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ----------------------------------------------------------
Beginning of year -- $ --
- ----------------------------------------------------------
Written 1,300 126,096
- ----------------------------------------------------------
Expired (1,300) (126,096)
==========================================================
End of year -- $ --
__________________________________________________________
==========================================================
</Table>
F-10
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2003 and 2002.
Tax Components of Net Assets:
As of October 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed long-term gain $ 24,193,359
- ------------------------------------------------------------
Unrealized appreciation -- investments 237,696,876
- ------------------------------------------------------------
Temporary book/tax differences (85,597)
- ------------------------------------------------------------
Shares of beneficial interest 745,788,184
============================================================
Total net assets $1,007,592,822
____________________________________________________________
============================================================
</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
and deferral of losses on straddles.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the deferral of trustee compensation and
trustee retirement plan expenses.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2003 was $853,484,217 and $916,157,482, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $246,128,701
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (8,431,825)
===========================================================
Net unrealized appreciation of investment
securities $237,696,876
___________________________________________________________
===========================================================
Cost of investments for tax purposes is
$925,709,110.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions,
net operating losses and excise tax paid, on October 31, 2003, undistributed net
investment income was increased by $7,636,990, undistributed net realized gains
decreased by $62,002 and shares of beneficial interest decreased by $7,574,988.
This reclassification had no effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and 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 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 CDSC. Generally, Class B shares will
automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
2003 2002
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 7,864,878 $ 109,808,336 8,723,183 $ 137,031,183
- ---------------------------------------------------------------------------------------------------------------------------
Class B 2,057,426 27,535,873 3,358,008 50,474,614
- ---------------------------------------------------------------------------------------------------------------------------
Class C 834,828 11,240,012 1,443,905 21,757,217
- ---------------------------------------------------------------------------------------------------------------------------
Class R* 74,458 986,707 749 12,300
- ---------------------------------------------------------------------------------------------------------------------------
Institutional Class** -- -- 580 10,000
===========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 340,670 4,868,315 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Class B (358,616) (4,868,315) 0 0
===========================================================================================================================
Reacquired:
Class A (11,106,766) (154,971,927) (12,317,285) (186,904,065)
- ---------------------------------------------------------------------------------------------------------------------------
Class B (5,230,794) (68,520,455) (7,163,019) (102,049,275)
- ---------------------------------------------------------------------------------------------------------------------------
Class C (1,117,790) (14,660,464) (1,519,831) (22,254,251)
- ---------------------------------------------------------------------------------------------------------------------------
Class R* (5,766) (84,463) -- --
===========================================================================================================================
(6,647,472) $ (88,666,381) (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.
F-11
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.80 $ 14.69 $ 21.79 $ 15.24 $ 12.89
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.04)(a) (0.04) (0.13) (0.10)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.94 (1.85) (4.27) 6.68 2.45
=============================================================================================================================
Total from investment operations 3.86 (1.89) (4.31) 6.55 2.35
=============================================================================================================================
Less distributions from net realized gains -- -- (2.79) -- --
=============================================================================================================================
Net asset value, end of period $ 16.66 $ 12.80 $ 14.69 $ 21.79 $ 15.24
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 30.16% (12.87)% (21.76)% 42.98% 18.23%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $545,691 $456,268 $576,660 $759,838 $579,514
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets 1.53%(c) 1.38% 1.33% 1.28% 1.38%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.56)%(c) (0.29)% (0.21)% (0.60)% (0.70)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 101% 120% 130% 101% 117%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(c) Ratios are based on average daily net assets of $480,465,624.
<Table>
<Caption>
CLASS B
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.21 $ 14.10 $ 21.16 $ 14.90 $ 12.70
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.16)(a) (0.14)(a) (0.15) (0.26) (0.20)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.74 (1.75) (4.12) 6.52 2.40
=============================================================================================================================
Total from investment operations 3.58 (1.89) (4.27) 6.26 2.20
=============================================================================================================================
Less distributions from net realized gains -- -- (2.79) -- --
=============================================================================================================================
Net asset value, end of period $ 15.79 $ 12.21 $ 14.10 $ 21.16 $ 14.90
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 29.32% (13.40)% (22.29)% 42.01% 17.32%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $392,382 $346,456 $454,018 $617,576 $451,508
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets 2.18%(c) 2.03% 1.99% 1.99% 2.12%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.21)%(c) (0.94)% (0.87)% (1.30)% (1.44)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 101% 120% 130% 101% 117%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(c) Ratios are based on average daily net assets of $352,500,019.
F-12
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.20 $ 14.10 $ 21.15 $ 14.89 $ 12.69
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.16)(a) (0.14)(a) (0.14) (0.25) (0.20)(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.74 (1.76) (4.12) 6.51 2.40
============================================================================================================================
Total from investment operations 3.58 (1.90) (4.26) 6.26 2.20
============================================================================================================================
Less distributions from net realized gains -- -- (2.79) -- --
============================================================================================================================
Net asset value, end of period $ 15.78 $ 12.20 $ 14.10 $ 21.15 $ 14.89
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 29.34% (13.48)% (22.24)% 42.04% 17.34%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $68,356 $56,298 $66,127 $82,982 $53,832
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 2.18%(c) 2.03% 1.99% 1.99% 2.12%
============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.21)%(c) (0.94)% (0.87)% (1.30)% (1.44)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 101% 120% 130% 101% 117%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(c) Ratios are based on average daily net assets of $58,801,044.
<Table>
<Caption>
CLASS R
-------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.79 $ 16.62
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.03)(a)
- ---------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.93 (3.80)
=============================================================================================
Total from investment operations 3.83 (3.83)
=============================================================================================
Net asset value, end of period $16.62 $ 12.79
_____________________________________________________________________________________________
=============================================================================================
Total return(b) 29.95% (23.05)%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,154 $ 10
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets 1.68%(c) 1.54%(d)
=============================================================================================
Ratio of net investment income (loss) to average net assets (0.71)%(c) (0.44)%(d)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(e) 101% 120%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $603,132.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-13
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL
--------------------------------
MARCH 15, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.84 $ 17.25
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) 0.02(a)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.98 (4.43)
==============================================================================================
Total from investment operations 3.99 (4.41)
==============================================================================================
Net asset value, end of period $16.83 $ 12.84
______________________________________________________________________________________________
==============================================================================================
Total return(b) 31.08% (25.57)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10 $ 7
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets
With fee waivers 0.87%(c) 0.84%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers 1.25%(c) 0.99%(d)
==============================================================================================
Ratio of net investment income to average net assets 0.10%(c) 0.25%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate(e) 101% 120%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $8,217.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 13--SUBSEQUENT EVENTS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM") is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("INVESCO"), was, until
recently, the investment advisor to the INVESCO Funds.
On December 2, 2003, each of the Securities and Exchange Commission ("SEC")
and the Office of the Attorney General of the State of New York ("NYAG") filed
civil proceedings against INVESCO and Raymond R. Cunningham, in his capacity as
the Chief Executive Officer of INVESCO. Mr. Cunningham currently holds the
positions of Chief Operating Officer and Senior Vice President of A I M
Management Group, Inc., the parent company of AIM, and he also holds the
position of Senior Vice President with AIM. In addition, on December 2, 2003,
the State of Colorado filed civil proceedings against INVESCO. Neither your Fund
nor any of the funds in the AIM Family of Funds(R), which includes the INVESCO
Funds (the "Funds") has been named as a defendant in any of these proceedings.
The SEC proceeding alleges that INVESCO failed to disclose in the INVESCO
Funds' prospectuses and to the INVESCO Funds' independent directors that INVESCO
had entered into certain arrangements permitting market timing of the INVESCO
Funds. The SEC is seeking injunctions, including permanent injunctions from
serving as an investment advisor, officer or director of an investment company;
an accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG proceeding is also based on the circumstances described above. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief.
The Colorado proceeding is also based on the circumstances described above.
The State of Colorado is seeking injunctions; restitution, disgorgement and
other equitable relief; civil monetary penalties; and other relief.
If INVESCO is unsuccessful in its defense of these proceedings, it could be
barred from serving as an investment advisor for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Similarly, if Mr. Cunningham is unsuccessful in his
defense of these proceedings, he could be barred from serving as an officer or
director of any registered investment company. Such results could also affect
the ability of AIM, or any other investment advisor directly or indirectly owned
by AMVESCAP, from serving as an investment advisor to any registered investment
company, including your Fund. Your Fund has been informed by AIM that, if either
of these results occurs, AIM will seek exemptive relief from the SEC to permit
it to continue to serve as your Fund's investment advisor. There can be no
assurance that such exemptive relief will be granted.
AIM has received inquiries from the SEC, the NASD, Inc., the NYAG and the
Secretary of the Commonwealth of Massachusetts with respect to market timing,
late trading, fair value pricing and other similar issues and AIM has been
providing full cooperation with respect to these inquiries.
F-14
NOTE 13--SUBSEQUENT EVENTS (CONTINUED)
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
certain Funds, INVESCO, AIM, AMVESCAP and certain related parties, primarily
based upon the allegations in the complaints described above, but also regarding
the funds' fair valuation pricing methodology. Such lawsuits allege a variety of
theories for recovery including, but not limited to: (i) violation of various
provisions of the Federal securities laws; (ii) breach of fiduciary duty; and
(iii) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; interest and the payment of attorneys'
and experts' fees. Additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
Funds, INVESCO, AIM, AMVESCAP and related parties in the future.
As a result of these developments, investors in the Funds might react by
redeeming their investments. This might require the Funds to sell investments to
provide for sufficient liquidity and could also have an adverse effect on the
investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of these matters described above may have on
the Fund or AIM's financial condition.
F-15
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 of AIM Equity Funds), including the
schedule of investments, as of October 31, 2003, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the three years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. 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. Our procedures included confirmation of securities
owned as of October 31, 2003, by correspondence with the custodian and brokers
or by other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Capital Development Fund as of October 31, 2003, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the three
years in the period then ended, in conformity with accounting principles
generally accepted in the United States.
Houston, Texas -s- Ernst & Young LLP
December 16, 2003
F-16
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Equity Funds, a Delaware statutory
trust, was held on October 21, 2003. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHOLDING
DIRECTORS/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 983,597,298 14,109,942
Frank S. Bayley.............................. 983,595,385 14,111,855
James T. Bunch............................... 983,970,384 13,736,856
Bruce L. Crockett............................ 983,967,974 13,739,266
Albert R. Dowden............................. 983,892,850 13,814,390
Edward K. Dunn, Jr........................... 983,672,087 14,035,153
Jack M. Fields............................... 983,987,281 13,719,959
Carl Frischling.............................. 983,352,244 14,354,996
Robert H. Graham............................. 983,794,290 13,912,950
Gerald J. Lewis.............................. 983,317,525 14,389,715
Prema Mathai-Davis........................... 983,676,086 14,031,154
Lewis F. Pennock............................. 983,703,651 14,003,589
Ruth H. Quigley.............................. 983,356,521 14,350,719
Louis S. Sklar............................... 983,812,619 13,894,621
Larry Soll, Ph.D............................. 983,820,425 13,886,815
Mark H. Williamson........................... 983,676,844 14,030,396
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Equity Funds.
F-17
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S)
TRUST SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management Group Inc.
Trustee, Chairman and (financial services holding company); and Director and Vice
President 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); and
Director and Chairman, A I M Capital Management, Inc.
(registered investment advisor), A I M Distributors, Inc.
(registered broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management Company
(registered broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ----------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President Director, Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor) and A I M
Distributors, Inc. (registered broker dealer); Director and
Chairman, AIM Investment Services, Inc. (registered transfer
agent); and Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global investment management
firm)
Formerly: Director, Chairman, President and Chief Executive
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 2003 Consultant
Trustee
Formerly: President and Chief Executive Officer, AMC Cancer
Research Center; and Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie
Trustee
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd.,
Trustee (investment banking firm); and Director, Policy Studies,
Inc. and Van Gilder Insurance Corporation
Formerly: General Counsel and Director, Boettcher & Co.; and
Chairman and Managing Partner, law firm of Davis, Graham &
Stubbs
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology
Trustee consulting company)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business
Trustee corporations, including the Boss Group Ltd. (private
investment and management) and Magellan 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 Group
companies
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and
Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares Corp.
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc.
Trustee (government affairs company) and Texana Timber LP
- ----------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S)
TRUST HELD BY TRUSTEE
- -------------------------------- ----------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 None
Trustee, Chairman and
President
- ------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 Director and Chairman,
Trustee and Executive Vice INVESCO Bond Funds,
President Inc., INVESCO
Combination Stock &
Bond Funds, Inc.,
INVESCO Counselor
Series Funds, Inc.,
INVESCO International
Funds, Inc., INVESCO
Manager Series Funds,
Inc., INVESCO Money
Market Funds, Inc.,
INVESCO Sector Funds,
Inc., INVESCO Stock
Funds, Inc., INVESCO
Treasurer's Series
Funds, Inc. and
INVESCO Variable
Investment Funds, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 Badgley Funds, Inc.
Trustee (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 ACE Limited (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 Cortland Trust, Inc.
Trustee (Chairman) (registered
investment company);
Annuity and Life Re
(Holdings), Ltd.
(insurance company)
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 Administaff
Trustee
- ----------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust. Mr. Williamson became Executive Vice President of
the Trust on March 4, 2003.
(3) Elected trustee of the Trust on October 21, 2003.
Trustees and Officers (continued)
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President Counsel, A I M Management Group Inc. (financial services
holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and 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(5) -- 1947 1988 Director, Chairman and Director of Investments, A I M
Senior Vice President 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 -- Fixed
Vice President 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 M Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 1999 Vice President, A I M Advisors, Inc., and President, Chief
Vice President 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 Advisors, Inc.
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Gary T. Crum(5) -- 1947 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Dana R. Sutton -- 1959 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
</Table>
(3) Elected trustee of the Trust on October 21, 2003.
(4) Mr. Carome became Senior Vice President of the Trust on May 13, 2003.
(5) Information is current as of January 10, 2003.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center
Houston, TX 77046 Suite 100 Suite 100 1401 McKinney, Suite 1200
Houston, TX 77046 Houston, TX 77046-1173 Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
Andrews & Ingersoll, LLP Frankel LLP P.O. Box 4739 Trust Company
1735 Market Street 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103 New York, NY 10022-3852 Boston, MA 02110
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(4) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(5)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) AIM Small Cap Equity Fund was closed to most
investors on December 19, 2003. For information on who may continue to invest in
AIM Small Cap Equity Fund, please contact your financial advisor. (3) AIM Small
Cap Growth Fund was closed to most investors on March 18, 2002. For information
on who may continue to invest in AIM Small Cap Growth Fund, please contact your
financial advisor. (4) Effective April 30, 2003, AIM Worldwide Spectrum Fund was
renamed AIM Global Value Fund. (5) Effective November 24, 2003, INVESCO
International Blue Chip Value Fund was renamed INVESCO International Core Equity
Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
it carefully before investing. If used after January 20, 2004, this brochure
must be accompanied by a fund Performance & Commentary or by an AIM Quarterly
Performance Review for the most recent quarter-end. Mutual funds distributed by
A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $142 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $345 billion in assets
under management. Data as of September 30, 2003.
AIMinvestments.com CDV-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- -------------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Servicemark--
Plans Accounts
</Table>
AIM CHARTER FUND
Annual Report to Shareholders o October 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM CHARTER FUND SEEKS TO PROVIDE GROWTH OF CAPITAL.
================================================================================
ABOUT INFORMATION THROUGHOUT THIS REPORT:
<Table>
o Unless otherwise stated, information o Class R shares are available only to o Bloomberg, Inc. is a well-known
presented is as of 10/31/03 and is based certain retirement plans. Please see the independent financial research and
on total net assets. prospectus for more information. They reporting firm.
are sold at net asset value, that is,
o AIM Charter Fund's performance figures without up-front sales charges. o A direct investment cannot be made in
are historical, and they reflect fund an index. Unless otherwise indicated,
expenses, the reinvestment of o The fund's investment return and index results include reinvested
distributions, and changes in net asset principal value will fluctuate, so an dividends, and they do not reflect sales
value. investor's shares, when redeemed, may be or fund expenses charges. Performance of
worth more or less than their original an index of funds reflects fund
o When sales charges are included in cost. expenses; performance of a market index
performance figures, Class A share does not.
performance reflects the maximum 5.50% o Industry classifications used in this
sales charge, and Class B and Class C report are generally according to the A description of the policies and
share performance reflects the Global Industry Classification Standard, procedures that the fund uses to
applicable contingent deferred sales which was developed by and is the determine how to vote proxies
charge (CDSC) for the period involved. exclusive property and a service mark of relating to portfolio securities is
The CDSC on Class B shares declines from Morgan Stanley Capital International Inc. available without charge, upon
5% beginning at the time of purchase to and Standard & Poor's. request, by calling 800-959-4246, or on
0% at the beginning of the seventh year. the AIM Web site, AIMinvestments.com.
The CDSC on Class C shares is 1% for the o The unmanaged Lipper Large-Cap Core
first year after purchase. The Equity Fund Index represents an average
performance of the fund's share classes of the performance of the 30 largest
will differ due to different sales large-capitalization core equity funds
charge structures and class expenses. tracked by Lipper, Inc., an independent
mutual fund performance monitor.
o Effective 9/30/03, Class B shares are
not available as an investment for o The unmanaged Standard & Poor's
retirement plans maintained pursuant to Composite Index of 500 Stocks (the S&P
Section 401 of the Internal Revenue 500--Registered Trademark-- is an index
Code, including 401(k) plans, money of common stocks frequently used as a
purchase pension plans and profit general measure of U.S. stock market
sharing plans. Plans that have existing performance.
accounts invested in Class B shares
continued to be allowed to make
additional purchases after 9/30/03.
</Table>
<Table>
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE This report may be distributed only to shareholders or to
===================================================== persons who have received a current prospectus of the fund.
AIMinvestments.com
</Table>
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER IN
THE AIM FAMILY OF FUNDS--Registered Trademark--:
[PHOTO OF As you may be aware, there has been a new policies and strengthened existing ones--to discourage
ROBERT H. great deal of media coverage recently harmful short-term trading. These steps include:
GRAHAM] about the mutual fund industry and
allegations of improper activities by o Strengthening daily monitoring of trading activities.
certain individuals and companies. As
ROBERT H. GRAHAM part of these widespread investigations, o Imposing redemption fees on additional funds we believe
INVESCO Funds Group (IFG), the former may be vulnerable to harmful short-term trading activity.
adviser to certain INVESCO Funds, was
recently named as a defendant in o Implementing an enhanced exchange policy (effective
[PHOTO OF separate civil enforcement actions by on or about March 1, 2004) designed to limit exchanges
MARK H. the U.S. Securities and Exchange between funds.
WILLIAMSON] Commission (SEC), the Office of the New
York Attorney General and the State of o Employing an enhanced fair value pricing policy on
Colorado over an issue known as "market certain foreign securities as well as certain illiquid
MARK H. WILLIAMSON timing." A number of private class or securities.
derivative actions also were filed in
the wake of the regulators' actions. None of these tools alone, nor all of them taken
Investors are understandably concerned and frustrated together, eliminate the possibility of short-term trading
about these reports, and we would like to take this strategies that may be detrimental to a fund. Moreover, each
opportunity to assure you that, based on an investigation of these tools involves judgments that are inherently
conducted by an outside firm, IFG and its parent company, subjective. We have always sought and continue to seek to
AMVESCAP PLC, believe that these civil actions are make these judgments to the best of our abilities and in a
without merit. IFG is contesting the charges. manner that we believe is consistent with the best interests
We encourage you to continue to monitor this situation, of our fund shareholders. And we remain committed to being
particularly as IFG has the opportunity to address the as vigilant as possible in the future to identify and
allegations that have been made. Current information will be address any harmful market timing investors who have the
posted on our Web site at AIMinvestments.com. We will potential to harm our long-term fund shareholders.
continue to communicate to you on our Web site about our
finding, and the actions we are taking to protect and We sincerely hope these developments and the media
promote the interests of our shareholders. The independent coverage surrounding them do not result in you or other
trustees of the funds are receiving regular reports from shareholders losing confidence in AIM or INVESCO Funds.
their independent counsel and outside counsel hired by Amidst this storm of controversy in the mutual fund
AMVESCAP PLC, the parent of AIM and IFG, to perform an industry, we believe we can find encouragement in the
ongoing investigation of market timing. recovering economy and rising equity markets. As we write
this letter, for instance, the S&P 500--Registered Trademark-- Index
A COMPLEX ISSUE is up approximately 23% year-to-date. Although past performance is
no guarantee of future results, there appear to be
Market timing is an investment technique not defined in any indicators that the economy and stock markets are showing
regulation that involves frequent short-term trading of signs of welcomed improvement. We encourage you to read the
mutual fund shares, sometimes with a goal to exploit enclosed discussion of your fund's performance during this
inefficiencies in the way mutual funds price their shares. past reporting period.
We recognize that fund management companies have tried to
deal with this complex issue in various ways and believe OUR UNWAVERING COMMITMENT
that industry-wide guidance is in order. To that end, we
welcome SEC Chairman William Donaldson's pledge to adopt new At AIM Investments, we have never wavered in our commitment
rules designed to curb market timing abuses. Comprehensive to helping you build solutions for your financial goals. Our
rulemaking is necessary and is the best way to establish new company was founded on a core principle of integrity, and we
industry responsibilities designed to protect shareholders. have always worked hard to earn the trust of our
We support practical rule changes and structural shareholders. We are committed to doing all we can to
modifications that are fair, enforceable and, most maintain your trust and confidence.
importantly, beneficial for investors.
AIM Investments has policies in place designed to Thank you for your continued participation in AIM
identify, prevent and eliminate harmful trading or other Investments. Please call your financial advisor or one of
activities deemed to be detrimental to the funds. We have our Client Service representatives at 800-959-4246 if you
also recently taken additional steps--implemented have any further questions or concerns about your AIM
Investments account.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Chairman and President President and CEO
The AIM Family of Funds AIM Investments
--Registered Trademark--
December 18, 2003
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
SIGNS OF ECONOMIC RECOVERY
BENEFIT FUND
Signs of a strengthening economy The S&P 500 rose in November 2002, but it favored a more expansive monetary
benefited the broad U.S. stock market then declined for several months, policy because the economy had not yet
and AIM Charter Fund for the fiscal year reaching a low for the fiscal year on exhibited sustainable growth. By
ended October 31, 2003. For the fiscal March 11, 2003. The market rallied for October, the Fed reported that the pace
year covered by this report, the fund's the remainder of the fiscal year. of economic expansion had picked up,
Class A, Class B, Class C, and Class R consumer spending generally
shares returned 16.20%, 15.48%, 15.43%, The start of the market's rally strengthened, and residential real
and 15.90%, respectively, at net asset coincided with the commencement of estate was strong--but that commercial
value. The fund performed in line with Operation Iraqi Freedom on March 19, real estate was sluggish and that labor
the Lipper Large-Cap Core Equity Fund 2003. U.S. and allied forces quickly markets remained weak. Indeed, the
Index, which is composed of funds with toppled the regime of Saddam Hussein, nation's unemployment rate was 6.0% at
investment strategies similar to the and by May 1 President Bush was able to the close of the fiscal year.
fund's; that index returned 16.86% for announce that major combat operations in
the fiscal year. Iraq had ended. ========================================
The fund underperformed the S&P 500, The U.S. economy expanded during the IT WAS INFORMATION
which returned 20.79%, due to two fiscal year. Gross domestic product, the
factors. First, we held a large cash broadest measure of economic activity, TECHNOLOGY, CONSUMER
position, averaging more than 9% over grew at an annualized rate of 1.4% in
the course of the fiscal year, to the first quarter of 2003, 3.3% in the DISCRETIONARY, FINANCIALS,
mitigate fund volatility during a period second quarter, and 8.2% in the third
of market turbulence; and second, small- quarter. Corporate earnings also showed AND INDUSTRIALS STOCKS
AND mid-cap stocks generally signs of strength. According to
outperformed large-cap stocks, the type Bloomberg, as of the close of the fiscal THAT CONTRIBUTED THE
of equities in which the fund invests year, more than 65% of S&P 500
the bulk of its assets. corporations that had reported their MOST TO FUND
third-quarter 2003 earnings exceeded
MARKET CONDITIONS analysts' expectations. PERFORMANCE FOR THE
Signs of a generally improving economy For most of the fiscal year, the FISCAL YEAR.
helped the U.S. stock market rise for Federal Reserve (the Fed) kept the
much of the fiscal year ended October short-term federal funds rate at 1.25%. ========================================
31, 2003. On June 25, 2003, it lowered that rate
to 1.00%, its lowest level since 1958, For the fiscal year:
saying that
o All sectors of the S&P 500 recorded
gains.
o Information technology, materials, and
utilities were the top-performing
sectors in the S&P 500.
o Telecommunication services, consumer
staples, and health care were the
weakest-performing sectors.
</Table>
<Table>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
1. Computer Associates International, Inc. 2.3% 1. Pharmaceuticals 9.9%
2. General Mills, Inc. 2.2 2. Packaged Foods & Meats 9.8
3. Pfizer Inc. 2.1 3. Integrated Oil & Gas 5.7
4. Dover Corp. 2.0 4. Systems Software 4.8
5. Intel Corp. 2.0 5. Semiconductors 4.3
6. Citigroup Inc. 1.9 6. Industrial Machinery 3.5
7. Kellogg Co. 1.9 7. Other Diversified Financial Services 3.1
8. Alcon, Inc. (Switzerland) 1.9 8. Computer Hardware 2.8
9. Washington Mutual, Inc. 1.9 9. Food Retail 2.8
10. Sara Lee Corp. 1.8 10. Property & Casualty Insurance 2.8
*Excludes money market fund holdings.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
====================================================================================================================================
</Table>
2
<Table>
YOUR FUND
At the close of the fiscal year, the products and components for industrial RONALD S. SLOAN
fund was overweight consumer staples, and commercial use, and Intel, the [PHOTO OF Mr. Sloan, Chartered
information technology, and industrials world's largest chip maker. In October, RONALD S. Financial Analyst, is
stocks, and underweight financials, Dover announced that its third quarter SLOAN] lead portfolio manager
health care, telecommunications, and earnings increased 28% from year-ago of AIM Charter Fund. He
utilities stocks relative to its levels and that its operating margins has been in the
benchmark index, the S&P 500. While had improved over second quarter 2003 investment industry
consumer staples, information levels. Also in October, Intel announced since 1971 and
technology, and industrials stocks that its third quarter net income rose joined AIM in 1998. Mr. Sloan holds a
accounted for the highest percentage of 142% from year-ago levels and 79% from B.S. in business administration and an
the fund's total net assets, it was the second quarter of 2003. M.B.A. from the University of Missouri.
information technology, consumer
discretionary, financials, and IN CLOSING Assisted by the Mid/Large Cap Core Team.
industrials stocks that contributed the
most to fund performance for the fiscal As the fiscal year ended, there were
year. Telecommunications services signs that the economy was
stocks, in which the fund was strengthening; time will tell whether
significantly underweight relative to that recovery is sustainable.
its benchmark, detracted from fund Regardless, we will continue to seek out
performance. stocks of established companies with
long-term, above-average growth in
We made few significant changes to earnings as well as growth companies
the number of fund holdings during the with the potential for above-average
fiscal year. Both at the beginning and growth in earnings in an attempt to
the end of the fiscal year, the fund achieve the fund's investment objective.
held 73 stocks, and the 10 largest
accounted for approximately 20% of total See important fund and index
net assets. Also, at the beginning and disclosures inside front cover.
the end of the fiscal year,
approximately 80% of the fund's total [GRAPHIC] For More Information Visit
net assets were invested in large-cap
stocks, with the remainder invested AIMinvestments.com
primarily in mid-cap holdings.
Stocks that contributed to fund
performance included Dover, a
diversified manufacturer of
</Table>
<Table>
===================================================================================================================================
PORTFOLIO COMPOSITION BY SECTOR* FUND VS. INDEX TOTAL NUMBER OF HOLDINGS* 73
Total returns 10/31/02-10/31/03, TOTAL NET ASSETS $3.3 BILLION
[PIE CHART] excluding sales charges
Class A Shares 16.20%
INDUSTRIALS 13.6% Class B Shares 15.48
INFORMATION TECHNOLOGY 16.3% Class C Shares 15.43
CONSUMER STAPLES 16.7% Class R Shares 15.90
ALL OTHERS 53.4% S&P 500 Index 20.79
Source: Lipper, Inc.
===================================================================================================================================
</Table>
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
11/26/68-10/31/03
<Table>
<Caption>
[MOUNTAIN CHART]
DATE AIM CHARTER FUND S&P 500
CLASS A SHARES INDEX
11/26/68 $ 9450 $ 10000
10/31/69 9577 9238
10/31/70 7043 8214
10/31/71 9192 9598
10/31/72 12774 11702
10/31/73 14167 11703
10/31/74 9745 8335
10/31/75 11909 10500
10/31/76 14380 12616
10/31/77 16096 11855
10/31/78 21539 12607
10/31/79 27424 14555
10/31/80 42322 19228
10/31/81 45448 19338
10/31/82 49290 22487
10/31/83 63951 28771
10/31/84 58999 30603
10/31/85 67497 36519
10/31/86 88821 48638
10/31/87 94792 51750
10/31/88 100381 59387
10/31/89 134197 75038
10/31/90 139372 69426
10/31/91 191818 92625
10/31/92 199832 101840
10/31/93 233649 117023
10/31/94 227680 121537
10/31/95 289223 153633
10/31/96 337503 190629
10/31/97 433958 251819
10/31/98 482479 307250
10/31/99 646804 386098
10/31/00 734728 409564
10/31/01 450077 307629
10/31/02 411779 261188
10/31/03 $478967 $315479
Source: Lipper, Inc.
</Table>
<Table>
===================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS *The returns shown for these periods are AVERAGE ANNUAL TOTAL RETURNS
As of 10/31/03, including sales charges the blended returns of the historical
CLASS A SHARES performance of the fund's Class R shares As of 9/30/03, including sales charges
10 Years 6.83% since their inception and the restated CLASS A SHARES
5 Years -1.30 historical performance of the fund's 10 Years 6.53%
1 Year 9.77 Class A shares (for the periods prior to 5 Years -0.36
CLASS B SHARES inception of the Class R shares) at net 1 Year 12.20
Inception (6/26/95) 6.53% asset value, adjusted to reflect the CLASS B SHARES
5 Years -1.21 higher Rule 12b-1 fees applicable to the Inception (6/26/95) 6.18%
1 Year 10.48 Class R shares. The inception date of 5 Years -0.26
CLASS C SHARES Class A shares is 11/26/68. The 1 Year 13.06
Inception (8/4/97) 0.36% inception date of the fund's Class R CLASS C SHARES
5 Years -0.87 shares is 6/3/02. Calculation of blended Inception (8/4/97) -0.17%
1 Year 14.43 returns as of 10/31/03 is from 10/31/93. 5 Years 0.08
CLASS R SHARES* Calculation of blended returns as of 1 Year 17.00
10 Years 7.21% 9/30/03 is from 9/30/93. CLASS R SHARES*
5 Years -0.39 10 Years 6.92%
1 Year 15.90 In addition to returns as of the close 5 Years 0.58
of the fiscal year, industry regulations 1 Year 18.56
require us to provide average annual
total returns (including sales charges)
for periods ended 9/30/03, the most
recent calendar quarter-end.
===================================================================================================================================
</Table>
4
<Table>
Your fund's total return includes sales
charges, expenses and management fees.
The performance of the fund's share
classes 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
and table does not reflect deduction of
taxes a shareholder would pay on fund
distributions or sale of fund shares.
Performance of 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 create the
potential for the original investment to
grow to very large numbers.
S&P 500 Index data from 11/30/68.
Past performance cannot guarantee
comparable future results. DUE TO
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.
REDUCE YOUR PAPER MAIL WITH AIM'S EDELIVERY
Sign up for eDelivery and you can have your fund reports, prospectuses and quarterly
account statements delivered electronically. To enroll, go to AIMinvestments.com,
select "My Account," log in, click on the "Service Center" tab and select "Register
for eDelivery." You will no longer receive paper copies of these documents. Instead
you'll receive a link to the documents via email. (You can cancel the service at the
Web site at any time.)
If you receive account statements, fund reports and prospectuses from your financial
advisor rather than from AIM, eDelivery is not accessible to you. Ask your financial
advisor if his or her firm offers electronic delivery.
[GRAPHIC]
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/03
AIM CHARTER FUND
<Table>
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is not
For periods ended 10/31/03 indicative of future results. More
The following information has been recent returns may be more or less than
prepared to provide Institutional Class INCEPTION (7/30/91) 8.63% those shown. All returns assume
shareholders with a performance overview 10 Years 7.90 reinvestment of distributions at net
specific to their holdings. 5 Years 0.27 asset value. Investment return and
Institutional Class shares are offered 1 Year 16.84 principal value will fluctuate so your
exclusively to institutional investors, shares, when redeemed, may be worth more
including defined contribution plans or less than their original cost. See
that meet certain criteria. Performance AVERAGE ANNUAL TOTAL RETURNS full report for information on
of Institutional Class shares will For periods ended 9/30/03 comparative benchmarks. If you have
differ from performance of Class A (most recent calendar quarter-end) questions, please consult your fund
shares due to differing sales charges prospectus or call 800-451-4246. A I M
and class expenses. INCEPTION (7/30/91) 8.40% Distributors, Inc.
10 Years 7.62
5 Years 1.25
1 Year 19.53
</Table>
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is prepared for institutional investor use only and may not be
quoted, reproduced or shown to members of the public, nor used in written form
as sales literature for public use.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
AIMinvestments.com CHT-INS-1 10/03
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-80.40%
ADVERTISING-1.10%
Omnicom Group Inc. 460,000 $ 36,708,000
=========================================================================
AEROSPACE & DEFENSE-2.19%
Lockheed Martin Corp. 492,200 22,818,392
- -------------------------------------------------------------------------
Northrop Grumman Corp. 560,000 50,064,000
=========================================================================
72,882,392
=========================================================================
APPAREL RETAIL-1.78%
Limited Brands 3,355,000 59,048,000
=========================================================================
BUILDING PRODUCTS-2.26%
American Standard Cos. Inc.(a) 449,000 42,969,300
- -------------------------------------------------------------------------
Masco Corp. 1,174,500 32,298,750
=========================================================================
75,268,050
=========================================================================
COMMUNICATIONS EQUIPMENT-0.76%
Cisco Systems, Inc.(a) 1,200,000 25,176,000
=========================================================================
COMPUTER HARDWARE-2.80%
Dell Inc.(a) 700,000 25,284,000
- -------------------------------------------------------------------------
Hewlett-Packard Co. 1,000,000 22,310,000
- -------------------------------------------------------------------------
International Business Machines Corp. 510,000 45,634,800
=========================================================================
93,228,800
=========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.54%
Automatic Data Processing, Inc. 1,355,000 51,137,700
=========================================================================
DIVERSIFIED BANKS-1.21%
Bank of America Corp. 530,000 40,136,900
=========================================================================
DIVERSIFIED CHEMICALS-0.96%
Dow Chemical Co. (The) 850,000 32,036,500
=========================================================================
ELECTRIC UTILITIES-1.41%
FPL Group, Inc. 430,000 27,408,200
- -------------------------------------------------------------------------
TXU Corp. 850,000 19,397,000
=========================================================================
46,805,200
=========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.49%
Emerson Electric Co. 875,000 49,656,250
=========================================================================
ENVIRONMENTAL SERVICES-1.12%
Waste Management, Inc. 1,440,000 37,324,800
=========================================================================
FOOD RETAIL-2.78%
Kroger Co. (The)(a) 3,210,000 56,142,900
- -------------------------------------------------------------------------
Safeway Inc.(a) 1,720,000 36,292,000
=========================================================================
92,434,900
=========================================================================
</Table>
<Table>
- -------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
FOOTWEAR-1.38%
NIKE, Inc.-Class B 719,500 $ 45,976,050
=========================================================================
HOME IMPROVEMENT RETAIL-1.38%
Home Depot, Inc. (The) 1,235,000 45,781,450
=========================================================================
HOUSEHOLD PRODUCTS-1.08%
Kimberly-Clark Corp. 680,000 35,910,800
=========================================================================
HOUSEWARES & SPECIALTIES-1.19%
Newell Rubbermaid Inc. 1,740,000 39,672,000
=========================================================================
HYPERMARKETS & SUPER CENTERS-0.89%
Wal-Mart Stores, Inc. 500,000 29,475,000
=========================================================================
INDUSTRIAL MACHINERY-3.50%
Dover Corp. 1,690,000 65,943,800
- -------------------------------------------------------------------------
Illinois Tool Works Inc. 685,000 50,381,750
=========================================================================
116,325,550
=========================================================================
INTEGRATED OIL & GAS-4.67%
ChevronTexaco Corp. 520,000 38,636,000
- -------------------------------------------------------------------------
ConocoPhillips 610,000 34,861,500
- -------------------------------------------------------------------------
Exxon Mobil Corp. 1,225,000 44,810,500
- -------------------------------------------------------------------------
Occidental Petroleum Corp. 1,050,000 37,023,000
=========================================================================
155,331,000
=========================================================================
INVESTMENT BANKING & BROKERAGE-1.37%
Morgan Stanley 830,000 45,542,100
=========================================================================
LIFE & HEALTH INSURANCE-1.38%
Prudential Financial, Inc. 1,190,000 45,981,600
=========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.02%
Baker Hughes Inc. 1,200,000 33,912,000
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-3.07%
Citigroup Inc. 1,350,000 63,990,000
- -------------------------------------------------------------------------
Principal Financial Group, Inc. 1,215,000 38,090,250
=========================================================================
102,080,250
=========================================================================
PACKAGED FOODS & MEATS-9.83%
Campbell Soup Co. 2,020,000 52,358,400
- -------------------------------------------------------------------------
ConAgra Foods, Inc. 1,330,300 31,714,352
- -------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
PACKAGED FOODS & MEATS-(CONTINUED)
General Mills, Inc. 1,600,000 $ 71,760,000
- -------------------------------------------------------------------------
Kellogg Co. 1,930,000 63,940,900
- -------------------------------------------------------------------------
Kraft Foods Inc.-Class A 1,600,000 46,560,000
- -------------------------------------------------------------------------
Sara Lee Corp. 3,045,000 60,686,850
=========================================================================
327,020,502
=========================================================================
PERSONAL PRODUCTS-1.07%
Gillette Co. (The) 1,120,000 35,728,000
=========================================================================
PHARMACEUTICALS-8.27%
Abbott Laboratories 790,000 33,669,800
- -------------------------------------------------------------------------
Bristol-Myers Squibb Co. 1,450,000 36,786,500
- -------------------------------------------------------------------------
Johnson & Johnson 935,000 47,058,550
- -------------------------------------------------------------------------
Merck & Co. Inc. 740,000 32,745,000
- -------------------------------------------------------------------------
Pfizer Inc. 2,170,000 68,572,000
- -------------------------------------------------------------------------
Wyeth 1,270,000 56,057,800
=========================================================================
274,889,650
=========================================================================
PROPERTY & CASUALTY INSURANCE-0.94%
Travelers Property Casualty Corp.-Class A 856,486 13,960,722
- -------------------------------------------------------------------------
Travelers Property Casualty Corp.-Class B 1,054,271 17,258,416
=========================================================================
31,219,138
=========================================================================
PUBLISHING-2.24%
Gannett Co., Inc. 450,000 37,849,500
- -------------------------------------------------------------------------
New York Times Co. (The)-Class A 772,900 36,735,937
=========================================================================
74,585,437
=========================================================================
RAILROADS-1.73%
Norfolk Southern Corp. 1,334,000 26,880,100
- -------------------------------------------------------------------------
Union Pacific Corp. 490,000 30,674,000
=========================================================================
57,554,100
=========================================================================
RESTAURANTS-1.40%
McDonald's Corp. 1,855,000 46,393,550
=========================================================================
SEMICONDUCTOR EQUIPMENT-1.24%
KLA-Tencor Corp.(a) 720,000 41,277,600
=========================================================================
SEMICONDUCTORS-3.53%
Intel Corp. 1,959,500 64,761,475
- -------------------------------------------------------------------------
Xilinx, Inc.(a) 1,665,000 52,780,500
=========================================================================
117,541,975
=========================================================================
SOFT DRINKS-1.09%
Coca-Cola Co. (The) 780,000 36,192,000
=========================================================================
SYSTEMS SOFTWARE-4.84%
Computer Associates International, Inc. 3,310,000 77,851,200
- -------------------------------------------------------------------------
</Table>
<Table>
- -------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
SYSTEMS SOFTWARE-(CONTINUED)
Microsoft Corp. 2,287,000 $ 59,805,050
- -------------------------------------------------------------------------
Oracle Corp.(a) 1,960,000 23,441,600
=========================================================================
161,097,850
=========================================================================
THRIFTS & MORTGAGE FINANCE-1.89%
Washington Mutual, Inc. 1,440,000 63,000,000
=========================================================================
Total Domestic Common Stocks (Cost
$2,418,180,502) 2,674,331,094
=========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-11.50%
BERMUDA-1.97%
Tyco International Ltd. (Industrial
Conglomerates) 2,000,000 41,760,000
- -------------------------------------------------------------------------
XL Capital Ltd.-Class A (Property & Casualty
Insurance) 340,000 23,630,000
=========================================================================
65,390,000
=========================================================================
CAYMAN ISLANDS-2.12%
ACE Ltd. (Property & Casualty Insurance) 1,025,000 36,900,000
- -------------------------------------------------------------------------
GlobalSantaFe Corp. (Oil & Gas Drilling) 1,500,000 33,765,000
=========================================================================
70,665,000
=========================================================================
GERMANY-0.78%
SAP A.G.-ADR (Application Software) 712,000 26,016,480
=========================================================================
ISRAEL-1.61%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 940,000 53,476,600
=========================================================================
PANAMA-1.29%
Carnival Corp. (Hotels, Resorts & Cruise
Lines) 1,225,000 42,764,750
=========================================================================
SWITZERLAND-1.90%
Alcon, Inc. (Health Care Supplies) 1,150,000 63,376,500
=========================================================================
TAIWAN-0.81%
Taiwan Semiconductor Manufacturing Co. Ltd.-
ADR (Semiconductors) 2,447,280 27,066,917
=========================================================================
UNITED KINGDOM-1.02%
BP PLC-ADR (Integrated Oil & Gas) 800,000 33,904,000
=========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $323,738,450) 382,660,247
=========================================================================
MONEY MARKET FUNDS-5.95%
STIC Liquid Assets Portfolio(b) 98,974,452 98,974,452
- -------------------------------------------------------------------------
STIC Prime Portfolio(b) 98,974,452 98,974,452
=========================================================================
Total Money Market Funds (Cost
$197,948,904) 197,948,904
=========================================================================
TOTAL INVESTMENTS-97.85% (excluding
investments purchased with cash collateral
from securities loaned)(Cost
$2,939,867,856) 3,254,940,245
=========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.68%
STIC Liquid Assets Portfolio(b)(c) 22,552,000 $ 22,552,000
=========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $22,552,000) 22,552,000
=========================================================================
TOTAL INVESTMENTS--98.53% (Cost
$2,962,419,856) 3,277,492,245
=========================================================================
OTHER ASSETS LESS LIABILITIES--1.47% 48,786,899
=========================================================================
NET ASSETS--100.00% $3,326,279,144
_________________________________________________________________________
=========================================================================
</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.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$2,741,918,952)* $3,056,991,341
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $220,500,904) 220,500,904
- ------------------------------------------------------------
Cash 74,415
- ------------------------------------------------------------
Receivables for:
Investments sold 75,751,738
- ------------------------------------------------------------
Fund shares sold 880,244
- ------------------------------------------------------------
Dividends 4,368,336
- ------------------------------------------------------------
Investments matured (Note 8) 607,000
- ------------------------------------------------------------
Investment for deferred compensation plan 152,900
- ------------------------------------------------------------
Other assets 84,262
============================================================
Total assets 3,359,411,140
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 6,530,307
- ------------------------------------------------------------
Deferred compensation plan 152,900
- ------------------------------------------------------------
Collateral upon return of securities
loaned 22,552,000
- ------------------------------------------------------------
Accrued distribution fees 1,679,277
- ------------------------------------------------------------
Accrued trustees' fees 216,869
- ------------------------------------------------------------
Accrued transfer agent fees 1,617,006
- ------------------------------------------------------------
Accrued operating expenses 383,637
============================================================
Total liabilities 33,131,996
============================================================
Net assets applicable to shares outstanding $3,326,279,144
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $3,962,274,000
- ------------------------------------------------------------
Undistributed net investment income 1,365,253
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (952,432,498)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 315,072,389
============================================================
$3,326,279,144
____________________________________________________________
============================================================
NET ASSETS:
Class A $2,008,702,269
____________________________________________________________
============================================================
Class B $1,149,942,947
____________________________________________________________
============================================================
Class C $ 163,859,364
____________________________________________________________
============================================================
Class R $ 1,713,858
____________________________________________________________
============================================================
Institutional Class $ 2,060,706
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED
NUMBER OF SHARES AUTHORIZED:
Class A 180,585,240
____________________________________________________________
============================================================
Class B 107,811,471
____________________________________________________________
============================================================
Class C 15,319,076
____________________________________________________________
============================================================
Class R 154,647
____________________________________________________________
============================================================
Institutional Class 179,936
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 11.12
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $11.12 divided by
94.50%) $ 11.77
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 10.67
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 10.70
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 11.08
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 11.45
____________________________________________________________
============================================================
</Table>
* At October 31, 2003, securities with an aggregate market value of $21,709,590
were on loan to brokers.
See Notes to Financial Statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $301,430) $ 51,649,180
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds 3,818,102
- ---------------------------------------------------------------------------
Securities lending 220,475
===========================================================================
Total investment income 55,687,757
===========================================================================
EXPENSES:
Advisory fees 20,917,533
- ---------------------------------------------------------------------------
Administrative services fees 574,103
- ---------------------------------------------------------------------------
Custodian fees 243,985
- ---------------------------------------------------------------------------
Distribution fees:
Class A 5,969,787
- ---------------------------------------------------------------------------
Class B 11,503,103
- ---------------------------------------------------------------------------
Class C 1,621,567
- ---------------------------------------------------------------------------
Class R 3,783
- ---------------------------------------------------------------------------
Transfer agent fees 10,331,020
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 1,555
- ---------------------------------------------------------------------------
Trustees' fees 68,932
- ---------------------------------------------------------------------------
Other 1,080,550
===========================================================================
Total expenses 52,315,918
===========================================================================
Less: Fees waived and expense offset arrangements (124,977)
===========================================================================
Net expenses 52,190,941
===========================================================================
Net investment income 3,496,816
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from investment securities (177,091,373)
- ---------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 649,910,066
- ---------------------------------------------------------------------------
Foreign currencies (67)
===========================================================================
649,909,999
===========================================================================
Net gain from investment securities and foreign currencies 472,818,626
===========================================================================
Net increase in net assets resulting from operations $ 476,315,442
___________________________________________________________________________
===========================================================================
</Table>
See Notes to Financial Statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 3,496,816 $ (8,504,860)
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (177,091,373) 304,583,841
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 649,909,999 (628,211,415)
===============================================================================================
Net increase (decrease) in net assets resulting from
operations 476,315,442 (332,132,434)
===============================================================================================
Share transactions-net:
Class A (380,938,708) (870,998,051)
- -----------------------------------------------------------------------------------------------
Class B (215,082,650) (391,079,522)
- -----------------------------------------------------------------------------------------------
Class C (29,277,194) (61,301,813)
- -----------------------------------------------------------------------------------------------
Class R 1,521,693 17,606
- -----------------------------------------------------------------------------------------------
Institutional Class 339,875 (60,090)
===============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (623,436,984) (1,323,421,870)
===============================================================================================
Net increase (decrease) in net assets (147,121,542) (1,655,554,304)
===============================================================================================
NET ASSETS:
Beginning of year 3,473,400,686 5,128,954,990
===============================================================================================
End of year (including undistributed net investment income
(loss) of $1,365,253 and $(2,131,563) for 2003 and 2002,
respectively) $3,326,279,144 $ 3,473,400,686
_______________________________________________________________________________________________
===============================================================================================
</Table>
See Notes to Financial Statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Market trends, movement in exchange traded funds and ADRs, and
the bid/ask quotes of brokers and information providers may be reviewed in
the course of making a good faith determination of a security's fair value.
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
ordinarily 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. Bond 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
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
F-7
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. Reported net realized foreign currency gains or losses arise
from sales of foreign currencies, currency gains or losses realized between
the trade and settlement dates on securities transactions, and the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
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 are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses relating to all other classes are
allocated among those classes based on relative net assets. All other
expenses are allocated among the classes based on relative net assets.
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 agreement, the Fund
pays an advisory fee to AIM at the annual rate of 1.00% of the first $30 million
of the Fund's average daily net assets, plus 0.75% of the Fund's average daily
net assets in excess of $30 million up to and including $150 million, plus
0.625% of the Fund's average daily net assets in excess of $150 million. AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market funds 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 year
ended October 31, 2003, AIM waived fees of $71,387. 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, 2003, AIM was
paid $574,103 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. For the Institutional Class, the transfer agent has contractually
agreed to reimburse class specific transfer agent fees to the extent necessary
to limit transfer agent fees to 0.10% of the average net assets. During the year
ended October 31, 2003, AISI retained $5,291,312 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, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.30% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, AIM Distributors may pay a service fee up to 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 shares of such classes. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the year ended October 31, 2003,
the Class A, Class B, Class C and Class R shares paid $5,969,787, $11,503,103,
$1,621,567 and $3,783, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2003, AIM Distributors retained $266,509 in front-end sales
commissions from the sale of Class A shares and $3,192, $1,449, $10,762 and $0
from Class A, Class B, Class C and Class R shares, respectively, for CDSC
imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
For the year ended October 31, 2003, the Fund received reductions in transfer
agency fees from AISI (an affiliate of AIM) of $52,204 and reductions in
custodian fees of $1,386 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $53,590.
F-8
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. The Trustees deferring compensation have the
option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. Certain former Trustees also
participate in a retirement plan and receive benefits under such plan.
During the year ended October 31, 2003, the Fund paid legal fees of $7,667
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds. An interfund loan will be
made under this facility only if the loan rate (an average of the rate available
on bank loans and the rate available on investments in overnight repurchase
agreements) is favorable to both the lending fund and the borrowing fund. Under
certain circumstances, a loan will be secured by collateral. To the extent that
the loan is required to be secured by collateral, the collateral is marked to
market daily to ensure that the market value is at least 102% of the outstanding
principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the 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 year ended October 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving line of credit facility or the committed line of credit
facility.
Additionally the Fund is permitted to carry a negative or overdrawn balance
in its account with the custodian bank. To compensate the custodian bank for
such overdrafts, the overdrawn Fund may either (i) leave funds in the account so
the custodian can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank. In either case, the custodian bank will
be compensated an amount equal to the Federal Funds rate plus 100 basis points.
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral 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
held may be temporarily less than the value of the securities on loan.
At October 31, 2003, securities with an aggregate value of $21,709,590 were
on loan to brokers. The loans were secured by cash collateral of $22,552,000
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2003, the Fund received fees of $220,475
for securities lending.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2003 and 2002.
Tax Components of Net Assets:
As of October 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 4,232,634
- ------------------------------------------------------------
Unrealized appreciation -- investments 263,538,600
- ------------------------------------------------------------
Temporary book/tax differences (366,068)
- ------------------------------------------------------------
Capital loss carryforward (903,400,022)
- ------------------------------------------------------------
Shares of beneficial interest 3,962,274,000
============================================================
Total net assets $3,326,279,144
____________________________________________________________
============================================================
</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
and the treatment of defaulted bonds.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the deferral of trustee compensation and
trustee retirement plan expenses.
F-9
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
- --------------------------------------------------------------------------
October 31, 2011 132,068,900
==========================================================================
Total capital loss carryforward $903,400,022
__________________________________________________________________________
==========================================================================
</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 year ended
October 31, 2003 was $825,855,209 and $1,336,270,759, respectively.
Receivable for investments matured represents the estimated proceeds to the
Fund by Candescent Technologies Corp. which is in default with respect to the
principal payments on $60,700,000 par value, Senior Unsecured Guaranteed
Subordinated Debentures, 8.00% which was due May 1, 2003. This estimate was
determined in accordance with the fair valuation procedures authorized by the
Board of Trustees.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $426,402,735
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (162,864,135)
==============================================================================
Net unrealized appreciation of investment securities $263,538,600
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $3,013,953,645.
</Table>
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 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 CDSC. Generally, Class B shares will
automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2003 2002
---------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 16,680,459 $ 167,057,570 16,193,575 $ 174,972,073
- -----------------------------------------------------------------------------------------------------------------------------
Class B 8,128,480 78,572,729 9,302,039 97,387,968
- -----------------------------------------------------------------------------------------------------------------------------
Class C 2,035,003 19,657,080 2,633,061 27,700,439
- -----------------------------------------------------------------------------------------------------------------------------
Class R* 182,932 1,841,485 1,719 17,663
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class 53,551 570,090 45,275 481,439
=============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 3,640,846 37,843,518 717,246 7,724,451
- -----------------------------------------------------------------------------------------------------------------------------
Class B (3,789,510) (37,843,518) (739,880) (7,724,451)
=============================================================================================================================
Reacquired:
Class A (58,788,618) (585,839,796) (99,779,666) (1,053,694,575)
- -----------------------------------------------------------------------------------------------------------------------------
Class B (26,845,101) (255,811,861) (47,214,599) (480,743,039)
- -----------------------------------------------------------------------------------------------------------------------------
Class C (5,102,475) (48,934,274) (8,599,959) (89,002,252)
- -----------------------------------------------------------------------------------------------------------------------------
Class R* (29,999) (319,792) (5) (57)
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class (22,226) (230,215) (51,011) (541,529)
=============================================================================================================================
(63,856,658) $(623,436,984) (127,492,205) $(1,323,421,870)
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
F-10
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
---------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.57 $ 10.46 $ 18.07 $ 17.16 $ 13.32
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(a) 0.01(b) (0.03) (0.04)(a) 0.02
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.51 (0.90) (6.70) 2.30 4.39
=================================================================================================================================
Total from investment operations 1.55 (0.89) (6.73) 2.26 4.41
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.88) (1.35) (0.54)
=================================================================================================================================
Total distributions -- -- (0.88) (1.35) (0.57)
=================================================================================================================================
Net asset value, end of period $ 11.12 $ 9.57 $ 10.46 $ 18.07 $ 17.16
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 16.20% (8.51)% (38.75)% 13.60% 34.05%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,008,702 $2,096,866 $3,159,304 $5,801,869 $4,948,666
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.30%(d) 1.22% 1.16% 1.06% 1.05%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.30%(d) 1.22% 1.17% 1.08% 1.07%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.39%(d) 0.09%(b) (0.24)% (0.20)% 0.11%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 28% 103% 78% 80% 107%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(d) Ratios are based on average daily net assets of $1,989,929,149.
F-11
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.24 $ 10.18 $ 17.72 $ 16.97 $ 13.24
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.08)(b) (0.13) (0.17)(a) (0.10)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.46 (0.86) (6.53) 2.27 4.37
=================================================================================================================================
Total from investment operations 1.43 (0.94) (6.66) 2.10 4.27
=================================================================================================================================
Less distributions from net realized gains -- -- (0.88) (1.35) (0.54)
=================================================================================================================================
Net asset value, end of period $ 10.67 $ 9.24 $ 10.18 $ 17.72 $ 16.97
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 15.48% (9.23)% (39.14)% 12.76% 33.06%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,149,943 $1,204,617 $1,719,470 $3,088,611 $2,206,752
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.00%(d) 1.92% 1.86% 1.80% 1.80%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.00%(d) 1.92% 1.87% 1.82% 1.82%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.31)%(d) (0.61)%(b) (0.94)% (0.94)% (0.64)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 28% 103% 78% 80% 107%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(d) Ratios are based on average daily net assets of $1,150,310,322.
F-12
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.27 $ 10.21 $ 17.77 $ 17.01 $ 13.27
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.08)(b) (0.13) (0.17)(a) (0.09)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.46 (0.86) (6.55) 2.28 4.37
===============================================================================================================================
Total from investment operations 1.43 (0.94) (6.68) 2.11 4.28
===============================================================================================================================
Less distributions from net realized gains -- -- (0.88) (1.35) (0.54)
===============================================================================================================================
Net asset value, end of period $ 10.70 $ 9.27 $ 10.21 $ 17.77 $ 17.01
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 15.43% (9.21)% (39.14)% 12.78% 33.06%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $163,859 $170,444 $248,533 $412,872 $138,467
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.00%(d) 1.92% 1.86% 1.80% 1.80%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.00%(d) 1.92% 1.87% 1.82% 1.82%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.31)%(d) (0.61)%(b) (0.94)% (0.94)% (0.64)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 28% 103% 78% 80% 107%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(d) Ratios are based on average daily net assets of $162,156,695.
F-13
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.56 $ 10.94
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02(a) 0.00(b)
- ---------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.50 (1.38)
=============================================================================================
Total from investment operations 1.52 (1.38)
=============================================================================================
Net asset value, end of period $11.08 $ 9.56
_____________________________________________________________________________________________
=============================================================================================
Total return(c) 15.90% (12.61)%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,714 $ 16
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets 1.50%(d) 1.42%(e)
=============================================================================================
Ratio of net investment income (loss) to average net assets 0.19%(d) (0.11)%(b)(e)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(f) 28% 103%
_____________________________________________________________________________________________
=============================================================================================
</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
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(d) Ratios are based on average daily net assets of $756,569.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-14
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------
2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.80 $10.67 $ 18.33 $17.33 $ 13.42
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.09(a) 0.06(b) 0.04 0.52 0.09
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.56 (0.93) (6.82) 1.83 4.43
====================================================================================================================
Total from investment operations 1.65 (0.87) (6.78) 2.35 4.52
====================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.07)
- --------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.88) (1.35) (0.54)
====================================================================================================================
Total distributions -- -- (0.88) (1.35) (0.61)
====================================================================================================================
Net asset value, end of period $11.45 $ 9.80 $ 10.67 $18.33 $ 17.33
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(c) 16.84% (8.15)% (38.46)% 14.02% 34.61%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,061 $1,457 $ 1,648 $3,234 $66,801
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 0.79%(d) 0.79% 0.68% 0.66% 0.65%
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 0.79%(d) 0.83% 0.69% 0.68% 0.67%
====================================================================================================================
Ratio of net investment income to average net assets 0.90%(d) 0.52%(b) 0.25% 0.20% 0.51%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 28% 103% 78% 80% 107%
____________________________________________________________________________________________________________________
====================================================================================================================
</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.
(d) Ratios are based on average daily net assets of $1,652,566.
NOTE 11--SUBSEQUENT EVENTS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM") is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("INVESCO"), was, until
recently, the investment advisor to the INVESCO Funds.
On December 2, 2003, each of the Securities and Exchange Commission ("SEC")
and the Office of the Attorney General of the State of New York ("NYAG") filed
civil proceedings against INVESCO and Raymond R. Cunningham, in his capacity as
the Chief Executive Officer of INVESCO. Mr. Cunningham currently holds the
positions of Chief Operating Officer and Senior Vice President of A I M
Management Group, Inc., the parent company of AIM, and he also holds the
position of Senior Vice President with AIM. In addition, on December 2, 2003,
the State of Colorado filed civil proceedings against INVESCO. Neither your Fund
nor any of the funds in the AIM Family of Funds(R), which includes the INVESCO
Funds (the "Funds") has been named as a defendant in any of these proceedings.
The SEC proceeding alleges that INVESCO failed to disclose in the INVESCO
Funds' prospectuses and to the INVESCO Funds' independent directors that INVESCO
had entered into certain arrangements permitting market timing of the INVESCO
Funds. The SEC is seeking injunctions, including permanent injunctions from
serving as an investment advisor, officer or director of an investment company;
an accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG proceeding is also based on the circumstances described above. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief.
The Colorado proceeding is also based on the circumstances described above.
The State of Colorado is seeking injunctions; restitution, disgorgement and
other equitable relief; civil monetary penalties; and other relief.
If INVESCO is unsuccessful in its defense of these proceedings, it could be
barred from serving as an investment advisor for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Similarly, if Mr. Cunningham is unsuccessful in his
defense of these proceedings, he could be barred from serving as an officer or
director of any registered investment company. Such results could also affect
the ability of AIM, or any other investment advisor directly or indirectly owned
by AMVESCAP, from serving as an investment advisor to any
F-15
NOTE 11--SUBSEQUENT EVENTS (CONTINUED)
registered investment company, including your Fund. Your Fund has been informed
by AIM that, if either of these results occurs, AIM will seek exemptive relief
from the SEC to permit it to continue to serve as your Fund's investment
advisor. There can be no assurance that such exemptive relief will be granted.
AIM has received inquiries from the SEC, the NASD, Inc., the NYAG and the
Secretary of the Commonwealth of Massachusetts with respect to market timing,
late trading, fair value pricing and other similar issues and AIM has been
providing full cooperation with respect to these inquiries.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
certain Funds, INVESCO, AIM, AMVESCAP and certain related parties, primarily
based upon the allegations in the complaints described above, but also regarding
the funds' fair valuation pricing methodology. Such lawsuits allege a variety of
theories for recovery including, but not limited to: (i) violation of various
provisions of the Federal securities laws; (ii) breach of fiduciary duty; and
(iii) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; interest and the payment of attorneys'
and experts' fees. Additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
Funds, INVESCO, AIM, AMVESCAP and related parties in the future.
As a result of these developments, investors in the Funds might react by
redeeming their investments. This might require the Funds to sell investments to
provide for sufficient liquidity and could also have an adverse effect on the
investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of these matters described above may have on
the Fund or AIM's financial condition.
F-16
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 of AIM Equity Funds), including the schedule of
investments, as of October 31, 2003, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
three years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. 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. Our procedures included confirmation of securities
owned as of October 31, 2003, by correspondence with the custodian and brokers
or by other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Charter Fund as of October 31, 2003, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended, in conformity with accounting principles generally
accepted in the United States.
Houston, Texas /s/ ERNST & YOUNG LLP
December 16, 2003
F-17
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Equity Funds, a Delaware statutory
trust, was held on October 21, 2003. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHOLDING
DIRECTORS/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 983,597,298 14,109,942
Frank S. Bayley.............................. 983,595,385 14,111,855
James T. Bunch............................... 983,970,384 13,736,856
Bruce L. Crockett............................ 983,967,974 13,739,266
Albert R. Dowden............................. 983,892,850 13,814,390
Edward K. Dunn, Jr........................... 983,672,087 14,035,153
Jack M. Fields............................... 983,987,281 13,719,959
Carl Frischling.............................. 983,352,244 14,354,996
Robert H. Graham............................. 983,794,290 13,912,950
Gerald J. Lewis.............................. 983,317,525 14,389,715
Prema Mathai-Davis........................... 983,676,086 14,031,154
Lewis F. Pennock............................. 983,703,651 14,003,589
Ruth H. Quigley.............................. 983,356,521 14,350,719
Louis S. Sklar............................... 983,812,619 13,894,621
Larry Soll, Ph.D............................. 983,820,425 13,886,815
Mark H. Williamson........................... 983,676,844 14,030,396
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Equity Funds
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (The Trust), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S)
TRUST SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management Group Inc.
Trustee, Chairman and (financial services holding company); and Director and Vice
President 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); and
Director and Chairman, A I M Capital Management, Inc.
(registered investment advisor), A I M Distributors, Inc.
(registered broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management Company
(registered broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ----------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President Director, Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor) and A I M
Distributors, Inc. (registered broker dealer); Director and
Chairman, AIM Investment Services, Inc. (registered transfer
agent); and Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global investment management
firm)
Formerly: Director, Chairman, President and Chief Executive
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 2003 Consultant
Trustee
Formerly: President and Chief Executive Officer, AMC Cancer
Research Center; and Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie
Trustee
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd.,
Trustee (investment banking firm); and Director, Policy Studies,
Inc. and Van Gilder Insurance Corporation
Formerly: General Counsel and Director, Boettcher & Co.; and
Chairman and Managing Partner, law firm of Davis, Graham &
Stubbs
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology
Trustee consulting company)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business
Trustee corporations, including the Boss Group Ltd. (private
investment and management) and Magellan 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 Group
companies
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and
Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares Corp.
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc.
Trustee (government affairs company) and Texana Timber LP
- ----------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S)
TRUST HELD BY TRUSTEE
- -------------------------------- ----------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 None
Trustee, Chairman and
President
- ------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 Director and Chairman,
Trustee and Executive Vice INVESCO Bond Funds,
President Inc., INVESCO
Combination Stock &
Bond Funds, Inc.,
INVESCO Counselor
Series Funds, Inc.,
INVESCO International
Funds, Inc., INVESCO
Manager Series Funds,
Inc., INVESCO Money
Market Funds, Inc.,
INVESCO Sector Funds,
Inc., INVESCO Stock
Funds, Inc., INVESCO
Treasurer's Series
Funds, Inc. and
INVESCO Variable
Investment Funds, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 Badgley Funds, Inc.
Trustee (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 ACE Limited (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 Cortland Trust, Inc.
Trustee (Chairman) (registered
investment company);
Annuity and Life Re
(Holdings), Ltd.
(insurance company)
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 Administaff
Trustee
- ----------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust. Mr. Williamson became Executive Vice President of
the Trust on March 4, 2003.
(3) Elected trustee of the Trust on October 21, 2003.
Trustees and Officers (continued)
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (The Trust), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President Counsel, A I M Management Group Inc. (financial services
holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and 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(5) -- 1947 1988 Director, Chairman and Director of Investments, A I M
Senior Vice President 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 -- Fixed
Vice President 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 M Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 1999 Vice President, A I M Advisors, Inc., and President, Chief
Vice President 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 Advisors, Inc.
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Gary T. Crum(5) -- 1947 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Dana R. Sutton -- 1959 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
</Table>
(3) Elected trustee of the Trust on October 21, 2003.
(4) Mr. Carome became Senior Vice President of the Trust on May 13, 2003.
(5) Information is current as of January 10, 2003.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP A I M
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center Capital
Houston, TX 77046 Suite 100 Suite 100 1401 McKinney, Suite 1200 Management,
Houston, TX 77046 Houston, TX 77046-1173 Houston, TX 77010-4035 Inc.
11 Greenway
Plaza
Suite 100
Houston, TX
77046
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
Andrews & Ingersoll, LLP Frankel LLP P.O. Box 4739 Trust Company
1735 Market Street 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103 New York, NY 10022-3852 Boston, MA 02110
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(4) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(5)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) AIM Small Cap Equity Fund was closed to most
investors on December 19, 2003. For information on who may continue to invest in
AIM Small Cap Equity Fund, please contact your financial advisor. (3) AIM Small
Cap Growth Fund was closed to most investors on March 18, 2002. For information
on who may continue to invest in AIM Small Cap Growth Fund, please contact your
financial advisor. (4) Effective April 30, 2003, AIM Worldwide Spectrum Fund was
renamed AIM Global Value Fund. (5)Effective November 24, 2003, INVESCO
International Blue Chip Value Fund was renamed INVESCO International Core Equity
Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
it carefully before investing. If used after January 20, 2004, this brochure
must be accompanied by a fund Performance & Commentary or by an AIM Quarterly
Performance Review for the most recent quarter-end. Mutual funds distributed by
A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $142 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $345 billion in assets
under management. Data as of September 30, 2003.
AIMinvestments.com CHT-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- -------------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Servicemark--
Plans Accounts
</Table>
AIM CONSTELLATION FUND
Annual Report to Shareholders o October 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM CONSTELLATION FUND SEEKS TO PROVIDE GROWTH OF CAPITAL.
================================================================================
ABOUT INFORMATION THROUGHOUT THIS REPORT:
<Table>
o Unless otherwise stated, information o Class R shares are available only to o A direct investment cannot be made in
presented is as of 10/31/03 and is based certain retirement plans. Please see the an index. Unless otherwise indicated,
on total net assets. prospectus for more information. They index results include reinvested
are sold at net asset value, that is, dividends, and they do not reflect sales
o AIM Constellation Fund's performance without up-front sales charges. charges or fund expenses.
figures are historical, and they reflect
fund expenses, the reinvestment of o The fund's investment return and A description of the policies and
distributions, and changes in net asset principal value will fluctuate, so an procedures that the fund uses to
value. investor's shares, when redeemed, may be determine how to vote proxies relating
worth more or less than their original to portfolio securities is available
o When sales charges are included in cost. without charge, upon request, by calling
performance figures, Class A share 800-959-4246, or on the AIM Web site,
performance reflects the maximum 5.50% o Investing in small and mid-size AIMinvestments.com.
sales charge, and Class B and Class C companies may involve risks not
share performance reflects the associated with investing in more
applicable contingent deferred sales established companies. Also, small
charge (CDSC) for the period involved. companies may have business risk,
The CDSC on Class B shares declines from significant stock price fluctuations and
5% beginning at the time of purchase to illiquidity.
0% at the beginning of the seventh year.
The CDSC on Class C shares is 1% for the o Industry classifications used in this
first year after purchase. The report are generally according to the
performance of the fund's share classes Global Industry Classification Standard,
will differ due to different sales which was developed by and is the
charge structures and class expenses. exclusive property and a service mark of
Morgan Stanley Capital International
o Effective 9/30/03, Class B shares are Inc. and Standard & Poor's.
not available as an investment for
retirement plans maintained pursuant to o The unmanaged Standard & Poor's
Section 401 of the Internal Revenue Composite Index of 500 Stocks (the S&P
Code, including 401(k) plans, money 500--Registered Trademark--) is an
purchase pension plans and profit index of common stocks frequently used
sharing plans. Plans that have existing as a general measure of U.S. stock
accounts invested in Class B shares will market performance.
continue to be allowed to make
additional purchases. o Bloomberg, Inc. is a well-known
independent financial research and
reporting firm.
</Table>
<Table>
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE This report may be distributed only to shareholders or to persons who have
=================================================== received a current prospectus of the fund.
</Table>
AIMinvestments.com
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER IN new policies and strengthened existing ones--to discourage
THE AIM FAMILY OF FUNDS--Registered harmful short-term trading. These steps include:
Trademark--:
As you may be aware, there has been a
[PHOTO OF great deal of media coverage recently o Strengthening daily monitoring of trading
ROBERT H. about the mutual fund industry and activities.
GRAHAM] allegations of improper activities by
certain individuals and companies. As o Imposing redemption fees on additional funds
ROBERT H GRAHAM part of these widespread investigations, we believe may be vulnerable to harmful
INVESCO Funds Group (IFG), the former short-term trading activity.
[PHOTO OF adviser to certain INVESCO Funds, was
MARK H. recently named as a defendant in o Implementing an enhanced exchange policy
WILLIAMSON] separate civil enforcement actions by (effective on or about March 1, 2004)
the U.S. Securities and Exchange designed to limit exchanges between funds.
MARK H. WILLIAMSON Commission (SEC), the Office of the New
York Attorney General and the State of o Employing an enhanced fair value pricing
Colorado over an issue known as "market timing." A number of policy on certain foreign securities as well
private class or derivative actions also were filed in as certain illiquid securities.
the wake of the regulators' actions.
Investors are understandably concerned and frustrated None of these tools alone, nor all of them taken
about these reports, and we would like to take this together, eliminate the possibility of short-term
opportunity to assure you that, based on an investigation trading strategies that may be detrimental to a fund.
conducted by an outside firm, IFG and its parent company, Moreover, each of these tools involves judgments that
AMVESCAP PLC, believe that these civil actions are without are inherently subjective. We have always sought and
merit. IFG is contesting the charges. continue to seek to make these judgments to the best of
our abilities and in a manner that we believe is
We encourage you to continue to monitor this situation, consistent with the best interests of our fund
particularly as IFG has the opportunity to address the shareholders. And we remain committed to being as
allegations that have been made. Current information will be vigilant as possible in the future to identify and
posted on our Web site at AIMinvestments.com. We will address any harmful market timing investors who have
continue to communicate to you on our Web site about our the potential to harm our long-term fund shareholders.
finding, and the actions we are taking to protect and
promote the interests of our shareholders. The independent We sincerely hope these developments and the media
trustees of the funds are receiving regular reports from coverage surrounding them do not result in you or other
their independent counsel and outside counsel hired by shareholders losing confidence in AIM or INVESCO Funds.
AMVESCAP PLC, the parent of AIM and IFG, to perform an Amidst this storm of controversy in the mutual fund
ongoing investigation of market timing. industry, we believe we can find encouragement in the
recovering economy and rising equity markets. As we
A COMPLEX ISSUE write this letter, for instance, the S&P 500--Registered
Trademark-- Index is up approximately 23% year-to-date.
Market timing is an investment technique not defined in any Although past performance is no guarantee of future
regulation that involves frequent short-term trading of results, there appear to be indicators that the economy
mutual fund shares, sometimes with a goal to exploit and stock markets are showing signs of welcomed improvement.
inefficiencies in the way mutual funds price their shares. We encourage you to read the enclosed discussion of your
We recognize that fund management companies have tried to fund's performance during this past reporting period.
deal with this complex issue in various ways and believe
that industry-wide guidance is in order. To that end, we OUR UNWAVERING COMMITMENT
welcome SEC Chairman William Donaldson's pledge to adopt new
rules designed to curb market timing abuses. Comprehensive At AIM Investments, we have never wavered in our
rulemaking is necessary and is the best way to establish new commitment to helping you build solutions for your
industry responsibilities designed to protect shareholders. financial goals. Our company was founded on a core
We support practical rule changes and structural principle of integrity, and we have always worked hard
modifications that are fair, enforceable and, most to earn the trust of our shareholders. We are committed
importantly, beneficial for investors. to doing all we can to maintain your trust and
confidence.
AIM Investments has policies in place designed to
identify, prevent and eliminate harmful trading or other Thank you for your continued participation in AIM
activities deemed to be detrimental to the funds. We have Investments. Please call your financial advisor or one
also recently taken additional steps--implemented of our Client Service representatives at 800-959-4246
if you have any further questions or concerns about
your AIM Investments account.
Sincerely,
/s/ROBERT H. GRAHAM /s/MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Chairman and President President and CEO
The AIM Family of Funds AIM Investments
--Registered Trademark--
December 18, 2003
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND DELIVERS POSITIVE RETURN materials and utilities were the
FOR FISCAL YEAR top-performing sectors while
telecommunication services, consumer
This report covers the fiscal year ended economic activity, expanded at an staples and health care were the
October 31, 2003. During this period, annualized rate of 3.3% in the second weakest-performing sectors.
your fund recorded positive returns. At quarter and 8.2% in the third quarter of
net asset value, Class A shares produced 2003. As of the close of the fiscal ========================================
a total return of 19.89%. By comparison, year, 405 companies in the S&P 500 had
the S&P 500 Index returned 20.79% over reported third-quarter earnings. A total SMALL- AND MID-CAP
the same period. The fund slightly of 65.4% of those companies reported
underperformed the index because it had earnings that exceeded expectations STOCKS GENERALLY
no exposure to utilities, one of the compared to 60.2% for the third quarter
best-performing sectors in the S&P 500. of 2002, according to Bloomberg. The job OUTPERFORMED
market remained weak, however, as the
MARKET CONDITIONS nation's unemployment rate stood at 6.0% LARGE-CAP STOCKS.
at the close of the reporting period.
Amid a backdrop of generally improving ========================================
economic conditions, the S&P 500 For most of the fiscal year, the
produced double-digit gains for the year Federal Reserve (the Fed) kept the Small- and mid-cap stocks generally
ended October 31, 2003. The index rose short-term federal funds rate at 1.25%. outperformed large-cap stocks. While the
in November 2002, then declined over the On June 25, 2003, it lowered that rate performance of large-cap growth and
next three months, dropping to its to 1.00%, its lowest level since 1958. large-cap value stocks was similar, mid-
lowest level for the fiscal year on At the time, the Fed said it favored a and small-cap growth stocks generally
March 11, 2003. The index then rallied, more expansive monetary policy because outperformed their value counterparts by
posting a gain of 32.67% from its low on the economy had not yet exhibited wider margins.
March 11 through the end of the sustainable growth. By October, the Fed
reporting period. reported that economic expansion had YOUR FUND
increased and consumer spending was
During this rally, the United generally stronger, although the job At the close of the fiscal year, the
States and its allies took military market remained weak. portfolio's three largest sector
action against Iraq and ousted the weightings were the same as at the
regime of Saddam Hussein. The nation's All sectors of the S&P 500 recorded beginning of the reporting period:
gross domestic product, generally gains for the fiscal year. Information information technology, consumer
considered the broadest measure of technology, discretionary and health care. These
sectors also contributed the most to
fund performance. The portfolio was
overweight in health care
</Table>
<Table>
=================================================================================================================================
FUND VS. INDEXES TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
Total Returns 10/31/02-10/31/03,
excluding sales charges 1. Semiconductors 6.9% 1. Microsoft Corp. 2.8%
2. Health Care Equipment 5.3 2. Microchip Technology Inc. 2.1
Class A Shares 19.89% 3. Pharmaceuticals 5.3 3. Fiserv, Inc. 1.8
Class B Shares 19.02
Class C Shares 19.02 4. Communications Equipment 4.7 4. Dell Inc. 1.7
Class R Shares 19.59
S&P 500 Index 20.79 5. Semiconductor Equipment 4.4 5. Biomet, Inc. 1.7
Source: Lipper, Inc.
6. Systems Software 4.3 6. CDW Corp. 1.7
Past performance cannot guarantee 7. Consumer Finance 3.1 7. Analog Devices, Inc. 1.7
comparable future results. DUE TO
SIGNIFICANT MARKET VOLATILITY, RESULTS 8. Restaurants 2.8 8. Teva Pharmaceuticals 1.6
OF AN INVESTMENT MADE TODAY MAY DIFFER Industries Ltd.-ADR (Israel)
SUBSTANTIALLY FROM THE HISTORICAL 9. Data Processing & Outsourced
PERFORMANCE SHOWN. CALL YOUR FINANCIAL Services 2.6 9. Cisco Systems, Inc. 1.6
ADVISOR FOR MORE CURRENT PERFORMANCE.
10. Broadcasting & Cable TV 2.6 10. Wal-Mart Stores, Inc. 1.5
*Excludes money market fund holdings.
TOTAL NUMBER OF HOLDINGS* 137 The fund's holdings are subject to change, and there is no assurance that the fund
TOTAL NET ASSETS $7.9 BILLION will continue to hold any particular security.
=================================================================================================================================
</Table>
2
<Table>
compared to the S&P 500, so its benefiting from the ongoing economic CHRISTIAN A. COSTANZO
contribution to performance was greater recovery. Teva reported a 34% increase [PHOTO OF Mr. Costanzo joined AIM
for the fund than for the index. The in sales for the first nine months of CHRISTIAN A. in 1995 as an analyst
sectors that contributed the least to 2003, partially because of the sale of COSTANZO] and assumed his current
fund performance were materials, 14 new products in the North American duties in 1997. Prior to
consumer staples and energy. Although market. joining AIM, he worked
materials was one of the at AT&T as a business analyst from 1991
better-performing sectors of the S&P Detracting from performance was Lockheed to 1993 and as a B-52 Navigator in the
500, the portfolio had little exposure Martin, one of the world's largest United States Air Force from 1987 to
to this sector, so its impact on defense contractors. This stock declined 1990. He holds a B.A. in biology and
performance was minimal. even though the company reported a 23% economics from the University of
increase in sales for the third quarter Virginia and an M.B.A. from The
During the fiscal year, we of 2003 compared to the comparable University of Texas at Austin.
increased the proportion of stocks that period for the previous year.
we consider more economically sensitive ROBERT LLOYD
to about 60% of the portfolio. IN CLOSING [PHOTO OF Mr. Lloyd joined AIM in
Simultaneously, we reduced its exposure ROBERT 2000 as a senior analyst
to stocks that we regard as more We continue to work diligently to meet LLOYD] for the technology
defensive core-growth holdings to about the fund's investment objective of funds. He was promoted
40% of the portfolio. We made these growth of capital. Regardless of market to portfolio manager in
adjustments in response to generally trends, we will adhere to the fund's 2001. Mr. Lloyd was previously a trader
improving economic conditions. History strategy as outlined in its prospectus. for Enron Corporation and American
has shown that more economically We will continue to focus on the stocks Electric Power. He held a position in
sensitive stocks tend to perform better of companies that we believe have business development with American
in an improving economic environment. favorable growth prospects. Electric Power before leaving to join
AIM. He served eight years in the U.S.
Stocks that enhanced performance See important fund and index Navy as a Naval Flight Officer flying
included Cisco Systems, a leading disclosures inside front cover. the S-3B Viking. He received a B.B.A.
Internet networking firm, and Teva from the University of Notre Dame and an
Pharmaceutical Industries, a major M.B.A. from the University of Chicago.
generic drug company. In August, Cisco He is a Chartered Financial Analyst.
reported fiscal year 2003 net income of
$3.6 billion, up sharply from $1.9 BRIAN UNTERHALTER
billion for the 2002 fiscal year. In our [PHOTO OF Mr. Unterhalter began
opinion, Cisco is one of a growing BRIAN his investment career in
number of companies UNTERHALTER] 1995 as an equity trader
with First Interstate
Bank. In 1997, he
joined AIM as a domestic equity trader
and later became an analyst on AIM's
International (Europe/Canada) investment
management team in 1998. He was promoted
to his current position in 2003. A
native of Johannesburg, South Africa, he
received a B.A. from The University of
================================================================================= Texas at Austin and an M.B.A. from the
University of St. Thomas.
REDUCE YOUR PAPER MAIL WITH AIM'S EDELIVERY
KENNETH A. ZSCHAPPEL
Sign up for eDelivery and you can have your fund reports, prospectuses and [PHOTO OF Mr. Zschappel is lead
quarterly account statements delivered electronically. To enroll, go to KENNETH A. portfolio manager of AIM
AIMinvestments.com, select "My Account," log in, click on the "Service Center" ZSCHAPPEL] Constellation Fund. He
tab and select "Register for eDelivery." You will no longer receive paper copies joined AIM in 1990 and
of these documents. Instead you'll receive a link to the documents via email. in 1992 became a
(You can cancel the service at the Web site at any time.) portfolio analyst for equity securities,
specializing in technology and health
If you receive account statements, fund reports and prospectuses from your care. A native of Austin, Texas, he
financial advisor rather than from AIM, eDelivery is not accessible to you. Ask received a B.A. in political science
your financial advisor if his or her firm offers electronic delivery. from Baylor University.
================================================================================= Assisted by Multi-Cap Growth Team
GRAPHIC GRAPHIC
For More Information Visit
AIMinvestments.com
</Table>
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
4/30/76-10/31/03
[MOUNTAIN CHART]
<Table>
<Caption>
DATE AIM CONSTELLATION FUND S&P 500
CLASS A SHARES INDEX
4/30/76 $ 9450 $ 10000
10/31/76 9111 10327
10/31/77 8573 9704
10/31/78 10338 10320
10/31/79 15631 11914
10/31/80 31383 15739
10/31/81 30655 15829
10/31/82 29017 18407
10/31/83 40590 23551
10/31/84 35906 25051
10/31/85 39690 29893
10/31/86 58182 39813
10/31/87 56766 42361
10/31/88 70001 48613
10/31/89 94855 61424
10/31/90 79503 56830
10/31/91 141394 75820
10/31/92 162358 83363
10/31/93 208766 95792
10/31/94 224316 99487
10/31/95 299333 125760
10/31/96 333002 156045
10/31/97 395670 206133
10/31/98 386648 251507
10/31/99 521308 316051
10/31/00 711888 335259
10/31/01 405058 251817
10/31/02 353087 213802 Source: Lipper, Inc.
10/31/03 $423256 $258241
</Table>
<Table>
===================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS CLASS R SHARES* In addition to returns as of the close
As of 10/31/03, including sales charges 10 Years 7.15% of the fiscal year, industry regulations
5 Years 1.70 require us to provide average annual
CLASS A SHARES 1 Year 19.59 total returns as of 9/30/03, the most
Inception (4/30/76) 14.59% recent calendar quarter-end.
10 Years 6.72
5 Years 0.68 AVERAGE ANNUAL TOTAL RETURNS
1 Year 13.30 As of 9/30/03, including sales charges
CLASS B SHARES CLASS A SHARES
Inception (11/3/97) -0.24% Inception (4/30/76) 14.35%
5 Years 0.77 10 Years 6.01
1 Year 14.02 5 Years 0.31
1 Year 15.20
CLASS C SHARES
Inception (8/4/97) -0.27% CLASS B SHARES
5 Years 1.07 Inception (11/3/97) -1.38%
1 Year 18.02 5 Years 0.38
1 Year 16.04
===================================================================================================================================
</Table>
4
<Table>
Your fund's total return includes sales
charges, expenses and management fees.
The performance of the fund's share
classes 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
and table does not reflect deduction of
taxes a shareholder would pay on fund
distributions or sale of fund shares.
Performance of 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 create the
potential for the original investment to
grow to very large numbers.
CLASS C SHARES *The returns shown for these periods are
Inception (8/4/97) -1.37% the blended returns of the historical
5 Years 0.68 performance of the fund's Class R shares
1 Year 20.04 since their inception and the restated
historical performance of the fund's
CLASS R SHARES* Class A shares (for the periods prior to
10 Years 6.43% inception of the Class R shares) at net
5 Years 1.32 asset value, adjusted to reflect the
1 Year 21.65 higher Rule 12b-1 fees applicable to the
Class R shares. The inception date of
Class A shares is 4/30/76. The inception
date of the fund's Class R shares is
6/3/02. Calculation of blended returns
as of 10/31/03 is from 10/31/93.
Calculation of blended returns as of
9/30/03 is from 9/30/93.
Past performance cannot guarantee
comparable future results. DUE TO
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.
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/03
AIM CONSTELLATION FUND
<Table>
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is not
For periods ended 10/31/03 indicative of future results. More
The following information has been recent returns may be more or less than
prepared to provide Institutional Class INCEPTION (4/8/92) 9.86% those shown. All returns assume
shareholders with a performance overview 10 Years 7.84 reinvestment of distributions at net
specific to their holdings. 5 Years 2.32 asset value. Investment return and
Institutional Class shares are offered 1 Year 20.55 principal value will fluctuate so your
exclusively to institutional investors, shares, when redeemed, may be worth more
including defined contribution plans or less than their original cost. See
that meet certain criteria. Performance AVERAGE ANNUAL TOTAL RETURNS full report for information on
of Institutional Class shares will For periods ended 9/30/03 comparative benchmarks. If you have
differ from performance of Class A (most recent calendar quarter-end) questions, please consult your fund
shares due to differing sales charges prospectus or call 800-451-4246. A I M
and class expenses. INCEPTION (4/8/92) 9.27% Distributors, Inc.
10 Years 7.12
5 Years 1.94
1 Year 22.57
</Table>
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is prepared for institutional investor use only and may not be
quoted, reproduced or shown to members of the public, nor used in written form
as sales literature for public use.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
AIMinvestments.com CST-INS-1 10/03
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.11%
ADVERTISING-1.53%
Lamar Advertising Co.(a) 3,000,000 $ 90,900,000
- -------------------------------------------------------------------------
Omnicom Group Inc. 366,900 29,278,620
=========================================================================
120,178,620
=========================================================================
AEROSPACE & DEFENSE-1.33%
L-3 Communications Holdings, Inc.(a) 750,000 35,055,000
- -------------------------------------------------------------------------
Lockheed Martin Corp. 1,500,000 69,540,000
=========================================================================
104,595,000
=========================================================================
AIR FREIGHT & LOGISTICS-0.64%
Expeditors International of Washington, Inc. 500,000 18,770,000
- -------------------------------------------------------------------------
FedEx Corp. 420,800 31,879,808
=========================================================================
50,649,808
=========================================================================
AIRLINES-0.99%
Southwest Airlines Co. 4,000,000 77,600,000
=========================================================================
APPAREL RETAIL-2.22%
Chico's FAS, Inc.(a) 1,000,000 37,540,000
- -------------------------------------------------------------------------
Gap, Inc. (The) 5,000,000 95,400,000
- -------------------------------------------------------------------------
TJX Cos., Inc. (The) 2,000,000 41,980,000
=========================================================================
174,920,000
=========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.13%
Coach, Inc.(a) 289,700 10,275,659
=========================================================================
APPLICATION SOFTWARE-1.29%
Intuit Inc.(a) 1,250,000 62,475,000
- -------------------------------------------------------------------------
Mercury Interactive Corp.(a) 839,800 39,000,312
=========================================================================
101,475,312
=========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.94%
Northern Trust Corp. 750,000 34,837,500
- -------------------------------------------------------------------------
State Street Corp. 750,000 39,270,000
=========================================================================
74,107,500
=========================================================================
BIOTECHNOLOGY-2.11%
Amgen Inc.(a) 1,200,000 74,112,000
- -------------------------------------------------------------------------
Genzyme Corp.(a) 1,350,900 62,006,310
- -------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 544,600 29,724,268
=========================================================================
165,842,578
=========================================================================
BROADCASTING & CABLE TV-2.60%
Clear Channel Communications, Inc. 2,500,000 102,050,000
- -------------------------------------------------------------------------
</Table>
<Table>
- -------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
BROADCASTING & CABLE TV-(CONTINUED)
Univision Communications Inc.-Class A(a) 2,137,500 $ 72,568,125
- -------------------------------------------------------------------------
Westwood One, Inc.(a) 1,000,000 29,930,000
=========================================================================
204,548,125
=========================================================================
CASINOS & GAMING-0.68%
MGM MIRAGE(a) 1,500,000 53,250,000
=========================================================================
COMMUNICATIONS EQUIPMENT-4.74%
Avaya Inc.(a) 2,000,000 25,880,000
- -------------------------------------------------------------------------
Cisco Systems, Inc.(a) 6,000,000 125,880,000
- -------------------------------------------------------------------------
Corning Inc.(a) 4,000,000 43,920,000
- -------------------------------------------------------------------------
Foundry Networks, Inc.(a) 2,500,000 58,150,000
- -------------------------------------------------------------------------
Juniper Networks, Inc.(a) 2,000,000 35,980,000
- -------------------------------------------------------------------------
Nortel Networks Corp. (Canada)(a) 12,500,000 55,625,000
- -------------------------------------------------------------------------
Scientific-Atlanta, Inc. 500,000 14,800,000
- -------------------------------------------------------------------------
UTStarcom, Inc.(a) 389,300 12,262,950
=========================================================================
372,497,950
=========================================================================
COMPUTER & ELECTRONICS RETAIL-0.93%
Best Buy Co., Inc. 1,250,000 72,887,500
=========================================================================
COMPUTER HARDWARE-1.72%
Dell Inc.(a) 3,750,000 135,450,000
=========================================================================
COMPUTER STORAGE & PERIPHERALS-1.13%
EMC Corp.(a) 5,110,200 70,725,168
- -------------------------------------------------------------------------
Western Digital Corp.(a) 1,369,300 18,417,085
=========================================================================
89,142,253
=========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.42%
Caterpillar, Inc. 700,000 51,296,000
- -------------------------------------------------------------------------
Deere & Co. 1,000,000 60,620,000
=========================================================================
111,916,000
=========================================================================
CONSUMER FINANCE-3.07%
American Express Co. 2,250,000 105,592,500
- -------------------------------------------------------------------------
MBNA Corp. 3,100,000 76,725,000
- -------------------------------------------------------------------------
SLM Corp. 1,500,000 58,740,000
=========================================================================
241,057,500
=========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.62%
Fiserv, Inc.(a) 4,000,000 141,280,000
- -------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 2,298,500 64,472,925
=========================================================================
205,752,925
=========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
DEPARTMENT STORES-0.39%
Nordstrom, Inc. 1,000,000 $ 30,490,000
=========================================================================
DIVERSIFIED BANKS-0.84%
Bank of America Corp. 500,000 37,865,000
- -------------------------------------------------------------------------
Wells Fargo & Co. 500,000 28,160,000
=========================================================================
66,025,000
=========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.57%
Apollo Group, Inc.-Class A(a) 700,000 44,471,000
=========================================================================
DRUG RETAIL-0.77%
Walgreen Co. 1,750,000 60,935,000
=========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.48%
Agilent Technologies, Inc.(a) 1,500,000 37,380,000
=========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.44%
Molex Inc. 1,094,700 34,362,633
=========================================================================
EMPLOYMENT SERVICES-0.81%
Robert Half International Inc.(a) 2,707,400 63,921,714
=========================================================================
FOOD DISTRIBUTORS-0.53%
SYSCO Corp. 1,250,000 42,075,000
=========================================================================
FOOD RETAIL-0.38%
Whole Foods Market, Inc.(a) 500,000 29,620,000
=========================================================================
GENERAL MERCHANDISE STORES-1.26%
Dollar General Corp. 1,500,000 33,705,000
- -------------------------------------------------------------------------
Family Dollar Stores, Inc. 1,500,000 65,415,000
=========================================================================
99,120,000
=========================================================================
HEALTH CARE DISTRIBUTORS-0.60%
Cardinal Health, Inc. 800,000 47,472,000
=========================================================================
HEALTH CARE EQUIPMENT-5.31%
Biomet, Inc. 3,770,675 135,216,406
- -------------------------------------------------------------------------
Boston Scientific Corp.(a) 1,080,700 73,185,004
- -------------------------------------------------------------------------
Guidant Corp. 489,800 24,984,698
- -------------------------------------------------------------------------
Medtronic, Inc. 1,718,600 78,316,602
- -------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 500,000 29,080,000
- -------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 1,200,000 76,572,000
=========================================================================
417,354,710
=========================================================================
HEALTH CARE FACILITIES-0.48%
Health Management Associates, Inc.-Class A 1,706,000 37,787,900
=========================================================================
HEALTH CARE SERVICES-1.64%
AdvancePCS(a) 1,089,603 56,081,866
- -------------------------------------------------------------------------
</Table>
<Table>
- -------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
HEALTH CARE SERVICES-(CONTINUED)
Caremark Rx, Inc.(a) 2,000,000 $ 50,100,000
- -------------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 686,900 22,805,080
=========================================================================
128,986,946
=========================================================================
HOME ENTERTAINMENT SOFTWARE-0.38%
Electronic Arts Inc.(a) 300,000 29,712,000
=========================================================================
HOME IMPROVEMENT RETAIL-0.89%
Lowe's Cos., Inc. 1,182,400 69,678,832
=========================================================================
HOTELS, RESORTS & CRUISE LINES-1.51%
Carnival Corp. (Panama) 1,000,000 34,910,000
- -------------------------------------------------------------------------
Marriott International, Inc.-Class A 500,000 21,600,000
- -------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia) 1,250,000 37,137,500
- -------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 750,000 25,297,500
=========================================================================
118,945,000
=========================================================================
HOUSEHOLD PRODUCTS-0.79%
Procter & Gamble Co. (The) 629,400 61,863,726
=========================================================================
HYPERMARKETS & SUPER CENTERS-1.50%
Wal-Mart Stores, Inc. 2,000,000 117,900,000
=========================================================================
INDUSTRIAL CONGLOMERATES-0.52%
3M Co. 523,400 41,280,558
=========================================================================
INDUSTRIAL MACHINERY-2.00%
Danaher Corp. 500,000 41,425,000
- -------------------------------------------------------------------------
Eaton Corp. 400,000 40,096,000
- -------------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 1,250,000 75,500,000
=========================================================================
157,021,000
=========================================================================
INSURANCE BROKERS-0.12%
Marsh & McLennan Cos., Inc. 222,900 9,528,975
=========================================================================
INTERNET RETAIL-1.40%
Amazon.com, Inc.(a) 750,000 40,815,000
- -------------------------------------------------------------------------
eBay Inc.(a) 654,000 36,584,760
- -------------------------------------------------------------------------
InterActiveCorp.(a) 884,400 32,466,324
=========================================================================
109,866,084
=========================================================================
INTERNET SOFTWARE & SERVICES-0.39%
Yahoo! Inc.(a) 700,000 30,590,000
=========================================================================
INVESTMENT BANKING & BROKERAGE-2.36%
Bear Stearns Cos. Inc. (The) 285,800 21,792,250
- -------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 800,000 75,120,000
- -------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 1,500,000 88,800,000
=========================================================================
185,712,250
=========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
IT CONSULTING & OTHER SERVICES-0.30%
Accenture Ltd.-Class A (Bermuda)(a) 1,012,000 $ 23,680,800
=========================================================================
MANAGED HEALTH CARE-2.20%
Aetna Inc. 593,700 34,084,317
- -------------------------------------------------------------------------
UnitedHealth Group Inc. 1,323,400 67,334,592
- -------------------------------------------------------------------------
WellPoint Health Networks Inc.(a) 806,000 71,653,400
=========================================================================
173,072,309
=========================================================================
MOTORCYCLE MANUFACTURERS-0.90%
Harley-Davidson, Inc. 1,500,000 71,115,000
=========================================================================
MOVIES & ENTERTAINMENT-1.45%
Pixar, Inc.(a) 500,000 34,405,000
- -------------------------------------------------------------------------
Viacom Inc.-Class B 2,000,000 79,740,000
=========================================================================
114,145,000
=========================================================================
MULTI-LINE INSURANCE-0.77%
American International Group, Inc. 997,800 60,696,174
=========================================================================
OIL & GAS DRILLING-1.73%
ENSCO International Inc. 1,519,000 40,025,650
- -------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 1,000,000 37,800,000
- -------------------------------------------------------------------------
Noble Corp. (Cayman Islands)(a) 1,000,000 34,330,000
- -------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 1,250,000 23,987,500
=========================================================================
136,143,150
=========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.25%
BJ Services Co.(a) 1,169,600 38,374,576
- -------------------------------------------------------------------------
Smith International, Inc.(a) 900,000 33,507,000
- -------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 750,000 26,062,500
=========================================================================
97,944,076
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.43%
Devon Energy Corp. 700,000 33,950,000
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.21%
Citigroup Inc. 2,000,000 94,800,000
=========================================================================
PERSONAL PRODUCTS-0.51%
Gillette Co. (The) 1,250,000 39,875,000
=========================================================================
PHARMACEUTICALS-5.29%
Allergan, Inc. 125,000 9,452,500
- -------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 500,000 25,005,000
- -------------------------------------------------------------------------
Lilly (Eli) & Co. 646,100 43,043,182
- -------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 1,000,000 63,350,000
- -------------------------------------------------------------------------
Pfizer Inc. 2,582,100 81,594,360
- -------------------------------------------------------------------------
</Table>
<Table>
- -------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
PHARMACEUTICALS-(CONTINUED)
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 2,244,800 $ 127,706,672
- -------------------------------------------------------------------------
Wyeth 1,500,000 66,210,000
=========================================================================
416,361,714
=========================================================================
PROPERTY & CASUALTY INSURANCE-0.59%
Chubb Corp. (The) 700,000 46,767,000
=========================================================================
PUBLISHING-0.53%
Gannett Co., Inc. 500,000 42,055,000
=========================================================================
RESTAURANTS-2.80%
Brinker International, Inc.(a) 1,516,800 48,279,744
- -------------------------------------------------------------------------
McDonald's Corp. 2,000,000 50,020,000
- -------------------------------------------------------------------------
Outback Steakhouse, Inc. 1,213,300 50,958,600
- -------------------------------------------------------------------------
P.F. Chang's China Bistro, Inc.(a) 700,000 34,118,000
- -------------------------------------------------------------------------
Wendy's International, Inc. 1,000,000 37,050,000
=========================================================================
220,426,344
=========================================================================
SEMICONDUCTOR EQUIPMENT-4.44%
Applied Materials, Inc.(a) 4,285,900 100,161,483
- -------------------------------------------------------------------------
KLA-Tencor Corp.(a) 1,739,400 99,719,802
- -------------------------------------------------------------------------
Lam Research Corp.(a) 4,000,000 114,960,000
- -------------------------------------------------------------------------
Teradyne, Inc.(a) 1,500,000 34,170,000
=========================================================================
349,011,285
=========================================================================
SEMICONDUCTORS-6.89%
Analog Devices, Inc.(a) 3,000,000 132,990,000
- -------------------------------------------------------------------------
Linear Technology Corp. 2,000,000 85,220,000
- -------------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 1,000,000 43,870,000
- -------------------------------------------------------------------------
Maxim Integrated Products, Inc. 1,750,000 86,992,500
- -------------------------------------------------------------------------
Microchip Technology Inc. 5,068,952 165,805,420
- -------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan) 2,420,064 26,765,908
=========================================================================
541,643,828
=========================================================================
SPECIALIZED FINANCE-0.55%
Moody's Corp. 750,000 43,372,500
=========================================================================
SPECIALTY STORES-2.56%
Bed Bath & Beyond Inc.(a) 2,350,000 99,264,000
- -------------------------------------------------------------------------
Staples, Inc.(a) 2,500,000 67,050,000
- -------------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 1,000,000 35,330,000
=========================================================================
201,644,000
=========================================================================
SYSTEMS SOFTWARE-4.26%
Adobe Systems Inc. 650,000 28,496,000
- -------------------------------------------------------------------------
Microsoft Corp. 8,500,000 222,275,000
- -------------------------------------------------------------------------
Oracle Corp.(a) 2,500,000 29,900,000
- -------------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
SYSTEMS SOFTWARE-(CONTINUED)
VERITAS Software Corp.(a) 1,500,000 $ 54,225,000
=========================================================================
334,896,000
=========================================================================
TECHNOLOGY DISTRIBUTORS-1.71%
CDW Corp. 2,233,300 134,109,665
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.29%
Nextel Communications, Inc.-Class A(a) 1,820,000 44,044,000
- -------------------------------------------------------------------------
Vodafone Group PLC (United Kingdom) 27,345,190 57,351,477
=========================================================================
101,395,477
=========================================================================
Total Common Stocks & Other Equity
Interests (Cost $5,798,440,332) 7,715,351,380
=========================================================================
MONEY MARKET FUNDS-2.44%
STIC Liquid Assets Portfolio(b) 95,933,174 95,933,174
- -------------------------------------------------------------------------
STIC Prime Portfolio(b) 95,933,174 95,933,174
=========================================================================
Total Money Market Funds (Cost
$191,866,348) 191,866,348
=========================================================================
TOTAL INVESTMENTS-100.55% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$5,990,306,680) 7,907,217,728
=========================================================================
</Table>
<Table>
- -------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.29%
STIC Liquid Assets Portfolio(b)(c) 155,180,095 $ 155,180,095
- -------------------------------------------------------------------------
STIC Prime Portfolio(b)(c) 24,938,485 24,938,485
=========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $180,118,580) 180,118,580
=========================================================================
TOTAL INVESTMENTS-102.84% (Cost
$6,170,425,260) 8,087,336,308
=========================================================================
OTHER ASSETS LESS LIABILITIES-(2.84%) (223,133,791)
=========================================================================
NET ASSETS-100.00% $7,864,202,517
_________________________________________________________________________
=========================================================================
</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.
F-4
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$5,798,440,332)* $ 7,715,351,380
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $371,984,928) 371,984,928
- ------------------------------------------------------------
Receivables for:
Investments sold 22,973,044
- ------------------------------------------------------------
Fund shares sold 3,766,990
- ------------------------------------------------------------
Dividends 3,973,670
- ------------------------------------------------------------
Investment for deferred compensation plan 314,171
- ------------------------------------------------------------
Other assets 125,652
============================================================
Total assets 8,118,489,835
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 44,898,225
- ------------------------------------------------------------
Fund shares reacquired 20,290,401
- ------------------------------------------------------------
Deferred compensation plan 314,171
- ------------------------------------------------------------
Collateral upon return of securities
loaned 180,118,580
- ------------------------------------------------------------
Accrued distribution fees 2,408,634
- ------------------------------------------------------------
Accrued trustees' fees 555,134
- ------------------------------------------------------------
Accrued transfer agent fees 4,285,116
- ------------------------------------------------------------
Accrued operating expenses 1,417,057
============================================================
Total liabilities 254,287,318
============================================================
Net assets applicable to shares outstanding $ 7,864,202,517
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 8,869,425,554
- ------------------------------------------------------------
Undistributed net investment income (loss) (844,799)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (2,921,289,286)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 1,916,911,048
============================================================
$ 7,864,202,517
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 6,825,022,555
____________________________________________________________
============================================================
Class B $ 688,587,420
____________________________________________________________
============================================================
Class C $ 193,585,049
____________________________________________________________
============================================================
Class R $ 2,857,476
____________________________________________________________
============================================================
Institutional Class $ 154,150,017
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 331,117,751
____________________________________________________________
============================================================
Class B 35,377,323
____________________________________________________________
============================================================
Class C 9,948,607
____________________________________________________________
============================================================
Class R 138,523
____________________________________________________________
============================================================
Institutional Class 6,953,267
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 20.61
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $20.61 divided by
94.50%) $ 21.81
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 19.46
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 19.46
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 20.63
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 22.17
____________________________________________________________
============================================================
</Table>
* At October 31, 2003, securities with an aggregate market value of $174,003,209
were on loan to brokers.
See Notes to Financial Statements.
F-5
STATEMENT OF OPERATIONS
For the year ended October 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $244,235) $ 42,795,714
- ----------------------------------------------------------------------------
Dividends from affiliated money market funds 2,446,905
- ----------------------------------------------------------------------------
Securities lending 144,803
============================================================================
Total investment income 45,387,422
============================================================================
EXPENSES:
Advisory fees 46,349,081
- ----------------------------------------------------------------------------
Administrative services fees 696,174
- ----------------------------------------------------------------------------
Custodian fees 451,569
- ----------------------------------------------------------------------------
Distribution fees:
Class A 19,315,644
- ----------------------------------------------------------------------------
Class B 6,227,801
- ----------------------------------------------------------------------------
Class C 1,792,081
- ----------------------------------------------------------------------------
Class R 6,237
- ----------------------------------------------------------------------------
Transfer agent fees 23,165,160
- ----------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 105,564
- ----------------------------------------------------------------------------
Trustees' fees 142,695
- ----------------------------------------------------------------------------
Other 2,473,308
============================================================================
Total expenses 100,725,314
============================================================================
Less: Fees waived and expense offset arrangements (753,706)
============================================================================
Net expenses 99,971,608
============================================================================
Net investment income (loss) (54,584,186)
============================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (455,564,558)
- ----------------------------------------------------------------------------
Foreign currencies 527,909
- ----------------------------------------------------------------------------
Option contracts written 291,491
============================================================================
(454,745,158)
============================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 1,834,296,432
- ----------------------------------------------------------------------------
Foreign currencies 17,825
- ----------------------------------------------------------------------------
Option contracts written (123,292)
============================================================================
1,834,190,965
============================================================================
Net gain from investment securities, foreign currencies and
option contracts 1,379,445,807
============================================================================
Net increase in net assets resulting from operations $1,324,861,621
____________________________________________________________________________
============================================================================
</Table>
See Notes to Financial Statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (54,584,186) $ (81,004,558)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts (454,745,158) (1,231,119,667)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and option contracts 1,834,190,965 143,436,189
================================================================================================
Net increase (decrease) in net assets resulting from
operations 1,324,861,621 (1,168,688,036)
================================================================================================
Share transactions-net:
Class A (1,112,282,235) (1,905,685,542)
- ------------------------------------------------------------------------------------------------
Class B (46,666,906) (89,586,163)
- ------------------------------------------------------------------------------------------------
Class C (22,091,083) (44,303,197)
- ------------------------------------------------------------------------------------------------
Class R 2,235,274 204,500
- ------------------------------------------------------------------------------------------------
Institutional Class 5,433,008 (10,243,640)
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (1,173,371,942) (2,049,614,042)
================================================================================================
Net increase (decrease) in net assets 151,489,679 (3,218,302,078)
================================================================================================
NET ASSETS:
Beginning of year 7,712,712,838 10,931,014,916
================================================================================================
End of year (including undistributed net investment income
(loss) of $(844,799) and $(770,211) for 2003 and 2002,
respectively) $ 7,864,202,517 $ 7,712,712,838
________________________________________________________________________________________________
================================================================================================
</Table>
See Notes to Financial Statements.
F-7
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Market trends, movement in exchange traded funds and ADR's, and
the bid/ask quotes of brokers and information providers may be reviewed in
the course of making a good faith determination of a security's fair value.
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
ordinarily 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
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
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
F-8
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. Reported net realized
foreign currency gains or losses arise from sales of foreign currencies,
currency gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign currency gains and losses arise from changes
in the fair values of assets and liabilities, other than investments in
securities at fiscal period end, resulting from changes in exchange rates.
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 are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses relating to all other classes are
allocated among those classes based on relative net assets. All other
expenses are allocated among the classes based on relative net assets.
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 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 modified or discontinued with approval of
Board of Trustees without further notice to investors. For the year ended
October 31, 2003, AIM waived fees of $638,100. 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, 2003, AIM was
paid $696,174 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc. a fee for providing transfer agency and shareholder services to
the Fund. For the Institutional Class, the transfer agent has contractually
agreed to reimburse class specific transfer agent fees to the extent necessary
to limit transfer agent fees to 0.10% of the average net assets. During the year
ended October 31, 2003, AISI retained $11,253,012 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, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.30% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, AIM Distributors may pay a service fee up to 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 shares of such classes. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans,
F-9
for the year ended October 31, 2003, the Class A, Class B, Class C and Class R
shares paid $19,315,644, $6,227,801, $1,792,081 and $6,237, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
October 31, 2003, AIM Distributors retained $829,628 in front-end sales
commissions from the sale of Class A shares and $4,130, $68 and $12,817 from
Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed
upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
For the year ended October 31, 2003, the Fund received reductions in transfer
agency fees from AISI (an affiliate of AIM) of $114,189 and reductions in
custodian fees of $1,417 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $115,606.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. The Trustees deferring compensation have the
option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. Certain former Trustees also
participate in a retirement plan and receive benefits under such plan.
During the year ended October 31, 2003, the Fund paid legal fees of $14,087
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds. An interfund loan will be
made under this facility only if the loan rate (an average of the rate available
on bank loans and the rate available on investments in overnight repurchase
agreements) is favorable to both the lending fund and the borrowing fund. Under
certain circumstances, a loan will be secured by collateral. To the extent that
the loan is required to be secured by collateral, the collateral is marked to
market daily to ensure that the market value is at least 102% of the outstanding
principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the 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 year ended October 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving line of credit facility or the committed line of credit
facility.
Additionally the Fund is permitted to carry a negative or overdrawn balance
in its account with the custodian bank. To compensate the custodian bank for
such overdrafts, the overdrawn Fund may either (i) leave funds in the account so
the custodian can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank. In either case, the custodian bank will
be compensated an amount equal to the Federal Funds rate plus 100 basis points.
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral 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
held may be temporarily less than the value of the securities on loan.
At October 31, 2003, securities with an aggregate value of $174,003,209 were
on loan to brokers. The loans were secured by cash collateral of $180,118,580
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2003, the Fund received fees of $144,803 for
securities lending.
F-10
NOTE 7--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------
Beginning of year 1,551 $ 398,595
- ------------------------------------------------------------
Written 3,088 1,040,859
- ------------------------------------------------------------
Exercised (3,264) (1,147,963)
- ------------------------------------------------------------
Expired (1,375) (291,491)
- ------------------------------------------------------------
End of year -- $ --
____________________________________________________________
============================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2003 and 2002.
Tax Components of Net Assets:
As of October 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 1,905,448,839
- ------------------------------------------------------------
Temporary book/tax differences (844,799)
- ------------------------------------------------------------
Capital loss carryforward (2,909,827,077)
- ------------------------------------------------------------
Shares of beneficial interest 8,869,425,554
============================================================
Total net assets $ 7,864,202,517
____________________________________________________________
============================================================
</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.
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
trustee retirement plan expenses.
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
- -----------------------------------------------------------
October 31, 2011 461,767,560
===========================================================
Total capital loss carryforward $2,909,827,077
___________________________________________________________
===========================================================
</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 year ended
October 31, 2003 was $3,370,231,624 and $4,537,133,153, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $2,147,646,200
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (242,197,361)
============================================================
Net unrealized appreciation of investment
securities $1,905,448,839
____________________________________________________________
============================================================
Cost of investments for tax purposes is $6,181,887,469.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on October 31, 2003, undistributed net
investment income was increased by $54,509,598, undistributed net realized gains
decreased by $527,909 and shares of beneficial interest decreased by
$53,981,689. This reclassification had no effect on the net assets of the Fund.
F-11
NOTE 11--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and 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 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 CDSC. Generally, Class B shares will
automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2003 2002
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 40,892,692 $ 728,901,495 48,969,691 $ 970,494,859
- --------------------------------------------------------------------------------------------------------------------------------
Class B 4,399,643 74,587,779 5,811,283 111,506,491
- --------------------------------------------------------------------------------------------------------------------------------
Class C 1,764,643 29,858,199 2,391,741 46,150,281
- --------------------------------------------------------------------------------------------------------------------------------
Class R* 163,302 2,916,332 13,083 204,591
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class 1,117,656 21,391,286 6,254,346 139,801,926
================================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 325,830 5,894,532 223,534 4,426,684
- --------------------------------------------------------------------------------------------------------------------------------
Class B (344,006) (5,894,532) (234,440) (4,426,684)
================================================================================================================================
Reacquired:
Class A (104,213,879) (1,847,078,262) (147,108,087) (2,880,607,085)
- --------------------------------------------------------------------------------------------------------------------------------
Class B (6,899,964) (115,360,153) (10,685,339) (196,665,970)
- --------------------------------------------------------------------------------------------------------------------------------
Class C (3,090,330) (51,949,282) (4,824,172) (90,453,478)
- --------------------------------------------------------------------------------------------------------------------------------
Class R* (37,857) (681,058) (5) (91)
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class (833,861) (15,958,278) (6,757,582) (150,045,566)
================================================================================================================================
(66,756,131) $(1,173,371,942) (105,945,947) $(2,049,614,042)
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
* 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,
--------------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.20 $ 19.72 $ 43.50 $ 34.65 $ 26.37
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)(a) (0.15)(a) (0.12) (0.26) (0.17)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.53 (2.37) (16.24) 12.39 9.18
=================================================================================================================================
Total from investment operations 3.41 (2.52) (16.36) 12.13 9.01
=================================================================================================================================
Less distributions from net realized gains -- -- (7.42) (3.28) (0.73)
=================================================================================================================================
Net asset value, end of period $ 20.61 $ 17.20 $ 19.72 $ 43.50 $ 34.65
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 19.83% (12.78)% (43.10)% 36.56% 34.81%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,825,023 $6,780,055 $9,703,277 $19,268,977 $14,292,905
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.29%(c) 1.26% 1.14% 1.08% 1.10%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.30%(c) 1.27% 1.17% 1.11% 1.12%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.67)%(c) (0.74)% (0.46)% (0.61)% (0.50)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 47% 57% 75% 88% 62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(c) Ratios are based on average daily net assets of $6,438,548,158.
F-12
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.36 $ 18.89 $ 42.28 $ 34.00 $ 26.11
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.23)(a) (0.27)(a) (0.28) (0.58)(a) (0.42)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.33 (2.26) (15.69) 12.14 9.04
=================================================================================================================================
Total from investment operations 3.10 (2.53) (15.97) 11.56 8.62
=================================================================================================================================
Less distributions from net realized gains -- -- (7.42) (3.28) (0.73)
=================================================================================================================================
Net asset value, end of period $ 19.46 $ 16.36 $ 18.89 $ 42.28 $ 34.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 18.95% (13.39)% (43.49)% 35.51% 33.64%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $688,587 $625,294 $818,343 $1,315,524 $589,718
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.99%(c) 1.96% 1.86% 1.85% 1.98%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.00%(c) 1.97% 1.89% 1.88% 2.00%
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (1.37)%(c) (1.44)% (1.17)% (1.38)% (1.38)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 47% 57% 75% 88% 62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(c) Ratios are based on average daily net assets of $622,780,089.
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.36 $ 18.88 $ 42.27 $ 33.99 $ 26.10
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.23)(a) (0.27)(a) (0.29) (0.59)(a) (0.42)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.33 (2.25) (15.68) 12.15 9.04
===============================================================================================================================
Total from investment operations 3.10 (2.52) (15.97) 11.56 8.62
===============================================================================================================================
Less distributions from net realized gains -- -- (7.42) (3.28) (0.73)
===============================================================================================================================
Net asset value, end of period $ 19.46 $ 16.36 $ 18.88 $ 42.27 $ 33.99
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 18.95% (13.35)% (43.51)% 35.52% 33.65%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $193,585 $184,393 $258,786 $434,544 $161,490
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.99%(c) 1.96% 1.86% 1.85% 1.98%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.00%(c) 1.97% 1.89% 1.88% 2.00%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.37)%(c) (1.44)% (1.17)% (1.38)% (1.38)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 47% 57% 75% 88% 62%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(c) Ratios are based on average daily net assets of $179,208,048.
F-13
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.26 $ 19.82
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.16)(a) (0.07)(a)
- ---------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.53 (2.49)
=============================================================================================
Total from investment operations 3.37 (2.56)
=============================================================================================
Net asset value, end of period $20.63 $ 17.26
_____________________________________________________________________________________________
=============================================================================================
Total return(b) 19.52% (12.92)%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,857 $ 226
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.49%(c) 1.53%(d)
- ---------------------------------------------------------------------------------------------
Without fee waivers 1.50%(c) 1.54%(d)
=============================================================================================
Ratio of net investment income (loss) to average net assets (0.87)%(c) (1.01)%(d)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(e) 47% 57%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $1,247,495.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.40 $ 21.00 $ 45.55 $ 36.01 $ 27.25
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.06) 0.01 (0.09) (0.01)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.80 (2.54) (17.14) 12.91 9.50
=========================================================================================================================
Total from investment operations 3.77 (2.60) (17.13) 12.82 9.49
=========================================================================================================================
Less distributions from net realized gains -- -- (7.42) (3.28) (0.73)
=========================================================================================================================
Net asset value, end of period $ 22.17 $ 18.40 $ 21.00 $ 45.55 $ 36.01
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 20.49% (12.38)% (42.80)% 37.14% 35.46%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $154,150 $122,746 $150,609 $288,097 $244,369
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 0.75%(c) 0.80% 0.65% 0.65% 0.64%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers 0.76%(c) 0.81% 0.68% 0.68% 0.66%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.13)%(c) (0.28)% 0.03% (0.18)% (0.04)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 47% 57% 75% 88% 62%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(c) Ratios are based on average daily net assets of $132,069,108.
F-14
NOTE 13--SUBSEQUENT EVENTS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM") is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("INVESCO"), was, until
recently, the investment advisor to the INVESCO Funds.
On December 2, 2003, each of the Securities and Exchange Commission ("SEC")
and the Office of the Attorney General of the State of New York ("NYAG") filed
civil proceedings against INVESCO and Raymond R. Cunningham, in his capacity as
the Chief Executive Officer of INVESCO. Mr. Cunningham currently holds the
positions of Chief Operating Officer and Senior Vice President of A I M
Management Group, Inc., the parent company of AIM, and he also holds the
position of Senior Vice President with AIM. In addition, on December 2, 2003,
the State of Colorado filed civil proceedings against INVESCO. Neither your Fund
nor any of the funds in the AIM Family of Funds--Registered Trademark--, which
includes the INVESCO Funds (the "Funds") has been named as a defendant in any of
these proceedings.
The SEC proceeding alleges that INVESCO failed to disclose in the INVESCO
Funds' prospectuses and to the INVESCO Funds' independent directors that INVESCO
had entered into certain arrangements permitting market timing of the INVESCO
Funds. The SEC is seeking injunctions, including permanent injunctions from
serving as an investment advisor, officer or director of an investment company;
an accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG proceeding is also based on the circumstances described above. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief.
The Colorado proceeding is also based on the circumstances described above.
The State of Colorado is seeking injunctions; restitution, disgorgement and
other equitable relief; civil monetary penalties; and other relief.
If INVESCO is unsuccessful in its defense of these proceedings, it could be
barred from serving as an investment advisor for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Similarly, if Mr. Cunningham is unsuccessful in his
defense of these proceedings, he could be barred from serving as an officer or
director of any registered investment company. Such results could also affect
the ability of AIM, or any other investment advisor directly or indirectly owned
by AMVESCAP, from serving as an investment advisor to any registered investment
company, including your Fund. Your Fund has been informed by AIM that, if either
of these results occurs, AIM will seek exemptive relief from the SEC to permit
it to continue to serve as your Fund's investment advisor. There can be no
assurance that such exemptive relief will be granted.
AIM has received inquiries from the SEC, the NASD, Inc., the NYAG and the
Secretary of the Commonwealth of Massachusetts with respect to market timing,
late trading, fair value pricing and other similar issues and AIM has been
providing full cooperation with respect to these inquiries.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
certain Funds, INVESCO, AIM, AMVESCAP and certain related parties, primarily
based upon the allegations in the complaints described above, but also regarding
the funds' fair valuation pricing methodology. Such lawsuits allege a variety of
theories for recovery including, but not limited to: (i) violation of various
provisions of the Federal securities laws; (ii) breach of fiduciary duty; and
(iii) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; interest and the payment of attorneys'
and experts' fees. Additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
Funds, INVESCO, AIM, AMVESCAP and related parties in the future.
As a result of these developments, investors in the Funds might react by
redeeming their investments. This might require the Funds to sell investments to
provide for sufficient liquidity and could also have an adverse effect on the
investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of these matters described above may have on
the Fund or AIM's financial condition.
F-15
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, 2003, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
three years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. 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. Our procedures included confirmation of securities
owned as of October 31, 2003, by correspondence with the custodian and brokers
or by other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Constellation Fund as of October 31, 2003, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended, in conformity with accounting principles generally
accepted in the United States.
Houston, Texas /s/ Ernst & Young LLP
December 16, 2003
F-16
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Equity Funds, a Delaware statutory
trust, was held on October 21, 2003. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHOLDING
DIRECTORS/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 983,597,298 14,109,942
Frank S. Bayley.............................. 983,595,385 14,111,855
James T. Bunch............................... 983,970,384 13,736,856
Bruce L. Crockett............................ 983,967,974 13,739,266
Albert R. Dowden............................. 983,892,850 13,814,390
Edward K. Dunn, Jr........................... 983,672,087 14,035,153
Jack M. Fields............................... 983,987,281 13,719,959
Carl Frischling.............................. 983,352,244 14,354,996
Robert H. Graham............................. 983,794,290 13,912,950
Gerald J. Lewis.............................. 983,317,525 14,389,715
Prema Mathai-Davis........................... 983,676,086 14,031,154
Lewis F. Pennock............................. 983,703,651 14,003,589
Ruth H. Quigley.............................. 983,356,521 14,350,719
Louis S. Sklar............................... 983,812,619 13,894,621
Larry Soll, Ph.D............................. 983,820,425 13,886,815
Mark H. Williamson........................... 983,676,844 14,030,396
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Equity Funds
F-17
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S)
TRUST SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management Group Inc.
Trustee, Chairman and (financial services holding company); and Director and Vice
President 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); and
Director and Chairman, A I M Capital Management, Inc.
(registered investment advisor), A I M Distributors, Inc.
(registered broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management Company
(registered broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ----------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President Director, Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor) and A I M
Distributors, Inc. (registered broker dealer); Director and
Chairman, AIM Investment Services, Inc. (registered transfer
agent); and Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global investment management
firm)
Formerly: Director, Chairman, President and Chief Executive
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 2003 Consultant
Trustee
Formerly: President and Chief Executive Officer, AMC Cancer
Research Center; and Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie
Trustee
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd.,
Trustee (investment banking firm); and Director, Policy Studies,
Inc. and Van Gilder Insurance Corporation
Formerly: General Counsel and Director, Boettcher & Co.; and
Chairman and Managing Partner, law firm of Davis, Graham &
Stubbs
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology
Trustee consulting company)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business
Trustee corporations, including the Boss Group Ltd. (private
investment and management) and Magellan 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 Group
companies
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and
Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares Corp.
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc.
Trustee (government affairs company) and Texana Timber LP
- ----------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S)
TRUST HELD BY TRUSTEE
- -------------------------------- ----------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 None
Trustee, Chairman and
President
- ------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 Director and Chairman,
Trustee and Executive Vice INVESCO Bond Funds,
President Inc., INVESCO
Combination Stock &
Bond Funds, Inc.,
INVESCO Counselor
Series Funds, Inc.,
INVESCO International
Funds, Inc., INVESCO
Manager Series Funds,
Inc., INVESCO Money
Market Funds, Inc.,
INVESCO Sector Funds,
Inc., INVESCO Stock
Funds, Inc., INVESCO
Treasurer's Series
Funds, Inc. and
INVESCO Variable
Investment Funds, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 Badgley Funds, Inc.
Trustee (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 ACE Limited (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 Cortland Trust, Inc.
Trustee (Chairman) (registered
investment company);
Annuity and Life Re
(Holdings), Ltd.
(insurance company)
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 Administaff
Trustee
- ----------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust. Mr. Williamson became Executive Vice President of
the Trust on March 4, 2003.
(3) Elected trustee of the Trust on October 21, 2003.
Trustees and Officers (continued)
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President Counsel, A I M Management Group Inc. (financial services
holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and 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(5) -- 1947 1988 Director, Chairman and Director of Investments, A I M
Senior Vice President 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 -- Fixed
Vice President 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 M Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 1999 Vice President, A I M Advisors, Inc., and President, Chief
Vice President 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 Advisors, Inc.
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Gary T. Crum(5) -- 1947 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Dana R. Sutton -- 1959 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
</Table>
(3) Elected trustee of the Trust on October 21, 2003.
(4) Mr. Carome became Senior Vice President of the Trust on May 13, 2003.
(5) Information is current as of January 10, 2003.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP A I M
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center Capital
Houston, TX 77046 Suite 100 Suite 100 1401 McKinney, Suite 1200 Management,
Houston, TX 77046 Houston, TX 77046-1173 Houston, TX 77010-4035 Inc.
11
Greenway
Plaza
Suite
100
Houston,
TX 77046
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
Andrews & Ingersoll, LLP Frankel LLP P.O. Box 4739 Trust Company
1735 Market Street 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103 New York, NY 10022-3852 Boston, MA 02110
</Table>
<Table>
<Caption>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(4) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(5)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund SECTOR EQUITY AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund AIM Global Health Care Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund AIM Real Estate Fund
AIM Opportunities III Fund INVESCO Advantage Health Sciences Fund
AIM Premier Equity Fund INVESCO Energy Fund
AIM Select Equity Fund INVESCO Financial Services Fund
AIM Small Cap Equity Fund(2) INVESCO Gold & Precious Metals Fund
AIM Small Cap Growth Fund(3) INVESCO Health Sciences Fund
AIM Trimark Endeavor Fund INVESCO Leisure Fund
AM Trimark Small Companies Fund INVESCO Multi-Sector Fund
AIM Weingarten Fund INVESCO Technology Fund
INVESCO Core Equity Fund INVESCO Utilities Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) AIM Small Cap Equity Fund was closed to most
investors on December 19, 2003. For information on who may continue to invest in
AIM Small Cap Equity Fund, please contact your financial advisor. (3) AIM Small
Cap Growth Fund was closed to most investors on March 18, 2002. For information
on who may continue to invest in AIM Small Cap Growth Fund, please contact your
financial advisor. (4) Effective April 30, 2003, AIM Worldwide Spectrum Fund was
renamed AIM Global Value Fund. (5) Effective November 24, 2003, INVESCO
International Blue Chip Value Fund was renamed INVESCO International Core Equity
Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
it carefully before investing. If used after January 20, 2004, this brochure
must be accompanied by a fund Performance & Commentary or by an AIM Quarterly
Performance Review for the most recent quarter-end. Mutual funds distributed by
A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $142 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $345 billion in assets
under management. Data as of September 30, 2003.
AIMinvestments.com CST-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- -------------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Servicemark--
Plans Accounts
</Table>
AIM DENT DEMOGRAPHIC TRENDS FUND
Annual Report to Shareholders o October 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM DENT DEMOGRAPHIC TRENDS FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
================================================================================
ABOUT INFORMATION THROUGHOUT THIS REPORT:
<Table>
o Unless otherwise stated, information o Harry S. Dent's stock market scenario o The unmanaged Russell 3000--Registered
presented is as of 10/31/03 and is based for the coming decade, based on Trademark-- Index is an index of common
on total net assets. historical data, represents his opinion. stocks that measures performance of the
Unforeseen events such as rising largest 3,000 U.S. companies based on
o AIM Dent Demographic Trends Fund's inflation, declining productivity, market capitalization.
performance figures are historical, and irregular spending and savings patterns,
they reflect fund expenses, the and other social, political and economic o The unmanaged Standard & Poor's
reinvestment of distributions, and uncertainty could affect corporate Composite Index of 500 Stocks (the S&P
changes in net asset value. earnings and the stock market, 500--Registered Trademark--) is an index
negatively altering Mr. Dent's view. of common stocks frequently used as a
o When sales charges are included in general measure of U.S. stock market
performance figures, Class A share o Investing in Small and mid-size performance.
performance reflects the maximum 5.50% companies may involve risks not
sales charge, and Class B and Class C associated with investing in more o Bloomberg, Inc. is a well-known
share performance reflects the established companies. Also, Small independent financial research and
applicable contingent deferred sales companies may have business risk, reporting firm.
charge (CDSC) for the period involved. significant stock price fluctuations and
The CDSC on Class B shares declines from illiquidity. o A direct investment cannot be made in
5% beginning at the time of purchase to an index. Unless otherwise indicated,
0% at the beginning of the seventh year. o The fund's investment return and index results include reinvested
The CDSC on Class C shares is 1% for the principal value will fluctuate, so an dividends, and they do not reflect sales
first year after purchase. The investor's shares, when redeemed, may be charges or fund expenses. Performance of
performance of the fund's share classes worth more or less than their original an index of funds reflects fund
will differ due to different sales cost. expenses; performance of a market index
charge structures and class expenses. does not.
o Industry classifications used in this
o Effective 9/30/03, Class B shares are report are generally according to the A description of the policies and
not available as an investment for Global Industry Classification Standard, procedures that the fund uses to
retirement plans maintained pursuant to which was developed by and is the determine how to vote proxies relating
Section 401 of the Internal Revenue exclusive property and a service mark of to portfolio securities is available
Code, including 401(k) plans, money Morgan Stanley Capital International without charge, upon request, by calling
purchase pension plans and profit Inc. and Standard & Poor's. 800-959-4246, or on the AIM Web site,
sharing plans. Plans that have existing AIMinvestments.com.
accounts invested in Class B shares o The unmanaged Lipper Multi-Cap Growth
continued to be allowed to make Fund Index represents an average of the
additional purchases after 9/30/03. performance of the 30 largest
multi-capitalization growth funds
tracked by Lipper, Inc., an independent
mutual fund performance monitor.
</Table>
<Table>
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE This report may be distributed only to shareholders or
to persons who have received a current prospectus of
the fund.
=====================================================
</Table>
AIMinvestments.com
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER IN new policies and strengthened existing ones--to discourage
THE AIM FAMILY OF FUNDS--Registered harmful short-term trading. These steps include:
Trademark--:
o Strengthening daily monitoring of trading activities.
[PHOTO OF As you may be aware, there has been a
ROBERT H. great deal of media coverage recently o Imposing redemption fees on additional funds we
GRAHAM] about the mutual fund industry and believe may be vulnerable to harmful short-term
allegations of improper activities by trading activity.
ROBERT H. GRAHAM certain individuals and companies. As
part of these widespread investigations, o Implementing an enhanced exchange policy (effective on
INVESCO Funds Group (IFG), the former or about March 1, 2004) designed to limit exchanges
[PHOTO OF adviser to certain INVESCO Funds, was between funds.
MARK H. recently named as a defendant in
WILLIAMSON] separate civil enforcement actions by o Employing an enhanced fair value pricing policy on
the U.S. Securities and Exchange certain foreign securities as well as certain illiquid
MARK H. WILLIAMSON Commission (SEC), the Office of the New securities.
York Attorney General and the State of
Colorado over an issue known as "market timing." A number of None of these tools alone, nor all of them taken
private class or derivative actions also were filed in the together, eliminate the possibility of short-term trading
wake of the regulators' actions. strategies that may be detrimental to a fund. Moreover, each
of these tools involves judgments that are inherently
Investors are understandably concerned and frustrated subjective. We have always sought and continue to seek to
about these reports, and we would like to take this make these judgments to the best of our abilities and in a
opportunity to assure you that, based on an investigation manner that we believe is consistent with the best interests
conducted by an outside firm, IFG and its parent company, of our fund shareholders. And we remain committed to being
AMVESCAP PLC, believe that these civil actions are without as vigilant as possible in the future to identify and
merit. IFG is contesting the charges. address any harmful market timing investors who have the
potential to harm our long-term fund shareholders.
We encourage you to continue to monitor this situation,
particularly as IFG has the opportunity to address the We sincerely hope these developments and the media
allegations that have been made. Current information will be coverage surrounding them do not result in you or other
posted on our Web site at AIMinvestments.com. We will shareholders losing confidence in AIM or INVESCO Funds.
continue to communicate to you on our Web site about our Amidst this storm of controversy in the mutual fund
finding, and the actions we are taking to protect and industry, we believe we can find encouragement in the
promote the interests of our shareholders. The independent recovering economy and rising equity markets. As we write
trustees of the funds are receiving regular reports from this letter, for instance, the S&P 500--Registered
their independent counsel and outside counsel hired by Trademark-- Index is up approximately 23% year-to-date.
AMVESCAP PLC, the parent of AIM and IFG, to perform an Although past performance is no guarantee of future results,
ongoing investigation of market timing. there appear to be indicators that the economy and stock
markets are showing signs of welcomed improvement. We
A COMPLEX ISSUE encourage you to read the enclosed discussion of your fund's
performance during this past reporting period.
Market timing is an investment technique not defined in any
regulation that involves frequent short-term trading of OUR UNWAVERING COMMITMENT
mutual fund shares, sometimes with a goal to exploit
inefficiencies in the way mutual funds price their shares. At AIM Investments, we have never wavered in our commitment
We recognize that fund management companies have tried to to helping you build solutions for your financial goals. Our
deal with this complex issue in various ways and believe company was founded on a core principle of integrity, and we
that industry-wide guidance is in order. To that end, we have always worked hard to earn the trust of our
welcome SEC Chairman William Donaldson's pledge to adopt new shareholders. We are committed to doing all we can to
rules designed to curb market timing abuses. Comprehensive maintain your trust and confidence.
rulemaking is necessary and is the best way to establish new
industry responsibilities designed to protect shareholders. Thank you for your continued participation in AIM
We support practical rule changes and structural Investments. Please call your financial advisor or one of
modifications that are fair, enforceable and, most our Client Service representatives at 800-959-4246 if you
importantly, beneficial for investors. have any further questions or concerns about your AIM
Investments account.
AIM Investments has policies in place designed to
identify, prevent and eliminate harmful trading or other Sincerely,
activities deemed to be detrimental to the funds. We have
also recently taken additional steps--implemented /s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Chairman and President President and CEO
The AIM Family of Funds AIM Investments
--Registered Trademark--
December 18, 2003
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
SIGNS OF ECONOMIC RECOVERY 1958, saying that it favored a more
BENEFIT FUND expansive monetary policy because the
economy had not yet exhibited
Signs of a strengthening economy for the fiscal year on March 11, 2003. sustainable growth. By October, the Fed
benefited the U.S. stock market and AIM The market rallied for the remainder of reported that the pace of economic
Dent Demographic Trends Fund for the the fiscal year. expansion had picked up, consumer
fiscal year ended October 31, 2003. For spending generally strengthened, and
the fiscal year, the fund's Class A, The start of the market's rally residential real estate was strong--but
Class B, and Class C shares returned coincided with the commencement of that commercial real estate was sluggish
29.67%, 28.79%, and 28.79%, Operation Iraqi Freedom on March 19, and that labor markets remained weak.
respectively, at net asset value. The 2003. U.S. and allied forces quickly Indeed, the nation's unemployment rate
fund outperformed its benchmark index, toppled the regime of Saddam Hussein, was 6.0% at the close of the fiscal
the Russell 3000 Index, as well as the and by May 1 President Bush was able to year.
S&P 500, often considered representative announce that major combat operations in
of the performance of the broad U.S. Iraq had ended.
stock market. Those indexes returned ========================================
23.69% and 20.79%, respectively. The U.S. economy expanded during the
Additionally, the fund outperformed the fiscal year. Gross domestic product, the THE FUND OUTPERFORMED
Lipper Multi-Cap Growth Fund Index, broadest measure of economic activity,
which returned 28.14% for the fiscal grew at an annualized rate of 1.4% in ITS BENCHMARK INDEX, THE
year. That index measures the the first quarter of 2003, 3.3% in the
performance of mutual funds with second quarter, and 8.2% in the third RUSSELL 3000 INDEX, AS
investment strategies similar to that of quarter. Corporate earnings also showed
AIM Dent Demographic Trends Fund. signs of strength. According to WELL AS THE S&P 500....
Bloomberg, as of the close of the fiscal
MARKET CONDITIONS year, more than 65% of S&P 500 ========================================
corporations that had reported their
Signs of a generally improving economy third-quarter 2003 earnings exceeded
helped the U.S. stock market rise for analysts' expectations. For the fiscal year:
much of the fiscal year ended October
31, 2003. The S&P 500 rose in November For most of the fiscal year, the o All sectors of the S&P 500
2002, but then declined for several Federal Reserve (the Fed) kept the recorded gains.
months, reaching a low short-term federal funds rate at 1.25%.
On June 25, 2003, it lowered that rate o Information technology, materials,
to 1.00%, its lowest level since and utilities were the
top-performing sectors in the S&P
500 while telecommunication
services, consumer staples, and
health care were the
weakest-performing sectors.
o Small- and mid-cap stocks
generally outperformed large-cap
stocks.
</Table>
<Table>
================================================================================================================================
TOTAL NUMBER OF HOLDINGS* 102 TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
TOTAL NET ASSETS $560.6 million
1. Microsoft Corp. 2.4% 1. Semiconductors 8.6%
PORTFOLIO COMPOSITION BY SECTOR*
2. Novellus Systems, Inc. 2.4 2. Communications Equipment 8.2
Information Technology 40.7%
3. Cisco Systems, Inc. 2.2 3. Systems Software 7.0
Consumer Discretionary 18.5
4. Analog Devices, Inc. 2.0 4. Pharmaceuticals 5.3
Health Care 18.2
5. Citigroup Inc. 1.9 5. Investment Banking & Brokerage 3.8
Financials 15.0
6. Amazon.com, Inc. 1.8 6. Health Care Equipment 3.8
All Others 7.6
7. VERITAS Software Corp. 1.8 7. Specialty Stores 3.5
8. Microchip Technology Inc. 1.8 8. Biotechnology 3.5
9. Goldman Sachs Group, Inc. (The) 1.6 9. Computer Storage & Peripherals 3.2
10. Boston Scientific Corp. 1.6 10. Semiconductor Equipment 3.0
* Excludes money market fund holdings.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular
security.
================================================================================================================================
</Table>
2
<Table>
YOUR FUND sales rose from $851 million in 2002 to KIRK L. ANDERSON
$1.13 billion in 2003, transforming a $10 [PHOTO OF Mr. Anderson is a
At the close of the fiscal year, the fund million third-quarter loss in 2002 into a KIRK L. portfolio manager of AIM
was overweight consumer discretionary and $52 million third-quarter profit in 2003 ANDERSON] Dent Demographic Trends
information technology stocks, and and boosting the company's share price. Fund. He joined AIM in
underweight industrials, consumer 1994 and assumed his current position in
staples, and financials stocks relative IN CLOSING 2003. Mr. Anderson earned a B.A. in
to the Russell 3000 Index. Information political science from Texas A&M
technology, consumer discretionary, As the fiscal year ended, there were University and an M.S. in finance from
health care, and financials stocks signs that the economy was strengthening; the University of Houston.
accounted for the highest percentage of time will tell whether that recovery is
the fund's total net assets and sustainable. Regardless, we will continue JAMES G. BIRDSALL
contributed most significantly to the to seek out stocks of companies that are [PHOTO OF Mr. Birdsall is a
fund's positive performance. likely to benefit from changing JAMES G. portfolio manager of AIM
Telecommunications services was the only demographic, economic, and lifestyle BIRDSALL] Dent Demographic Trends
sector that negatively affected fund trends in an attempt to achieve the Fund. He has been
performance. fund's investment objective. associated with AIM since 1995, and
assumed his current position in 1999. Mr.
With significant exposure to See important fund and index Birdsall received his B.B.A. with a
economically sensitive sectors, the fund disclosures inside front cover. concentration in finance from Stephen F.
has been positioned for a recovery in the Austin State University before earning
U.S. economy, and remained so at the his M.B.A. with a concentration in
close of the fiscal year. As a result, finance and international business from
the generally improving economy helped the University of St. Thomas.
fund performance during the fiscal year.
LANNY H. SACHNOWITZ
Stocks that contributed to fund [PHOTO OF Mr. Sachnowitz is the lead
performance included Cisco, a worldwide LANNY H. portfolio manager of AIM
leader in networking for the Internet, SACHNOWITZ] Dent Demographic Trends
and online retailer Amazon.com. In Fund. He joined AIM in
August, Cisco reported fiscal 2003 net 1987 as a money market trader and
income of $3.6 billion, up sharply from research analyst. He was named to his
$1.9 billion for fiscal 2002. By current position in 1991. Mr. Sachnowitz
aggressively cutting prices and offering received a B.S. in finance from the
customers free shipping, Amazon has University of Southern California and an
sharply increased its sales and M.B.A. from the University of Houston.
profitability. For the third quarter,
Assisted by the Large Cap Growth Team.
</Table>
FUND VS. INDEX
Total returns 10/31/02-10/31/03, excluding sales charges
=========================================
[BAR CHART]
AIM DENT DEMOGRAPHIC TRENDS FUND
CLASS A SHARES 29.67%
AIM DENT DEMOGRAPHIC TRENDS FUND
CLASS B SHARES 28.79%
AIM DENT DEMOGRAPHIC TRENDS FUND
CLASS C SHARES 28.79%
RUSSELL 3000 INDEX 23.69%
Source: Lipper, Inc.
=========================================
[GRAPHIC]
For More Information Visit
AIMinvestments.com
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
6/7/99-10/31/03
<Table>
<Caption>
DATE AIM DENT DEMOGRAPHIC AIM DENT DEMOGRAPHIC AIM DENT DEMOGRAPHIC RUSSELL 3000
TRENDS FUND TRENDS FUND TRENDS FUND INDEX
CLASS A SHARES CLASS B SHARES CLASS C SHARES
6/7/99 9450 10000 10000 10000
6/30/99 10263 10850 10850 10505
7/31/99 10424 11020 11020 10187
8/31/99 10500 11101 11101 10071
9/30/99 10528 11111 11111 9814
10/31/99 11474 12111 12111 10429
11/30/99 12598 13290 13290 10721
12/31/99 14601 15401 15401 11405
1/31/00 14204 14971 14971 10958
2/29/00 16038 16901 16892 11060
3/31/00 16152 17001 17002 11926
4/30/00 14989 15772 15773 11506
5/31/00 13836 14551 14552 11183
6/30/00 15348 16131 16132 11514
[MOUNTAIN CHART] 7/31/00 15253 16021 16022 11310
8/31/00 16859 17702 17692 12149
9/30/00 15858 16642 16641 11599
10/31/00 14554 15262 15261 11434
11/30/00 11804 12371 12371 10380
12/31/00 12087 12661 12660 10554
1/31/01 12522 13110 13110 10915
2/28/01 9687 10141 10130 9918
3/31/01 8298 8681 8680 9271
4/30/01 9498 9931 9930 10015
5/31/01 9403 9820 9820 10095
6/30/01 9498 9911 9910 9909
7/31/01 8902 9290 9290 9746
8/31/01 8052 8400 8400 9171
9/30/01 6663 6950 6950 8362
10/31/01 7202 7500 7500 8556
11/30/01 8185 8520 8520 9215
12/31/01 8214 8550 8550 9345
1/31/02 8044 8360 8360 9228
2/28/02 7467 7760 7760 9039
3/31/02 8006 8320 8320 9435
4/30/02 7448 7730 7730 8940
5/31/02 7220 7491 7490 8837
6/30/02 6550 6790 6790 8201
7/31/02 5888 6100 6100 7549
8/31/02 5813 6020 6020 7584
9/30/02 5255 5441 5441 6787
10/31/02 5671 5871 5870 7328
11/30/02 6068 6270 6270 7771
12/31/02 5529 5710 5710 7332
1/31/03 5501 5680 5680 7153
2/28/03 5454 5630 5630 7035
3/31/03 5529 5710 5700 7109
4/30/03 5993 6180 6180 7689
5/31/03 6475 6670 6670 8154
6/30/03 6598 6800 6800 8264
7/31/03 6825 7020 7020 8453
8/31/03 7014 7211 7210 8641
9/30/03 6806 7001 7001 8547
10/31/03 7354 7409 7560 9064
Source: Lipper, Inc.
</Table>
Your fund's total return includes sales charges, expenses and management fees.
Your fund's total return includes sales charges, expenses, and management fees.
Results for B shares are calculated as if a hypothetical shareholder had
liquidated his entire investment in the fund at the close of the reporting
period and paid the applicable contingent deferred sales charges. The
performance of the fund's share classes 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 and table does not reflect deduction of taxes a shareholder
would pay on fund distributions or sale of fund shares. Performance of the index
does not reflect the effects of taxes.
Russell 3000 Index data from 5/31/99.
<Table>
===================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS In addition to returns as of the close of Past performance cannot guarantee
As of 10/31/03, including sales charges the fiscal year, industry regulations comparable future results. DUE TO
require us to provide average annual SIGNIFICANT MARKET VOLATILITY, RESULTS OF
CLASS A SHARES total returns (including sales charges) AN INVESTMENT MADE TODAY MAY DIFFER
Inception (6/7/99) -6.75% for periods ended 9/30/03, the most SUBSTANTIALLY FROM THE HISTORICAL
1 Year 22.52 recent calendar quarter-end. PERFORMANCE SHOWN. CALL YOUR FINANCIAL
ADVISOR FOR MORE CURRENT PERFORMANCE.
CLASS B SHARES AVERAGE ANNUAL TOTAL RETURNS
Inception (6/7/99) -6.59% As of 9/30/03, including sales charges
1 Year 23.79
CLASS A SHARES
CLASS C SHARES Inception (6/7/99) -8.53%
Inception (6/7/99) -6.16% 1 Year 22.45
1 Year 27.79
CLASS B SHARES
Inception (6/7/99) -8.36%
1 Year 23.68
CLASS C SHARES
Inception (6/7/99) -7.93%
1 Year 27.68
===================================================================================================================================
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-94.61%
APPAREL RETAIL-2.05%
AnnTaylor Stores Corp.(a) 105,000 $ 3,759,000
- ------------------------------------------------------------------------
Gap, Inc. (The) 260,000 4,960,800
- ------------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 120,000 2,770,800
========================================================================
11,490,600
========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.95%
Coach, Inc.(a) 150,000 5,320,500
========================================================================
APPLICATION SOFTWARE-1.38%
Mercury Interactive Corp.(a) 100,000 4,644,000
- ------------------------------------------------------------------------
PeopleSoft, Inc.(a) 150,000 3,114,000
========================================================================
7,758,000
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.31%
Franklin Resources, Inc. 92,000 4,362,640
- ------------------------------------------------------------------------
T. Rowe Price Group Inc. 73,000 3,003,950
========================================================================
7,366,590
========================================================================
BIOTECHNOLOGY-3.48%
Amgen Inc.(a) 140,000 8,646,400
- ------------------------------------------------------------------------
Genentech, Inc.(a) 52,300 4,287,031
- ------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 21,400 1,168,012
- ------------------------------------------------------------------------
Invitrogen Corp.(a) 85,000 5,405,150
========================================================================
19,506,593
========================================================================
CASINOS & GAMING-0.82%
International Game Technology 140,000 4,585,000
========================================================================
COMMUNICATIONS EQUIPMENT-8.23%
ADTRAN, Inc. 60,000 4,081,800
- ------------------------------------------------------------------------
Cisco Systems, Inc.(a) 600,000 12,588,000
- ------------------------------------------------------------------------
Comverse Technology, Inc.(a) 220,000 3,968,800
- ------------------------------------------------------------------------
Corning Inc.(a) 400,000 4,392,000
- ------------------------------------------------------------------------
Juniper Networks, Inc.(a) 250,000 4,497,500
- ------------------------------------------------------------------------
Motorola, Inc. 345,000 4,667,850
- ------------------------------------------------------------------------
Nortel Networks Corp. (Canada)(a) 850,000 3,782,500
- ------------------------------------------------------------------------
QLogic Corp.(a) 75,000 4,203,750
- ------------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 90,000 3,970,800
========================================================================
46,153,000
========================================================================
COMPUTER & ELECTRONICS RETAIL-1.35%
Best Buy Co., Inc. 130,000 7,580,300
========================================================================
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
COMPUTER HARDWARE-1.48%
Dell Inc.(a) 230,000 $ 8,307,600
========================================================================
COMPUTER STORAGE & PERIPHERALS-3.17%
EMC Corp.(a) 580,000 8,027,200
- ------------------------------------------------------------------------
Network Appliance, Inc.(a) 125,000 3,085,000
- ------------------------------------------------------------------------
SanDisk Corp.(a) 40,000 3,224,000
- ------------------------------------------------------------------------
Seagate Technology (Cayman Islands) 150,000 3,447,000
========================================================================
17,783,200
========================================================================
CONSUMER FINANCE-1.96%
American Express Co. 115,000 5,396,950
- ------------------------------------------------------------------------
MBNA Corp. 225,000 5,568,750
========================================================================
10,965,700
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.07%
Affiliated Computer Services, Inc.-Class A(a) 60,000 2,935,800
- ------------------------------------------------------------------------
Alliance Data Systems Corp.(a) 150,000 4,167,000
- ------------------------------------------------------------------------
Paychex, Inc. 115,000 4,475,800
========================================================================
11,578,600
========================================================================
DEPARTMENT STORES-0.76%
Nordstrom, Inc. 140,000 4,268,600
========================================================================
DIVERSIFIED BANKS-1.27%
Wachovia Corp. 155,000 7,109,850
========================================================================
DIVERSIFIED CAPITAL MARKETS-1.41%
J.P. Morgan Chase & Co. 220,000 7,898,000
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.77%
Career Education Corp.(a) 80,000 4,284,000
========================================================================
DRUG RETAIL-0.50%
CVS Corp. 80,000 2,814,400
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.79%
Agilent Technologies, Inc.(a) 177,500 4,423,300
========================================================================
GENERAL MERCHANDISE STORES-0.60%
Target Corp. 85,000 3,377,900
========================================================================
HEALTH CARE DISTRIBUTORS-0.65%
Omnicare, Inc. 95,000 3,642,300
========================================================================
HEALTH CARE EQUIPMENT-3.80%
Boston Scientific Corp.(a) 130,000 8,803,600
- ------------------------------------------------------------------------
Guidant Corp. 85,000 4,335,850
- ------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 56,000 3,580,640
- ------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-(CONTINUED)
Zimmer Holdings, Inc.(a) 72,000 $ 4,594,320
========================================================================
21,314,410
========================================================================
HEALTH CARE SERVICES-1.52%
Caremark Rx, Inc.(a) 200,000 5,010,000
- ------------------------------------------------------------------------
DaVita, Inc.(a) 100,000 3,510,000
========================================================================
8,520,000
========================================================================
HEALTH CARE SUPPLIES-1.09%
Alcon, Inc. (Switzerland) 60,000 3,306,600
- ------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 70,000 2,817,500
========================================================================
6,124,100
========================================================================
HOME ENTERTAINMENT SOFTWARE-1.40%
Electronic Arts Inc.(a) 45,000 4,456,800
- ------------------------------------------------------------------------
Take-Two Interactive Software, Inc.(a) 85,000 3,361,750
========================================================================
7,818,550
========================================================================
HOME IMPROVEMENT RETAIL-1.13%
Home Depot, Inc. (The) 170,000 6,301,900
========================================================================
HOTELS, RESORTS & CRUISE LINES-1.46%
Royal Caribbean Cruises Ltd. (Liberia) 100,000 2,971,000
- ------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 155,000 5,228,150
========================================================================
8,199,150
========================================================================
HOUSEHOLD PRODUCTS-1.05%
Procter & Gamble Co. (The) 60,000 5,897,400
========================================================================
INTERNET RETAIL-2.79%
Amazon.com, Inc.(a) 185,000 10,067,700
- ------------------------------------------------------------------------
eBay Inc.(a) 100,000 5,594,000
========================================================================
15,661,700
========================================================================
INTERNET SOFTWARE & SERVICES-1.48%
Yahoo! Inc.(a) 190,000 8,303,000
========================================================================
INVESTMENT BANKING & BROKERAGE-3.84%
Charles Schwab Corp. (The) 385,000 5,220,600
- ------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 95,000 8,920,500
- ------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 125,000 7,400,000
========================================================================
21,541,100
========================================================================
IT CONSULTING & OTHER SERVICES-0.79%
Accenture Ltd.-Class A (Bermuda)(a) 190,000 4,446,000
========================================================================
MANAGED HEALTH CARE-2.33%
Aetna Inc. 50,000 2,870,500
- ------------------------------------------------------------------------
Coventry Health Care, Inc.(a) 56,000 3,066,000
- ------------------------------------------------------------------------
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
MANAGED HEALTH CARE-(CONTINUED)
PacifiCare Health Systems, Inc.(a) 53,500 $ 3,183,250
- ------------------------------------------------------------------------
UnitedHealth Group Inc. 77,000 3,917,760
========================================================================
13,037,510
========================================================================
MOTORCYCLE MANUFACTURERS-0.51%
Harley-Davidson, Inc. 60,000 2,844,600
========================================================================
MOVIES & ENTERTAINMENT-1.08%
Viacom Inc.-Class B 152,000 6,060,240
========================================================================
MULTI-LINE INSURANCE-1.49%
Hartford Financial Services Group, Inc. (The) 75,000 4,117,500
- ------------------------------------------------------------------------
HCC Insurance Holdings, Inc. 145,000 4,225,300
========================================================================
8,342,800
========================================================================
OFFICE ELECTRONICS-0.57%
Zebra Technologies Corp.-Class A(a) 56,000 3,189,200
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.86%
Citigroup Inc. 220,000 10,428,000
========================================================================
PHARMACEUTICALS-5.28%
Lilly (Eli) & Co. 55,000 3,664,100
- ------------------------------------------------------------------------
Pfizer Inc. 135,000 4,266,000
- ------------------------------------------------------------------------
Pharmaceutical Resources, Inc.(a) 60,000 4,336,800
- ------------------------------------------------------------------------
Taro Pharmaceutical Industries Ltd.
(Israel)(a) 71,000 4,561,750
- ------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 115,000 6,542,350
- ------------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 29,500 1,158,465
- ------------------------------------------------------------------------
Wyeth 115,000 5,076,100
========================================================================
29,605,565
========================================================================
PUBLISHING-0.92%
Getty Images, Inc.(a) 115,000 5,140,500
========================================================================
RESTAURANTS-0.56%
Starbucks Corp.(a) 100,000 3,160,000
========================================================================
SEMICONDUCTOR EQUIPMENT-2.98%
Entegris Inc.(a) 250,000 3,290,000
- ------------------------------------------------------------------------
Novellus Systems, Inc.(a) 325,000 13,419,250
========================================================================
16,709,250
========================================================================
SEMICONDUCTORS-8.57%
Analog Devices, Inc.(a) 250,000 11,082,500
- ------------------------------------------------------------------------
Linear Technology Corp. 100,000 4,261,000
- ------------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 100,000 4,387,000
- ------------------------------------------------------------------------
Microchip Technology Inc. 300,000 9,813,000
- ------------------------------------------------------------------------
PMC-Sierra, Inc.(a) 200,000 3,634,000
- ------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan) 600,000 6,636,000
- ------------------------------------------------------------------------
Texas Instruments Inc. 285,000 8,242,200
========================================================================
48,055,700
========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
SPECIALTY STORES-3.52%
Advance Auto Parts, Inc.(a) 56,000 $ 4,380,320
- ------------------------------------------------------------------------
Staples, Inc.(a) 160,000 4,291,200
- ------------------------------------------------------------------------
Tiffany & Co. 125,000 5,931,250
- ------------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 145,000 5,122,850
========================================================================
19,725,620
========================================================================
SYSTEMS SOFTWARE-7.03%
Computer Associates International, Inc. 300,000 7,056,000
- ------------------------------------------------------------------------
Microsoft Corp. 520,000 13,598,000
- ------------------------------------------------------------------------
Oracle Corp.(a) 335,000 4,006,600
- ------------------------------------------------------------------------
Symantec Corp.(a) 71,000 4,732,150
- ------------------------------------------------------------------------
VERITAS Software Corp.(a) 277,500 10,031,625
========================================================================
39,424,375
========================================================================
TECHNOLOGY DISTRIBUTORS-0.75%
CDW Corp. 70,000 4,203,500
========================================================================
THRIFTS & MORTGAGE FINANCE-1.81%
Doral Financial Corp. (Puerto Rico) 90,000 4,545,000
- ------------------------------------------------------------------------
New York Community Bancorp, Inc. 155,000 5,611,000
========================================================================
10,156,000
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $412,171,027) 530,424,203
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
MONEY MARKET FUNDS-5.06%
STIC Liquid Assets Portfolio(b) 14,188,517 $ 14,188,517
- ------------------------------------------------------------------------
STIC Prime Portfolio(b) 14,188,517 14,188,517
========================================================================
Total Money Market Funds (Cost
$28,377,034) 28,377,034
========================================================================
TOTAL INVESTMENTS-99.67% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $440,548,061) 558,801,237
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.46%
STIC Liquid Assets Portfolio(b)(c) 13,760,300 13,760,300
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $13,760,300) 13,760,300
========================================================================
TOTAL INVESTMENTS-102.13% (Cost $454,308,361) 572,561,537
========================================================================
OTHER ASSETS LESS LIABILITIES-(2.13%) (11,928,896)
========================================================================
NET ASSETS-100.00% $560,632,641
________________________________________________________________________
========================================================================
</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.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$412,171,027)* $ 530,424,203
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $42,137,334) 42,137,334
- ------------------------------------------------------------
Receivables for:
Investments sold 19,168,632
- ------------------------------------------------------------
Fund shares sold 285,653
- ------------------------------------------------------------
Dividends 298,613
- ------------------------------------------------------------
Investment for deferred compensation plan 29,558
- ------------------------------------------------------------
Other assets 21,033
============================================================
Total assets 592,365,026
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 15,932,154
- ------------------------------------------------------------
Fund shares reacquired 960,889
- ------------------------------------------------------------
Deferred compensation plan 29,558
- ------------------------------------------------------------
Collateral upon return of securities
loaned 13,760,300
- ------------------------------------------------------------
Amount due custodian bank 22,182
- ------------------------------------------------------------
Accrued distribution fees 352,160
- ------------------------------------------------------------
Accrued trustees' fees 18,790
- ------------------------------------------------------------
Accrued transfer agent fees 419,406
- ------------------------------------------------------------
Accrued operating expenses 236,946
============================================================
Total liabilities 31,732,385
============================================================
Net assets applicable to shares outstanding $ 560,632,641
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,332,848,413
- ------------------------------------------------------------
Undistributed net investment income (loss) (47,845)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (890,421,103)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 118,253,176
============================================================
$ 560,632,641
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 212,862,734
____________________________________________________________
============================================================
Class B $ 251,650,060
____________________________________________________________
============================================================
Class C $ 96,119,847
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 27,345,132
____________________________________________________________
============================================================
Class B 33,275,069
____________________________________________________________
============================================================
Class C 12,711,437
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 7.78
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $7.78 divided by
94.50%) $ 8.23
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 7.56
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 7.56
____________________________________________________________
============================================================
</Table>
* At October 31, 2003, securities with an aggregate market value of $13,346,326
were on loan to brokers.
See Notes to Financial Statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $43,299) $ 3,368,071
- --------------------------------------------------------------------------
Dividends from affiliated money market funds 203,943
- --------------------------------------------------------------------------
Interest 12,466
- --------------------------------------------------------------------------
Securities lending 15,476
==========================================================================
Total investment income 3,599,956
==========================================================================
EXPENSES:
Advisory fees 4,249,017
- --------------------------------------------------------------------------
Administrative services fees 132,438
- --------------------------------------------------------------------------
Custodian fees 77,399
- --------------------------------------------------------------------------
Distribution fees:
Class A 660,338
- --------------------------------------------------------------------------
Class B 2,241,790
- --------------------------------------------------------------------------
Class C 870,372
- --------------------------------------------------------------------------
Transfer agent fees 3,452,061
- --------------------------------------------------------------------------
Trustees' fees 17,458
- --------------------------------------------------------------------------
Other 432,312
==========================================================================
Total expenses 12,133,185
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (73,913)
==========================================================================
Net expenses 12,059,272
==========================================================================
Net investment income (loss) (8,459,316)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 13,284,983
- --------------------------------------------------------------------------
Foreign currencies (896)
- --------------------------------------------------------------------------
Option contracts written (384,883)
==========================================================================
12,899,204
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 124,404,259
- --------------------------------------------------------------------------
Foreign currencies 18,842
- --------------------------------------------------------------------------
Option contracts written (8,273)
==========================================================================
124,414,828
==========================================================================
Net gain from investment securities, foreign currencies and
option contracts 137,314,032
==========================================================================
Net increase in net assets resulting from operations $128,854,716
__________________________________________________________________________
==========================================================================
</Table>
See Notes to Financial Statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (8,459,316) $ (12,825,259)
- -------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts 12,899,204 (202,713,132)
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and option contracts 124,414,828 63,144,429
===========================================================================================
Net increase (decrease) in net assets resulting from
operations 128,854,716 (152,393,962)
===========================================================================================
Share transactions-net:
Class A (26,713,489) (64,886,914)
- -------------------------------------------------------------------------------------------
Class B (29,364,137) (75,460,458)
- -------------------------------------------------------------------------------------------
Class C (14,000,141) (35,199,684)
===========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (70,077,767) (175,547,056)
===========================================================================================
Net increase (decrease) in net assets 58,776,949 (327,941,018)
===========================================================================================
NET ASSETS:
Beginning of year 501,855,692 829,796,710
===========================================================================================
End of year (including undistributed net investment income
(loss) of $(47,845) and $(36,813) for 2003 and 2002,
respectively) $560,632,641 $ 501,855,692
___________________________________________________________________________________________
===========================================================================================
</Table>
See Notes to Financial Statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Market trends, movement in exchange traded fund and ADR's, and
the bid/ask quotes of brokers and information providers may be reviewed in
the course of making a good faith determination of a security's fair value.
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
ordinarily 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
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are
F-7
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. Reported net realized foreign currency
gains or losses arise from sales of foreign currencies, currency gains or
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
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. 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.
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. 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
sub-advisor. Under the terms of the 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 sub-advisory 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 and/or reimburse expenses of Class A, Class B and Class C shares
to the extent necessary to limit total annual operating expenses of Class A
shares to 2.00%. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time without further notice to investors. 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 year
ended October 31, 2003, AIM waived fees of $3,998. Under a prior agreement to
limit the
F-8
aggregate costs of certain shareholder services provided by third party
administrators, AIM reimbursed fees of $58,910 for Class A, Class B and Class C
shares based on the relative net assets of those classes.
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, 2003, AIM was
paid $132,438 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended October 31, 2003, AISI retained $1,925,638 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,
Class B and Class C shares (collectively the "Plans"). The Fund, pursuant to the
Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the
Fund's average daily net assets of Class A shares and 1.00% of the average daily
net assets of Class B and Class C shares. Of these amounts, AIM Distributors may
pay a service fee up to 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 shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
October 31, 2003, the Class A, Class B and Class C shares paid $660,338,
$2,241,790 and $870,372, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2003, AIM Distributors retained $76,461 in front-end sales
commissions from the sale of Class A shares and $0, $38 and $4,191 from Class A,
Class B and Class C shares, respectively, for CDSC imposed upon redemptions by
shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
For the year ended October 31, 2003, the Fund received reductions in transfer
agency fees from AISI (an affiliate of AIM) of $11,005 under an expense offset
arrangement which resulted in a reduction of the Fund's total expenses of
$11,005.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. The Trustees deferring compensation have the
option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. Certain former Trustees also
participate in a retirement plan and receive benefits under such plan.
During the year ended October 31, 2003, the Fund paid legal fees of $3,042
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds. An interfund loan will be
made under this facility only if the loan rate (an average of the rate available
on bank loans and the rate available on investments in overnight repurchase
agreements) is favorable to both the lending fund and the borrowing fund. Under
certain circumstances, a loan will be secured by collateral. To the extent that
the loan is required to be secured by collateral, the collateral is marked to
market daily to ensure that the market value is at least 102% of the outstanding
principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the 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 year ended October 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving line of credit facility or the committed line of credit
facility.
Additionally the Fund is permitted to carry a negative or overdrawn balance
in its account with the custodian bank. To compensate the custodian bank for
such overdrafts, the overdrawn Fund may either (i) leave funds in the account so
the custodian can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank. In either case, the custodian bank will
be compensated an amount equal to the Federal Funds rate plus 100 basis points.
F-9
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral 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
held may be temporarily less than the value of the securities on loan.
At October 31, 2003, securities with an aggregate value of $13,346,326 were
on loan to brokers. The loans were secured by cash collateral of $13,760,300
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2003, the Fund received fees of $15,476 for
securities lending.
NOTE 7--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
Beginning of year 275 $ 69,460
- ------------------------------------------------------------
Written 18,016 2,584,777
- ------------------------------------------------------------
Closed (17,851) (2,604,959)
- ------------------------------------------------------------
Expired (440) (49,278)
============================================================
End of year -- $ --
____________________________________________________________
============================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
- ------------------------------
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2003 and 2002.
Tax Components of Net Assets:
- -----------------------------
As of October 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 115,181,534
- ------------------------------------------------------------
Temporary book/tax differences (47,845)
- ------------------------------------------------------------
Capital loss carryforward (887,349,461)
- ------------------------------------------------------------
Shares of beneficial interest 1,332,848,413
============================================================
Total net assets $ 560,632,641
____________________________________________________________
============================================================
</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 tax deferral for tax purposes on
certain straddle transactions.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the deferral of trustee compensation and
trustee retirement plan expenses.
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
- ----------------------------------------------------------
October 31, 2011 1,906,887
==========================================================
Total capital loss carryforward $887,349,461
__________________________________________________________
==========================================================
</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 year ended
October 31, 2003 was $735,016,461 and $824,749,316, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $118,030,322
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (2,848,788)
===========================================================
Net unrealized appreciation of investment
securities $115,181,534
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $457,380,003.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions and
net operating losses on October 31, 2003, undistributed net investment income
(loss) was increased by $8,448,284, undistributed net realized gains increased
by $895 and shares of beneficial interest decreased by $8,449,179. This
reclassification had no effect on net assets of the Fund.
F-10
NOTE 11--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. Under some
circumstances, Class A shares are subject to CDSC. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2003 2002
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,976,331 $ 26,689,358 5,537,858 $ 43,117,200
- -------------------------------------------------------------------------------------------------------------------------
Class B 3,032,772 19,799,210 3,503,829 26,984,220
- -------------------------------------------------------------------------------------------------------------------------
Class C 1,236,736 8,126,066 1,824,515 14,029,736
=========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 268,267 1,801,536 214,960 1,628,659
- -------------------------------------------------------------------------------------------------------------------------
Class B (275,388) (1,801,536) (217,773) (1,628,659)
=========================================================================================================================
Reacquired:
Class A (8,611,375) (55,204,383) (15,019,465) (109,632,773)
- -------------------------------------------------------------------------------------------------------------------------
Class B (7,607,073) (47,361,811) (14,137,854) (100,816,019)
- -------------------------------------------------------------------------------------------------------------------------
Class C (3,515,974) (22,126,207) (6,815,024) (49,229,420)
=========================================================================================================================
(11,495,704) $(70,077,767) (25,108,954) $(175,547,056)
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
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,
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) (0.09) (0.12) (0.12) (0.11) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.87 (1.50) (7.66) 3.37 2.17
=================================================================================================================================
Total from investment operations 1.78 (1.62) (7.78) 3.26 2.14
=================================================================================================================================
Net asset value, end of period $ 7.78 $ 6.00 $ 7.62 $ 15.40 $ 12.14
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(a) 29.67% (21.26)% (50.52)% 26.85% 21.40%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $212,863 $190,253 $312,377 $666,929 $163,872
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.01%(b)(c) 1.87% 1.64% 1.50% 1.60%(b)(d)
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (1.29)%(c) (1.31)% (1.04)% (0.93)% (1.00)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 152% 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)After fee waivers and reimbursements. Ratio of expenses to average net
assets prior to the fee waivers for 2003 and 1999 was 2.02% and 1.65%
(annualized), respectively.
()(c)Ratios are based on average daily net assets of $188,668,082.
()(d)Annualized.
()(e)Not annualized for periods less than one year.
F-11
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------
JUNE 7, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------------------------ 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) (0.13) (0.17) (0.18) (0.18) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.82 (1.46) (7.58) 3.33 2.15
=================================================================================================================================
Total from investment operations 1.69 (1.63) (7.76) 3.15 2.11
=================================================================================================================================
Net asset value, end of period $ 7.56 $ 5.87 $ 7.50 $ 15.26 $ 12.11
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(a) 28.79% (21.73)% (50.85)% 26.01% 21.10%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $251,650 $223,666 $367,494 $748,480 $177,430
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.66%(b)(c) 2.53% 2.32% 2.17% 2.24%(b)(d)
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (1.94)%(c) (1.97)% (1.72)% (1.60)% (1.64)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 152% 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)After fee waivers and reimbursements. Ratio of expenses to average net
assets prior to the fee waivers for 2003 and 1999 was 2.67% and 2.29%
(annualized), respectively.
()(c)Ratios are based on average daily net assets of $224,179,024.
()(d)Annualized.
()(e)Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------
JUNE 7, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------------------------ 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) (0.13) (0.17) (0.19) (0.17) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.82 (1.46) (7.57) 3.32 2.15
=================================================================================================================================
Total from investment operations 1.69 (1.63) (7.76) 3.15 2.11
=================================================================================================================================
Net asset value, end of period $ 7.56 $ 5.87 $ 7.50 $ 15.26 $ 12.11
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(a) 28.79% (21.73)% (50.85)% 26.01% 21.10%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $96,120 $87,938 $149,925 $309,821 $51,605
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.66%(b)(c) 2.53% 2.32% 2.17% 2.24%(b)(d)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.94)%(c) (1.97)% (1.72)% (1.60)% (1.64)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 152% 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)After fee waivers and reimbursements. Ratio of expenses to average net
assets prior to the fee waivers for 2003 and 1999 was 2.67% and 2.29%
(annualized), respectively.
()(c)Ratios are based on average daily net assets of $87,037,243.
()(d)Annualized.
()(e)Not annualized for periods less than one year.
NOTE 13--SUBSEQUENT EVENTS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM") is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("INVESCO"), was, until
recently, the investment advisor to the INVESCO Funds.
On December 2, 2003, each of the Securities and Exchange Commission ("SEC")
and the Office of the Attorney General of the State of New York ("NYAG") filed
civil proceedings against INVESCO and Raymond R. Cunningham, in his capacity as
the Chief Executive Officer of INVESCO.
F-12
NOTE 13--SUBSEQUENT EVENTS (CONTINUED)
Mr. Cunningham currently holds the positions of Chief Operating Officer and
Senior Vice President of A I M Management Group, Inc., the parent company of
AIM, and he also holds the position of Senior Vice President with AIM. In
addition, on December 2, 2003, the State of Colorado filed civil proceedings
against INVESCO. Neither your Fund nor any of the funds in the AIM Family of
Funds(R), which includes the INVESCO Funds (the "Funds") has been named as a
defendant in any of these proceedings.
The SEC proceeding alleges that INVESCO failed to disclose in the INVESCO
Funds' prospectuses and to the INVESCO Funds' independent directors that INVESCO
had entered into certain arrangements permitting market timing of the INVESCO
Funds. The SEC is seeking injunctions, including permanent injunctions from
serving as an investment advisor, officer or director of an investment company;
an accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG proceeding is also based on the circumstances described above. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief.
The Colorado proceeding is also based on the circumstances described above.
The State of Colorado is seeking injunctions; restitution, disgorgement and
other equitable relief; civil monetary penalties; and other relief.
If INVESCO is unsuccessful in its defense of these proceedings, it could be
barred from serving as an investment advisor for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Similarly, if Mr. Cunningham is unsuccessful in his
defense of these proceedings, he could be barred from serving as an officer or
director of any registered investment company. Such results could also affect
the ability of AIM, or any other investment advisor directly or indirectly owned
by AMVESCAP, from serving as an investment advisor to any registered investment
company, including your Fund. Your Fund has been informed by AIM that, if either
of these results occurs, AIM will seek exemptive relief from the SEC to permit
it to continue to serve as your Fund's investment advisor. There can be no
assurance that such exemptive relief will be granted.
AIM has received inquiries from the SEC, the NASD, Inc., the NYAG and the
Secretary of the Commonwealth of Massachusetts with respect to market timing,
late trading, fair value pricing and other similar issues and AIM has been
providing full cooperation with respect to these inquiries.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
certain Funds, INVESCO, AIM, AMVESCAP and certain related parties, primarily
based upon the allegations in the complaints described above, but also regarding
the funds' fair valuation pricing methodology. Such lawsuits allege a variety of
theories for recovery including, but not limited to: (i) violation of various
provisions of the Federal securities laws; (ii) breach of fiduciary duty; and
(iii) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; interest and the payment of attorneys'
and experts' fees. Additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
Funds, INVESCO, AIM, AMVESCAP and related parties in the future.
As a result of these developments, investors in the Funds might react by
redeeming their investments. This might require the Funds to sell investments to
provide for sufficient liquidity and could also have an adverse effect on the
investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of these matters described above may have on
the Fund or AIM's financial condition.
F-13
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Dent Demographics Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM Dent
Demographics Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 2003, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
three years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. 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. Our procedures included confirmation of securities
owned as of October 31, 2003, by correspondence with the custodian and brokers
or by other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Dent Demographics Fund as of October 31, 2003, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the three years
in the period then ended, in conformity with accounting principles generally
accepted in the United States.
Houston, Texas /s/ Ernst & Young LLP
December 16, 2003
F-14
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Equity Funds, a Delaware statutory
trust, was held on October 21, 2003. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHOLDING
DIRECTORS/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 983,597,298 14,109,942
Frank S. Bayley.............................. 983,595,385 14,111,855
James T. Bunch............................... 983,970,384 13,736,856
Bruce L. Crockett............................ 983,967,974 13,739,266
Albert R. Dowden............................. 983,892,850 13,814,390
Edward K. Dunn, Jr........................... 983,672,087 14,035,153
Jack M. Fields............................... 983,987,281 13,719,959
Carl Frischling.............................. 983,352,244 14,354,996
Robert H. Graham............................. 983,794,290 13,912,950
Gerald J. Lewis.............................. 983,317,525 14,389,715
Prema Mathai-Davis........................... 983,676,086 14,031,154
Lewis F. Pennock............................. 983,703,651 14,003,589
Ruth H. Quigley.............................. 983,356,521 14,350,719
Louis S. Sklar............................... 983,812,619 13,894,621
Larry Soll, Ph.D............................. 983,820,425 13,886,815
Mark H. Williamson........................... 983,676,844 14,030,396
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Equity Funds
F-15
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S)
TRUST SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
________________________________________________________________________________________________________________
================================================================================================================
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management Group Inc.
Trustee, Chairman and (financial services holding company); and Director and Vice
President 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); and
Director and Chairman, A I M Capital Management, Inc.
(registered investment advisor), A I M Distributors, Inc.
(registered broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management Company
(registered broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ----------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President Director, Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor) and A I M
Distributors, Inc. (registered broker dealer); Director and
Chairman, AIM Investment Services, Inc. (registered transfer
agent); and Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global investment management
firm)
Formerly: Director, Chairman, President and Chief Executive
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
________________________________________________________________________________________________________________
================================================================================================================
Bob R. Baker(3) -- 1936 2003 Consultant
Trustee
Formerly: President and Chief Executive Officer, AMC Cancer
Research Center; and Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie
Trustee
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd.,
Trustee (investment banking firm); and Director, Policy Studies,
Inc. and Van Gilder Insurance Corporation
Formerly: General Counsel and Director, Boettcher & Co.; and
Chairman and Managing Partner, law firm of Davis, Graham &
Stubbs
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology
Trustee consulting company)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business
Trustee corporations, including the Boss Group Ltd. (private
investment and management) and Magellan 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 Group
companies
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and
Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares Corp.
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc.
Trustee (government affairs company) and Texana Timber LP
- ----------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S)
TRUST HELD BY TRUSTEE
- -------------------------------- ----------------------
INTERESTED PERSONS
________________________________________________________________________________
================================================================================
Robert H. Graham(1) -- 1946 None
Trustee, Chairman and
President
- --------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 Director and Chairman,
Trustee and Executive Vice INVESCO Bond Funds,
President Inc., INVESCO
Combination Stock &
Bond Funds, Inc.,
INVESCO Counselor
Series Funds, Inc.,
INVESCO International
Funds, Inc., INVESCO
Manager Series Funds,
Inc., INVESCO Money
Market Funds, Inc.,
INVESCO Sector Funds,
Inc., INVESCO Stock
Funds, Inc., INVESCO
Treasurer's Series
Funds, Inc. and
INVESCO Variable
Investment Funds, Inc.
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
________________________________________________________________________________
================================================================================
Bob R. Baker(3) -- 1936 None
Trustee
- --------------------------------------------------------------------------------
Frank S. Bayley -- 1939 Badgley Funds, Inc.
Trustee (registered investment
company)
- --------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 None
Trustee
- --------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 ACE Limited (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
- --------------------------------------------------------------------------------
Albert R. Dowden -- 1941 Cortland Trust, Inc.
Trustee (Chairman) (registered
investment company);
Annuity and Life Re
(Holdings), Ltd.
(insurance company)
- --------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 None
Trustee
- --------------------------------------------------------------------------------
Jack M. Fields -- 1952 Administaff
Trustee
- --------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust. Mr. Williamson became Executive Vice President of
the Trust on March 4, 2003.
(3) Elected trustee of the Trust on October 21, 2003.
Trustees and Officers (continued)
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
___________________________________________________________________________________________________________________
===================================================================================================================
Kevin M. Carome(4) -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President Counsel, A I M Management Group Inc. (financial services
holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and 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(5) -- 1947 1988 Director, Chairman and Director of Investments, A I M
Senior Vice President 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 -- Fixed
Vice President 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 M Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 1999 Vice President, A I M Advisors, Inc., and President, Chief
Vice President 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 Advisors, Inc.
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- --------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- --------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- --------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- --------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- --------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 None
Trustee
- --------------------------------------------------------------------------------
OTHER OFFICERS
________________________________________________________________________________
================================================================================
- --------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 N/A
Senior Vice President
- --------------------------------------------------------------------------------
Gary T. Crum(5) -- 1947 N/A
Senior Vice President
- --------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- --------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- --------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 N/A
Vice President
- --------------------------------------------------------------------------------
Dana R. Sutton -- 1959 N/A
Vice President and Treasurer
- --------------------------------------------------------------------------------
</Table>
(3) Elected trustee of the Trust on October 21, 2003.
(4) Mr. Carome became Senior Vice President of the Trust on May 13, 2003.
(5) Information is current as of January 10, 2003.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP H.S.
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center Dent
Houston, TX 77046 Suite 100 Suite 100 1401 McKinney, Suite 1200 Advisors,
Houston, TX 77046 Houston, TX 77046-1173 Houston, TX 77010-4035 Inc.
6515
Gwin
Road
Oakland,
CA 94611
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
Andrews & Ingersoll, LLP Frankel LLP P.O. Box 4739 Trust Company
1735 Market Street 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103 New York, NY 10022-3852 Boston, MA 02110
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(4) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(5)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) AIM Small Cap Equity Fund was closed to most
investors on December 19, 2003. For information on who may continue to invest in
AIM Small Cap Equity Fund, please contact your financial advisor. (3) AIM Small
Cap Growth Fund was closed to most investors on March 18, 2002. For information
on who may continue to invest in AIM Small Cap Growth Fund, please contact your
financial advisor. (4) Effective April 30, 2003, AIM Worldwide Spectrum Fund was
renamed AIM Global Value Fund. (5) Effective November 24, 2003, INVESCO
International Blue Chip Value Fund was renamed INVESCO International Core Equity
Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
it carefully before investing. If used after January 20, 2004, this brochure
must be accompanied by a fund Performance & Commentary or by an AIM Quarterly
Performance Review for the most recent quarter-end. Mutual funds distributed by
A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $142 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $345 billion in assets
under management. Data as of September 30, 2003.
AIMinvestments.com DDT-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- --------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Servicemark--
Plans Accounts
</Table>
AIM EMERGING GROWTH FUND
Annual Report to Shareholders o October 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM EMERGING GROWTH FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
================================================================================
ABOUT INFORMATION THROUGHOUT THIS REPORT:
<Table>
o Unless otherwise stated, information o The fund's investment return and o The unmanaged Russell 2500--Registered
presented is as of 10/31/03 and is based principal value will fluctuate, so an Trademark-- Index measures the performance
on total net assets. investor's shares, when redeemed, may be of the 2,500 smallest companies in the
worth more or less than their original Russell 3000 --Registered Trademark--
o AIM Emerging Growth Fund's performance cost. Index, which measures the performance of
figures are historical, and they reflect the 3,000 largest companies based on
fund expenses, the reinvestment of o Industry classifications used in this market capitalization; the Growth subset
distributions, and changes in net asset report are generally according to the measures the performance of Russell 2500
value. Global Industry Classification Standard, companies with higher price/book ratios
which was developed by and is the and higher forecasted growth values.
o When sales charges are included in exclusive property and a service mark of
performance figures, Class A share Morgan Stanley Capital International Inc. o The unmanaged Standard & Poor's
performance reflects the maximum 5.50% and Standard & Poor's. Composite Index of 500 Stocks (the S&P
sales charge, and Class B and Class C 500--Registered Trademark--) is an index
share performance reflects the applicable o The fund may participate in the initial of common stocks frequently used as a
contingent deferred sales charge (CDSC) public offering (IPO) market in some general measure of U.S. stock market
for the period involved. The CDSC on market cycles. Because of the fund's performance.
Class B shares declines from 5% beginning small asset base, any investment the fund
at the time of purchase to 0% at the may make in IPOs may significantly affect o Bloomberg, Inc. is a well-known
beginning of the seventh year. The CDSC the fund's total return. As the fund's independent financial research and
on Class C shares is 1% for the first assets grow, the impact of IPO reporting firm.
year after purchase. The performance of investments will decline, which may
the fund's share classes will differ due reduce the effect of IPO investments on o A direct investment cannot be made in
to different sales charge structures and the fund's total return. an index. Unless otherwise indicated,
class expenses. index results include reinvested
o Investing in small and mid-size dividends, and they do not reflect sales
o Effective 9/30/03, Class B shares are companies may involve risks not charges or fund expenses.
not available as an investment for associated with investing in more
retirement plans maintained pursuant to established companies. Also, small A description of the policies and
Section 401 of the Internal Revenue Code, companies may have business risk, procedures that the fund uses to
including 401(k) plans, money purchase significant stock price fluctuations and determine how to vote proxies relating to
pension plans and profit sharing plans. illiquidity. portfolio securities is available without
Plans that have existing accounts charge, upon request, by calling
invested in Class B shares will continue 800-959-4246, or on the AIM Web site,
to be allowed to make additional purchases. AIMinvestments.com.
</Table>
<Table>
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE This report may be distributed only to shareholders or
===================================================== to persons who have received a current prospectus of
AIMinvestments.com the fund.
</Table>
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER IN new policies and strengthened existing ones--to discourage
THE AIM FAMILY OF FUNDS--Registered harmful short-term trading. These steps include:
Trademark--:
o Strengthening daily monitoring of trading activities.
As you may be aware, there has been a
[PHOTO OF great deal of media coverage recently o Imposing redemption fees on additional funds we believe
ROBERT H. about the mutual fund industry and may be vulnerable to harmful short-term trading activity.
GRAHAM] allegations of improper activities by
certain individuals and companies. As o Implementing an enhanced exchange policy (effective on
ROBERT H. GRAHAM part of these widespread investigations, or about March 1, 2004) designed to limit exchanges
INVESCO Funds Group (IFG), the former between funds.
[PHOTO OF adviser to certain INVESCO Funds, was
MARK H. recently named as a defendant in o Employing an enhanced fair value pricing policy on
WILLIAMSON] separate civil enforcement actions by certain foreign securities as well as certain illiquid
the U.S. Securities and Exchange securities.
MARK H. WILLIAMSON Commission (SEC), the Office of the New
York Attorney General and the State of None of these tools alone, nor all of them taken together,
Colorado over an issue known as "market timing." A number of eliminate the possibility of short-term trading strategies
private class or derivative actions also were filed in the that may be detrimental to a fund. Moreover, each of these
wake of the regulators' actions. tools involves judgments that are inherently subjective. We
have always sought and continue to seek to make these
Investors are understandably concerned and frustrated judgments to the best of our abilities and in a manner that
about these reports, and we would like to take this we believe is consistent with the best interests of our fund
opportunity to assure you that, based on an investigation shareholders. And we remain committed to being as vigilant
conducted by an outside firm, IFG and its parent company, as possible in the future to identify and address any
AMVESCAP PLC, believe that these civil actions are without harmful market timing investors who have the potential to
merit. IFG is contesting the charges. harm our long-term fund shareholders.
We encourage you to continue to monitor this situation, We sincerely hope these developments and the media
particularly as IFG has the opportunity to address the coverage surrounding them do not result in you or other
allegations that have been made. Current information will be shareholders losing confidence in AIM or INVESCO Funds.
posted on our Web site at AIMinvestments.com. We will Amidst this storm of controversy in the mutual fund
continue to communicate to you on our Web site about our industry, we believe we can find encouragement in the
finding, and the actions we are taking to protect and recovering economy and rising equity markets. As we write
promote the interests of our shareholders. The independent this letter, for instance, the S&P 500--Registered
trustees of the funds are receiving regular reports from Trademark-- Index is up approximately 23% year-to-date.
their independent counsel and outside counsel hired by Although past performance is no guarantee of future results,
AMVESCAP PLC, the parent of AIM and IFG, to perform an there appear to be indicators that the economy and stock
ongoing investigation of market timing. markets are showing signs of welcomed improvement. We
encourage you to read the enclosed discussion of your fund's
A COMPLEX ISSUE performance during this past reporting period.
Market timing is an investment technique not defined in any OUR UNWAVERING COMMITMENT
regulation that involves frequent short-term trading of
mutual fund shares, sometimes with a goal to exploit At AIM Investments, we have never wavered in our commitment
inefficiencies in the way mutual funds price their shares. to helping you build solutions for your financial goals. Our
We recognize that fund management companies have tried to company was founded on a core principle of integrity, and we
deal with this complex issue in various ways and believe have always worked hard to earn the trust of our
that industry-wide guidance is in order. To that end, we shareholders. We are committed to doing all we can to
welcome SEC Chairman William Donaldson's pledge to adopt new maintain your trust and confidence.
rules designed to curb market timing abuses. Comprehensive
rulemaking is necessary and is the best way to establish new Thank you for your continued participation in AIM
industry responsibilities designed to protect shareholders. Investments. Please call your financial advisor or one of
We support practical rule changes and structural our Client Service representatives at 800-959-4246 if you
modifications that are fair, enforceable and, most have any further questions or concerns about your AIM
importantly, beneficial for investors. Investments account.
AIM Investments has policies in place designed to Sincerely,
identify, prevent and eliminate harmful trading or other
activities deemed to be detrimental to the funds. We have /s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
also recently taken additional steps--implemented Robert H. Graham Mark H. Williamson
Chairman and President President and CEO
The AIM Family of Funds AIM Investments
--Registered Trademark--
December 18, 2003
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND DELIVERS POSITIVE RETURN consumer spending was generally
stronger, although the job market
This report covers the fiscal year ended During this rally, the United States remained weak.
October 31, 2003. During this period, and its allies took military action
your fund recorded positive returns. At against Iraq and ousted the regime of All sectors of the S&P 500 recorded
net asset value, Class A shares produced Saddam Hussein. The nation's gross gains for the fiscal year. Information
a total return of 48.30% and domestic product, generally considered technology, materials and utilities were
outperformed its indexes. the broadest measure of economic the top-performing sectors while
activity, expanded at an annualized rate telecommunication services,
MARKET CONDITIONS of 3.3% in the second quarter and 8.2%
in the third quarter of 2003. As of the ========================================
Amid a backdrop of generally improving close of the fiscal year, 405 companies
economic conditions, the S&P 500 Index, in the S&P 500 had reported SMALL- AND MID-CAP
frequently cited as a measure of the third-quarter earnings. A total of 65.4%
performance of the U.S. stock market in of those companies reported earnings STOCKS GENERALLY
general, returned 20.79% for the year that exceeded expectations compared to
ended October 31, 2003. The index rose 60.2% for the third quarter of 2002, OUTPERFORMED LARGE-CAP
in November 2002, then declined over the according to Bloomberg. The job market
next three months, dropping to its remained weak, however, as the nation's STOCKS.
lowest level for the fiscal year on unemployment rate stood at 6.0% at the
March 11, 2003. The index then rallied, close of the reporting period. ========================================
posting a gain of 32.67% from its low on
March 11 through the end of the For most of the fiscal year, the consumer staples and health care were
reporting period. Federal Reserve (the Fed) kept the the weakest-performing sectors.
short-term federal funds rate at 1.25%.
On June 25, 2003, it lowered that rate Small- and mid-cap stocks generally
to 1.00%, its lowest level since 1958. outperformed large-cap stocks. While the
At the time, the Fed said it favored a performance of large-cap growth and
more expansive monetary policy because large-cap value stocks was similar, mid-
the economy had not yet exhibited and small-cap growth stocks generally
sustainable growth. By October, the Fed outperformed their value counterparts by
reported that economic expansion had wider margins.
increased and
YOUR FUND
At the close of the fiscal year, the
portfolio's three largest sector
weightings were in information
technology, consumer discretionary and
health care. These also were the sectors
</Table>
<Table>
===================================================================================================================================
PORTFOLIO COMPOSITION BY TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
INVESTMENT TYPE
1. Lamar Advertising Co. 2.0% 1. Broadcasting & Cable TV 4.8%
TOTAL NUMBER OF HOLDINGS* 124
TOTAL NET ASSETS $150.3 MILLION 2. UTStarcom, Inc. 1.9 2. Oil & Gas Drilling 4.6
3. AGCO Corp. 1.8 3. Pharmaceuticals 4.4
4. AMIS Holdings, Inc. 1.7 4. Communication Equipment 4.0
5. Caremark Rx, Inc. 1.7 5. Data Processing & Outsourced
Services 3.6
6. Fiserv Inc. 1.7
6. Packaged Foods 3.1
7. Patterson-UTI Energy Inc. 1.6
7. Oil & Gas Equipment & Services 3.0
8. Nokia Oyj-ADR (Finland) 1.4
8. Biotechnology 3.0
9. Viacom Inc.-Class B 1.3
9. Semiconductor Equipment 3.0
10. Pfizer Inc. 1.3
10. Advertising 2.6
* Excludes money market fund holdings.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular
security.
===================================================================================================================================
</Table>
2
<Table>
that contributed the most to fund A stock that enhanced performance was KARL FARMER
performance while those that contributed UTStarcom, a producer of [PHOTO OF Mr. Farmer is a Chartered
the least were utilities, telecommunications equipment. In KARL Financial Analyst. Prior
telecommunications services and October, UTStarcom reported its 15th FARMER] to joining AIM in July of
materials. Because health care was the consecutive quarter of record earnings. 1998, Mr. Farmer spent
fund's third-largest sector weighting, six years as a pension actuary with
its contribution to fund performance was Detracting from fund performance was William M. Mercer, Inc., focusing on
greater than certain other HCA, a hospital operator whose stock retirement plans and other benefit
better-performing sectors, such as declined sharply in March and April. The programs. He earned a B.S. in economics
energy, which weren't as well fund no longer holds this stock. from Texas A&M University, graduating
represented in the portfolio. Although magna cum laude. He subsequently earned
materials was one of the IN CLOSING his M.B.A. in finance from The Wharton
better-performing sectors, the portfolio School at the University of
had relatively little exposure to this We continue to work diligently to meet Pennsylvania.
sector, so its impact on performance was the fund's investment objective of
less than other sectors which were growth of capital. Regardless of market JAY K. RUSHIN
better represented in the fund. trends, we will adhere to the fund's [PHOTO OF Mr. Rushin is a Chartered
strategy as outlined in its prospectus, JAY K. Financial Analyst. Mr.
In response to improving economic continuing to focus on the stocks of RUSHIN] Rushin began his investment
conditions, we increased the number of companies that we believe have favorable career in 1994 when he
holdings in the portfolio, concentrating growth prospects. joined AIM as a portfolio administrator.
on stocks of more economically sensitive In 1996, he left AIM to work as an
companies. History has shown that these associate equity analyst at Prudential
stocks tend to perform better in an Securities. He returned to AIM as an
improving economic environment. However, See important fund and index equity analyst on AIM's small-cap funds
core-growth holdings, the stocks of disclosures inside front cover. in 1998 and was promoted to senior
companies with long-term records of analyst in 2000. He assumed his current
attractive earnings, continued to be duties as portfolio manager in 2001. A
well represented in the portfolio. We native of Gaithersburg, MD, Mr. Rushin
took advantage of a market sell-off in holds a B.A. in English from Florida
September to buy media, diversified State University.
financial services and semiconductor
stocks, which were favorably priced. We Assisted by Mid-Cap Growth Team
purchased these stocks on the belief
they could perform well in an improving
economic environment.
</Table>
========================================
FUND VS. INDEXES
Total returns 10/31/02-10/31/03,
excluding sales charges
========================================
[BAR CHART]
CLASS A SHARES 48.30%
CLASS B SHARES 47.41%
CLASS C SHARES 47.41%
RUSSELL 2500 INDEX 41.69%
Source: Lipper, Inc.
========================================
[GRAPHIC]
For More Information Visit
AIMinvestments.com
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
3/31/00-10/31/03
[MOUNTAIN CHART]
<Table>
<Caption>
Date AIM Emerging AIM Emerging AIM Emerging Russell
Growth Fund Growth Fund Growth Fund 2500
Class A Shares Class B Shares Class C Shares Index
3/31/00 $ 9450 $10000 $10000 $10000
4/30/00 9119 9650 9640 9462
5/31/00 8089 8550 8550 9008
6/30/00 10413 10999 10990 9600
7/31/00 10168 10730 10729 9356
8/31/00 12265 12950 12940 10161
9/30/00 11293 11910 11899 9831
10/31/00 9932 10470 10459 9561
11/30/00 7636 8051 8050 8719
12/31/00 8121 8554 8553 9470
1/31/01 8537 8985 8984 9782
2/28/01 6790 7146 7145 9152
3/31/01 6145 6462 6462 8650
4/30/01 7058 7419 7407 9414
5/31/01 6998 7345 7344 9697
6/30/01 7435 7808 7796 9834
7/31/01 7077 7430 7418 9483
8/31/01 6264 6568 6567 9172
9/30/01 4675 4908 4896 7985
10/31/01 5419 5675 5674 8398
11/30/01 6045 6337 6325 9077
12/31/01 6472 6778 6767 9586
1/31/02 6184 6473 6462 9467
2/28/02 5419 5675 5674 9301
3/31/02 6015 6284 6284 9944
4/30/02 5757 6011 6010 9919
5/31/02 5677 5937 5926 9628
6/30/02 5102 5328 5317 9086
7/31/02 4397 4582 4582 8001
8/31/02 4238 4424 4424 8026
9/30/02 3851 4014 4014 7390
10/31/02 4090 4256 4256 7631
11/30/02 4507 4687 4687 8254
12/31/02 4278 4445 4445 7880
1/31/03 4318 4487 4487 7671
2/28/03 4199 4361 4351 7486
3/31/03 4288 4456 4445 7558
4/30/03 4596 4771 4760 8231
5/31/03 5013 5202 5202 9041
6/30/03 5211 5402 5401 9214
7/31/03 5519 5728 5717 9709
8/31/03 5837 6043 6043 10158
9/30/03 5738 5937 5938 10020
10/31/03 $ 6067 $ 6094 $ 6273 $10812 Source: Lipper, Inc.
</Table>
Your fund's total return includes sales charges, expenses and management fees.
The performance of the fund's share classes 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 and table does not reflect deduction of taxes a shareholder
would pay on fund distributions or sale of fund shares. Performance of the index
does not reflect the effects of taxes.
Results for B shares are calculated as if a hypothetical shareholder had
liquidated his entire investment in the fund at the close of the reporting
period and paid the applicable contingent deferred sales charges.
<Table>
==============================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS In addition to returns as of the close Past performance cannot guarantee
including sales charges, as of 10/31/03 of the fiscal year, industry regulations comparable future results. DUE TO
require us to provide average annual SIGNIFICANT MARKET VOLATILITY, RESULTS
CLASS A SHARES total returns as of 9/30/03, the most OF AN INVESTMENT MADE TODAY MAY DIFFER
Inception (3/31/00) -13.01% recent calendar quarter-end. SUBSTANTIALLY FROM THE HISTORICAL
1 Year 40.14 PERFORMANCE SHOWN. CALL YOUR FINANCIAL
AVERAGE ANNUAL TOTAL RETURNS ADVISOR FOR MORE CURRENT PERFORMANCE.
CLASS B SHARES
Inception (3/31/00) -12.90% including sales charges, as of 9/30/03,
1 Year 42.41 the most recent calendar quarter-end.
CLASS C SHARES CLASS A SHARES
Inception (3/31/00) -12.19% Inception (3/31/00) -14.67%
1 Year 46.41 1 Year 40.63
CLASS B SHARES
Inception (3/31/00) -14.55%
1 Year 42.91
CLASS C SHARES
Inception (3/31/00) -13.84%
1 Year 46.91
==============================================================================================================================
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-91.12%
ADVERTISING-2.55%
Lamar Advertising Co.(a) 100,000 $ 3,030,000
- -----------------------------------------------------------------------
Omnicom Group Inc. 10,000 798,000
=======================================================================
3,828,000
=======================================================================
AEROSPACE & DEFENSE-0.47%
L-3 Communications Holdings, Inc.(a) 15,000 701,100
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.28%
V. F. Corp. 10,000 424,500
=======================================================================
APPLICATION SOFTWARE-1.63%
Citrix Systems, Inc.(a) 40,000 1,011,200
- -----------------------------------------------------------------------
Magma Design Automation, Inc.(a) 20,000 484,600
- -----------------------------------------------------------------------
Synopsys, Inc.(a) 30,000 951,600
=======================================================================
2,447,400
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.65%
Investors Financial Services Corp. 40,000 1,413,200
- -----------------------------------------------------------------------
Janus Capital Group Inc. 75,000 1,060,500
=======================================================================
2,473,700
=======================================================================
BIOTECHNOLOGY-2.97%
Amgen Inc.(a) 12,000 741,120
- -----------------------------------------------------------------------
Angiotech Pharmaceuticals, Inc. (Canada)(a) 20,000 914,600
- -----------------------------------------------------------------------
Gilead Sciences, Inc.(a) 15,000 818,700
- -----------------------------------------------------------------------
ICOS Corp.(a) 9,000 420,480
- -----------------------------------------------------------------------
Myogen, Inc.(a) 42,700 683,200
- -----------------------------------------------------------------------
Serologicals Corp.(a) 55,000 880,000
=======================================================================
4,458,100
=======================================================================
BROADCASTING & CABLE TV-4.79%
Clear Channel Communications, Inc. 45,000 1,836,900
- -----------------------------------------------------------------------
Cox Radio, Inc.-Class A(a) 25,000 553,000
- -----------------------------------------------------------------------
Entravision Communications Corp.-Class A(a) 95,000 909,150
- -----------------------------------------------------------------------
Radio One, Inc.-Class D(a) 30,000 477,000
- -----------------------------------------------------------------------
TiVo Inc.(a) 75,000 601,500
- -----------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 30,000 1,018,500
- -----------------------------------------------------------------------
Westwood One, Inc.(a) 60,000 1,795,800
=======================================================================
7,191,850
=======================================================================
COMMUNICATIONS EQUIPMENT-3.97%
Enterasys Networks, Inc.(a) 125,000 487,500
- -----------------------------------------------------------------------
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
COMMUNICATIONS EQUIPMENT-(CONTINUED)
McDATA Corp.-Class A(a) 50,000 $ 516,500
- -----------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 125,000 2,123,750
- -----------------------------------------------------------------------
UTStarcom, Inc.(a) 90,000 2,835,000
=======================================================================
5,962,750
=======================================================================
COMPUTER STORAGE & PERIPHERALS-1.70%
Applied Films Corp.(a) 30,000 940,500
- -----------------------------------------------------------------------
Dot Hill Systems Corp.(a) 35,000 469,350
- -----------------------------------------------------------------------
Seagate Technology (Cayman Islands) 50,000 1,149,000
=======================================================================
2,558,850
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.80%
AGCO Corp.(a) 150,000 2,700,000
=======================================================================
CONSUMER FINANCE-1.74%
First Marblehead Corp. (The)(a) 40,000 886,000
- -----------------------------------------------------------------------
MBNA Corp. 70,000 1,732,500
=======================================================================
2,618,500
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.60%
DST Systems, Inc.(a) 40,000 1,512,800
- -----------------------------------------------------------------------
First Data Corp. 40,000 1,428,000
- -----------------------------------------------------------------------
Fiserv, Inc.(a) 70,000 2,472,400
=======================================================================
5,413,200
=======================================================================
DEPARTMENT STORES-0.93%
Kohl's Corp.(a) 25,000 1,401,750
=======================================================================
DIVERSIFIED CHEMICALS-0.64%
Olin Corp. 55,000 957,550
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.44%
ARAMARK Corp.-Class B(a) 25,000 668,000
- -----------------------------------------------------------------------
ChoicePoint Inc.(a) 20,000 700,800
- -----------------------------------------------------------------------
Exult Inc.(a) 100,000 793,000
=======================================================================
2,161,800
=======================================================================
DRUG RETAIL-0.46%
Walgreen Co. 20,000 696,400
=======================================================================
ENVIRONMENTAL SERVICES-0.81%
Waste Connections, Inc.(a) 35,000 1,213,800
=======================================================================
HEALTH CARE DISTRIBUTORS-0.68%
AmerisourceBergen Corp. 10,000 567,700
- -----------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-(CONTINUED)
McKesson Corp. 15,000 $ 454,050
=======================================================================
1,021,750
=======================================================================
HEALTH CARE EQUIPMENT-0.55%
STERIS Corp.(a) 40,000 832,800
=======================================================================
HEALTH CARE FACILITIES-0.26%
Triad Hospitals, Inc.(a) 12,500 384,125
=======================================================================
HEALTH CARE SERVICES-2.22%
Caremark Rx, Inc.(a) 100,000 2,505,000
- -----------------------------------------------------------------------
Express Scripts, Inc.(a) 15,000 823,800
=======================================================================
3,328,800
=======================================================================
HEALTH CARE SUPPLIES-0.60%
Regeneration Technologies, Inc.(a) 75,000 900,000
=======================================================================
HOTELS, RESORTS & CRUISE LINES-0.50%
Intrawest Corp. (Canada) 45,000 756,450
=======================================================================
HOUSEHOLD APPLIANCES-0.69%
Black & Decker Corp. (The) 10,000 478,100
- -----------------------------------------------------------------------
Maytag Corp. 22,000 558,800
=======================================================================
1,036,900
=======================================================================
HOUSEHOLD PRODUCTS-1.06%
Colgate-Palmolive Co. 20,000 1,063,800
- -----------------------------------------------------------------------
Kimberly-Clark Corp. 10,000 528,100
=======================================================================
1,591,900
=======================================================================
HOUSEWARES & SPECIALTIES-1.14%
Newell Rubbermaid Inc.(a) 75,000 1,710,000
=======================================================================
INDUSTRIAL GASES-0.45%
Airgas, Inc. 35,000 670,250
=======================================================================
INDUSTRIAL MACHINERY-0.96%
SPX Corp.(a) 30,000 1,443,600
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.75%
Telefonos de Mexico S.A. de C.V.-Series L-ADR
(Mexico) 40,000 1,286,000
- -----------------------------------------------------------------------
Verizon Communications Inc. 40,000 1,344,000
=======================================================================
2,630,000
=======================================================================
INTERNET RETAIL-1.22%
InterActiveCorp.(a) 50,000 1,835,500
=======================================================================
INVESTMENT BANKING & BROKERAGE-2.05%
Bear Stearns Cos. Inc. (The) 10,000 762,500
- -----------------------------------------------------------------------
Lehman Brothers Holdings Inc. 20,000 1,440,000
- -----------------------------------------------------------------------
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
INVESTMENT BANKING & BROKERAGE-(CONTINUED)
SoundView Technology Group, Inc.(a) 75,000 $ 877,500
=======================================================================
3,080,000
=======================================================================
LEISURE PRODUCTS-0.77%
Mattel, Inc. 60,000 1,161,600
=======================================================================
MANAGED HEALTH CARE-1.14%
Anthem, Inc.(a) 25,000 1,710,750
=======================================================================
METAL & GLASS CONTAINERS-0.81%
Anchor Glass Container Corp.(a) 75,000 1,211,250
=======================================================================
MOVIES & ENTERTAINMENT-2.22%
Pixar, Inc.(a) 9,000 619,290
- -----------------------------------------------------------------------
Regal Entertainment Group-Class A 35,000 717,500
- -----------------------------------------------------------------------
Viacom Inc.-Class B 50,000 1,993,500
=======================================================================
3,330,290
=======================================================================
MULTI-LINE INSURANCE-1.04%
American Financial Group, Inc. 70,000 1,558,900
=======================================================================
OFFICE SERVICES & SUPPLIES-0.87%
Avery Dennison Corp. 13,000 683,540
- -----------------------------------------------------------------------
IKON Office Solutions, Inc.(a) 75,000 630,000
=======================================================================
1,313,540
=======================================================================
OIL & GAS DRILLING-4.57%
Diamond Offshore Drilling, Inc. 45,000 830,250
- -----------------------------------------------------------------------
ENSCO International Inc. 65,000 1,712,750
- -----------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 50,000 1,890,000
- -----------------------------------------------------------------------
Patterson-UTI Energy, Inc.(a) 85,000 2,430,150
=======================================================================
6,863,150
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-2.99%
BJ Services Co.(a) 15,000 492,150
- -----------------------------------------------------------------------
Cooper Cameron Corp.(a) 40,000 1,712,800
- -----------------------------------------------------------------------
Key Energy Services, Inc.(a) 60,000 523,800
- -----------------------------------------------------------------------
Varco International, Inc.(a) 100,000 1,759,000
=======================================================================
4,487,750
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.13%
Devon Energy Corp. 35,000 1,697,500
=======================================================================
PACKAGED FOODS & MEATS-3.11%
General Mills, Inc. 25,000 1,121,250
- -----------------------------------------------------------------------
Hormel Foods Corp. 30,000 740,700
- -----------------------------------------------------------------------
Kraft Foods Inc.-Class A 25,000 727,500
- -----------------------------------------------------------------------
Smithfield Foods, Inc.(a) 50,000 1,063,000
- -----------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
PACKAGED FOODS & MEATS-(CONTINUED)
Unilever PLC-ADR (United Kingdom) 30,000 $ 1,026,000
=======================================================================
4,678,450
=======================================================================
PAPER PACKAGING-1.48%
Bemis Co., Inc. 25,000 1,156,000
- -----------------------------------------------------------------------
Sonoco Products Co. 50,000 1,063,500
=======================================================================
2,219,500
=======================================================================
PAPER PRODUCTS-0.78%
MeadWestvaco Corp. 45,000 1,166,400
=======================================================================
PHARMACEUTICALS-4.35%
Abbott Laboratories 30,000 1,278,600
- -----------------------------------------------------------------------
Forest Laboratories, Inc.(a) 30,000 1,500,300
- -----------------------------------------------------------------------
Kos Pharmaceuticals, Inc.(a) 16,000 635,360
- -----------------------------------------------------------------------
Medicines Co. (The)(a) 18,000 479,700
- -----------------------------------------------------------------------
MGI Pharma, Inc.(a) 20,000 751,200
- -----------------------------------------------------------------------
Pfizer Inc. 60,000 1,896,000
=======================================================================
6,541,160
=======================================================================
PROPERTY & CASUALTY INSURANCE-0.66%
Navigators Group, Inc. (The)(a) 31,500 999,180
=======================================================================
PUBLISHING-0.84%
Gannett Co., Inc. 15,000 1,261,650
=======================================================================
RAILROADS-1.14%
Norfolk Southern Corp. 85,000 1,712,750
=======================================================================
REGIONAL BANKS-0.27%
Texas Capital Bancshares, Inc.(a) 30,000 408,000
=======================================================================
REINSURANCE-1.45%
Everest Re Group, Ltd. (Bermuda) 10,000 829,500
- -----------------------------------------------------------------------
PartnerRe Ltd. (Bermuda) 25,000 1,356,750
=======================================================================
2,186,250
=======================================================================
RESTAURANTS-1.85%
Brinker International, Inc.(a) 50,000 1,591,500
- -----------------------------------------------------------------------
Darden Restaurants, Inc. 35,000 733,250
- -----------------------------------------------------------------------
Dave & Buster's, Inc.(a) 35,000 460,250
=======================================================================
2,785,000
=======================================================================
SEMICONDUCTOR EQUIPMENT-2.95%
ATMI, Inc.(a) 55,000 1,264,450
- -----------------------------------------------------------------------
Cabot Microelectronics Corp.(a) 20,000 1,140,000
- -----------------------------------------------------------------------
Entegris Inc.(a) 85,000 1,118,600
- -----------------------------------------------------------------------
KLA-Tencor Corp.(a) 16,000 917,280
=======================================================================
4,440,330
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
SEMICONDUCTORS-2.24%
AMIS Holdings, Inc.(a) 125,000 $ 2,518,750
- -----------------------------------------------------------------------
Integrated Silicon Solution, Inc.(a) 30,000 423,600
- -----------------------------------------------------------------------
Skyworks Solutions, Inc.(a) 50,000 429,000
=======================================================================
3,371,350
=======================================================================
SOFT DRINKS-1.01%
Coca-Cola Enterprises Inc. 75,000 1,512,000
=======================================================================
SPECIALTY CHEMICALS-0.44%
International Flavors & Fragrances Inc. 20,000 662,000
=======================================================================
SPECIALTY STORES-1.64%
Barnes & Noble, Inc.(a) 25,000 745,000
- -----------------------------------------------------------------------
Hollywood Entertainment Corp.(a) 40,000 608,000
- -----------------------------------------------------------------------
Weight Watchers International, Inc.(a) 30,000 1,107,000
=======================================================================
2,460,000
=======================================================================
STEEL-0.63%
Worthington Industries, Inc. 65,000 947,700
=======================================================================
SYSTEMS SOFTWARE-2.24%
Microsoft Corp. 60,000 1,569,000
- -----------------------------------------------------------------------
Oracle Corp.(a) 150,000 1,794,000
=======================================================================
3,363,000
=======================================================================
THRIFTS & MORTGAGE FINANCE-0.64%
PMI Group, Inc. (The) 25,000 955,750
=======================================================================
TRUCKING-1.34%
Overnite Corp.(a) 40,000 886,400
- -----------------------------------------------------------------------
P.A.M. Transportation Services, Inc.(a) 60,000 1,134,000
=======================================================================
2,020,400
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.96%
America Movil S.A. de C.V.-Series L ADR
(Mexico) 35,000 833,000
- -----------------------------------------------------------------------
NII Holdings Inc.-Class B(a) 8,000 616,720
=======================================================================
1,449,720
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $128,969,032) 136,906,645
=======================================================================
MONEY MARKET FUNDS-6.74%
STIC Liquid Assets Portfolio(b) 5,063,454 5,063,454
- -----------------------------------------------------------------------
STIC Prime Portfolio(b) 5,063,454 5,063,454
=======================================================================
Total Money Market Funds (Cost
$10,126,908) 10,126,908
=======================================================================
TOTAL INVESTMENTS-97.86% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $139,095,940) 147,033,553
=======================================================================
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES
LOANED
MONEY MARKET FUNDS-4.90%
STIC Liquid Assets Portfolio(b)(c) 7,368,309 $ 7,368,309
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $7,368,309) 7,368,309
=======================================================================
TOTAL INVESTMENTS-102.76% (Cost $146,464,249) 154,401,862
=======================================================================
OTHER ASSETS LESS LIABILITIES-(2.76%) (4,151,359)
=======================================================================
NET ASSETS-100.00% $150,250,503
_______________________________________________________________________
=======================================================================
</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.
F-4
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$128,969,032)* $136,906,645
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $17,495,217) 17,495,217
- -----------------------------------------------------------
Receivables for:
Investments sold 15,093,298
- -----------------------------------------------------------
Fund shares sold 181,845
- -----------------------------------------------------------
Dividends 59,188
- -----------------------------------------------------------
Investment for deferred compensation plan 16,463
- -----------------------------------------------------------
Other assets 15,810
===========================================================
Total assets 169,768,466
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 11,663,123
- -----------------------------------------------------------
Fund shares reacquired 173,022
- -----------------------------------------------------------
Deferred compensation plan 16,463
- -----------------------------------------------------------
Collateral upon return of securities loaned 7,368,309
- -----------------------------------------------------------
Accrued distribution fees 85,663
- -----------------------------------------------------------
Accrued trustees' fees 3,500
- -----------------------------------------------------------
Accrued transfer agent fees 116,547
- -----------------------------------------------------------
Accrued operating expenses 91,336
===========================================================
Total liabilities 19,517,963
===========================================================
Net assets applicable to shares outstanding $150,250,503
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $289,815,552
- -----------------------------------------------------------
Undistributed net investment income (loss) (20,376)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and option contracts (147,482,286)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 7,937,613
===========================================================
$150,250,503
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 81,427,790
___________________________________________________________
===========================================================
Class B $ 48,830,272
___________________________________________________________
===========================================================
Class C $ 19,992,441
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 13,334,888
___________________________________________________________
===========================================================
Class B 8,181,661
___________________________________________________________
===========================================================
Class C 3,351,466
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 6.11
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $6.11 divided by
94.50%) $ 6.47
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 5.97
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 5.97
___________________________________________________________
===========================================================
</Table>
* At October 31, 2003, securities with an aggregate market value of $7,182,622
were on loan to brokers.
See Notes to Financial Statements.
F-5
STATEMENT OF OPERATIONS
For the year ended October 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $2,381) $ 576,707
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 133,492
- -------------------------------------------------------------------------
Securities lending 23,891
=========================================================================
Total investment income 734,090
=========================================================================
EXPENSES:
Advisory fees 1,059,148
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 67,088
- -------------------------------------------------------------------------
Distribution fees
Class A 227,193
- -------------------------------------------------------------------------
Class B 416,099
- -------------------------------------------------------------------------
Class C 180,834
- -------------------------------------------------------------------------
Transfer agent fees 803,786
- -------------------------------------------------------------------------
Trustees' fees 11,018
- -------------------------------------------------------------------------
Other 157,648
=========================================================================
Total expenses 2,972,814
=========================================================================
Less: Fees waived and expense offset arrangements (4,923)
- -------------------------------------------------------------------------
Net expenses 2,967,891
=========================================================================
Net investment income (loss) (2,233,801)
=========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND
OPTION CONTRACTS:
Net realized gain from:
Investment securities 28,425,892
- -------------------------------------------------------------------------
Option contracts written 399,032
=========================================================================
28,824,924
=========================================================================
Change in net unrealized appreciation of investment
securities 21,408,256
=========================================================================
Net gain from investment securities and option contracts 50,233,180
=========================================================================
Net increase in net assets resulting from operations $47,999,379
_________________________________________________________________________
=========================================================================
</Table>
See Notes to Financial Statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,233,801) $ (2,977,371)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts 28,824,924 (43,488,298)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 21,408,256 7,080,269
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 47,999,379 (39,385,400)
==========================================================================================
Share transactions-net:
Class A 4,435,295 (10,076,931)
- ------------------------------------------------------------------------------------------
Class B (3,079,891) (8,139,807)
- ------------------------------------------------------------------------------------------
Class C (4,179,924) (2,937,370)
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (2,824,520) (21,154,108)
==========================================================================================
Net increase (decrease) in net assets 45,174,859 (60,539,508)
==========================================================================================
NET ASSETS:
Beginning of year 105,075,644 165,615,152
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(20,376) and $(14,890) for 2003 and 2002,
respectively.) $150,250,503 $105,075,644
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Market trends, movement in exchange traded funds and ADRs, and
the bid/ask quotes of brokers and information providers may be reviewed in
the course of making a good faith determination of a security's fair value.
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").
F-7
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
ordinarily 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
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
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. Reported net realized foreign currency gains or losses arise
from sales of foreign currencies, currency gains or losses realized between
the trade and settlement dates on securities transactions, and the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
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. 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 0.85% 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 fees
and/or reimburse expenses (excluding Rule 12b-1 fees, interest, taxes, fund
merger and reorganization expenses, extraordinary items, including other items
designated as such by the Board of Trustees and increases in expenses due to
expenses due to offset arrangements, if any) for Class A, Class B and Class C
shares to the
F-8
extent necessary to limit the total annual fund operating expenses of Class A
shares to 2.00%. Voluntary fee waivers and/ or reimbursements may be modified or
discontinued at any time without further notice to investors. 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 year ended October
31, 2003, AIM waived fees of $2,037.
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, 2003, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Service, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended October 31, 2003, AISI retained $442,346 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,
Class B and Class C shares (collectively the "Plans"). The Fund, pursuant to the
Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the
Fund's average daily net assets of Class A shares and 1.00% of the average daily
net assets of Class B and Class C shares. Of these amounts, AIM Distributors may
pay a service fee up to 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 shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
October 31, 2003, the Class A, Class B and Class C shares paid $227,193,
$416,099 and $180,834, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2003, AIM Distributors retained $30,155 in front-end sales
commissions for the sale of Class A shares and $15,298, 158 and $2,859 from
Class A, Class B and Class C shares, respectively, from CDSC imposed upon
redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
For the year ended October 31, 2003, the Fund received reductions in transfer
agency fees from AISI (an affiliate of AIM) of $2,600 and reductions in
custodian fees of $286 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $2,886.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. The Trustees deferring compensation have the
option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. Certain former Trustees also
participate in a retirement plan and receive benefits under such plan.
During the year ended October 31, 2003, the Fund paid legal fees of $2,283
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds. An interfund loan will be
made under this facility only if the loan rate (an average of the rate available
on bank loans and the rate available on investments in overnight repurchase
agreements) is favorable to both the lending fund and the borrowing fund. Under
certain circumstances, a loan will be secured by collateral. To the extent that
the loan is required to be secured by collateral, the collateral is marked to
market daily to ensure that the market value is at least 102% of the outstanding
principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the 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 year ended October 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving line of credit facility or the committed line of credit
facility.
Additionally the Fund is permitted to carry a negative or overdrawn balance
in its account with the custodian bank. To compensate the custodian bank for
such overdrafts, the overdrawn Fund may either (i) leave funds in the account so
the custodian can be compensated by earning the additional interest; or (ii)
compensate by paying the
F-9
custodian bank. In either case, the custodian bank will be compensated an amount
equal to the Federal Funds rate plus 100 basis points.
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral 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
held may be temporarily less than the value of the securities on loan.
At October 31, 2003, securities with an aggregate value of $7,182,622 were
on loan to brokers. The loans were secured by cash collateral of $7,368,309
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2003, the Fund received fees of $23,891 for
securities lending.
NOTE 7--CALL OPTION CONTRACTS
<Table>
<Caption>
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------
Beginning of year -- $ --
- -------------------------------------------------------------------------------
Written 9,450 685,246
- -------------------------------------------------------------------------------
Closed (6,950) (502,703)
- -------------------------------------------------------------------------------
Exercised (1,073) (84,720)
- -------------------------------------------------------------------------------
Expired (1,427) (97,823)
===============================================================================
End of year -- $ --
_______________________________________________________________________________
===============================================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2003 and 2002.
Tax Components of Net Assets:
As of October 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 7,428,287
- ------------------------------------------------------------------------------------------
Temporary book/tax differences (20,376)
- ------------------------------------------------------------------------------------------
Capital loss carryforward (146,972,960)
- ------------------------------------------------------------------------------------------
Shares of beneficial interest 289,815,552
==========================================================================================
Total net assets $ 150,250,503
__________________________________________________________________________________________
==========================================================================================
</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.
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
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- --------------------------------------------------------------------------------
October 31, 2009 $101,674,105
- --------------------------------------------------------------------------------
October 31, 2010 45,298,855
================================================================================
Total capital loss carryforward $146,972,960
________________________________________________________________________________
================================================================================
</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 year ended
October 31, 2003 was $466,748,659 and $471,513,419, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 9,060,561
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,632,274)
===============================================================================
Net unrealized appreciation of investment securities $ 7,428,287
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $146,973,575.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on October 31, 2003, undistributed net investment income was increased by
$2,228,315, undistributed net realized gains (losses) remained unchanged and
shares of beneficial interest decreased by $2,228,315. This reclassification had
no effect on net assets of the Fund.
F-10
NOTE 11--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. Under some
circumstances, Class A shares are subject to CDSC. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
2003 2002
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 14,150,001 $ 71,539,332 8,175,825 $ 45,450,141
- ------------------------------------------------------------------------------------------------------------------------
Class B 2,662,059 13,233,376 1,711,610 9,848,093
- ------------------------------------------------------------------------------------------------------------------------
Class C 1,160,403 5,839,097 1,313,206 7,417,468
========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 165,304 856,537 -- --
- ------------------------------------------------------------------------------------------------------------------------
Class B (168,817) (856,537) -- --
========================================================================================================================
Reacquired:
Class A (13,569,593) (67,960,574) (10,450,880) (55,527,072)
- ------------------------------------------------------------------------------------------------------------------------
Class B (3,214,850) (15,456,730) (3,545,284) (17,987,900)
- ------------------------------------------------------------------------------------------------------------------------
Class C (2,057,518) (10,019,021) (1,969,513) (10,354,838)
========================================================================================================================
(873,011) $ (2,824,520) (4,765,036) $(21,154,108)
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
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
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------- 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) (0.07)(a) (0.08)(a) (0.10) (0.04)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.06 (1.26) (4.51) 0.54
========================================================================================================================
Total from investment operations 1.99 (1.34) (4.61) 0.50
========================================================================================================================
Less distributions from net realized gains -- -- (0.43) --
========================================================================================================================
Net asset value, end of period $ 6.11 $ 4.12 $ 5.46 $ 10.50
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 48.30% (24.54)% (45.37)% 5.00%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $81,428 $51,822 $81,114 $147,101
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets 2.07%(c) 1.89% 1.71%(d) 1.68%(e)
========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.48)%(c) (1.54)% (1.32)% (1.04)%(e)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(f) 414% 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 based on average daily net assets of $64,912,379.
(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.
F-11
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------
MARCH 31,2000
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------- 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) (0.10)(a) (0.12)(a) (0.14) (0.07)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.02 (1.23) (4.50) 0.54
========================================================================================================================
Total from investment operations 1.92 (1.35) (4.64) 0.47
========================================================================================================================
Less distributions from net realized gains -- -- (0.43) --
________________________________________________________________________________________________________________________
========================================================================================================================
Net asset value, end of period $ 5.97 $ 4.05 $ 5.40 $ 10.47
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 47.41% (25.00)% (45.81)% 4.70%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $48,830 $36,060 $58,019 $94,740
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets 2.72%(c) 2.55% 2.36%(d) 2.37%(e)
========================================================================================================================
Ratio of net investment income (loss) to average net assets (2.13)%(c) (2.19)% (1.98)% (1.73)%(e)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(f) 414% 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 based on average daily net assets of $41,609,853
(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.
<Table>
<Caption>
CLASS C
----------------------------------------------------------
MARCH 31,2000
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------- 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) (0.10)(a) (0.12)(a) (0.14) (0.07)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.02 (1.23) (4.49) 0.53
========================================================================================================================
Total from investment operations 1.92 (1.35) (4.63) 0.46
========================================================================================================================
Less distributions from net realized gains -- -- (0.43) --
========================================================================================================================
Net asset value, end of period $ 5.97 $ 4.05 $ 5.40 $ 10.46
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 47.41% (25.00)% (45.76)% 4.60%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $19,992 $17,194 $26,483 $41,361
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets 2.72%(c) 2.55% 2.36%(d) 2.37%(e)
========================================================================================================================
Ratio of net investment income (loss) to average net assets (2.13)%(c) (2.19)% (1.98)% (1.73)%(e)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(f) 414% 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 based on average daily net assets of $18,083,423
(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.
F-12
NOTE 13--SUBSEQUENT EVENTS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM") is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("INVESCO"), was, until
recently, the investment advisor to the INVESCO Funds.
On December 2, 2003, each of the Securities and Exchange Commission ("SEC")
and the Office of the Attorney General of the State of New York ("NYAG") filed
civil proceedings against INVESCO and Raymond R. Cunningham, in his capacity as
the Chief Executive Officer of INVESCO. Mr. Cunningham currently holds the
positions of Chief Operating Officer and Senior Vice President of A I M
Management Group, Inc., the parent company of AIM, and he also holds the
position of Senior Vice President with AIM. In addition, on December 2, 2003,
the State of Colorado filed civil proceedings against INVESCO. Neither your Fund
nor any of the funds in the AIM Family of Funds(R), which includes the INVESCO
Funds (the "Funds") has been named as a defendant in any of these proceedings.
The SEC proceeding alleges that INVESCO failed to disclose in the INVESCO
Funds' prospectuses and to the INVESCO Funds' independent directors that INVESCO
had entered into certain arrangements permitting market timing of the INVESCO
Funds. The SEC is seeking injunctions, including permanent injunctions from
serving as an investment advisor, officer or director of an investment company;
an accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG proceeding is also based on the circumstances described above. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief.
The Colorado proceeding is also based on the circumstances described above.
The State of Colorado is seeking injunctions; restitution, disgorgement and
other equitable relief; civil monetary penalties; and other relief.
If INVESCO is unsuccessful in its defense of these proceedings, it could be
barred from serving as an investment advisor for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Similarly, if Mr. Cunningham is unsuccessful in his
defense of these proceedings, he could be barred from serving as an officer or
director of any registered investment company. Such results could also affect
the ability of AIM, or any other investment advisor directly or indirectly owned
by AMVESCAP, from serving as an investment advisor to any registered investment
company, including your Fund. Your Fund has been informed by AIM that, if either
of these results occurs, AIM will seek exemptive relief from the SEC to permit
it to continue to serve as your Fund's investment advisor. There can be no
assurance that such exemptive relief will be granted.
AIM has received inquiries from the SEC, the NASD, Inc., the NYAG and the
Secretary of the Commonwealth of Massachusetts with respect to market timing,
late trading, fair value pricing and other similar issues and AIM has been
providing full cooperation with respect to these inquiries.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
certain Funds, INVESCO, AIM, AMVESCAP and certain related parties, primarily
based upon the allegations in the complaints described above, but also regarding
the funds' fair valuation pricing methodology. Such lawsuits allege a variety of
theories for recovery including, but not limited to: (i) violation of various
provisions of the Federal securities laws; (ii) breach of fiduciary duty; and
(iii) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; interest and the payment of attorneys'
and experts' fees. Additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
Funds, INVESCO, AIM, AMVESCAP and related parties in the future.
As a result of these developments, investors in the Funds might react by
redeeming their investments. This might require the Funds to sell investments to
provide for sufficient liquidity and could also have an adverse effect on the
investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of these matters described above may have on
the Fund or AIM's financial condition.
F-13
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 of AIM Equity Funds), including the schedule
of investments, as of October 31, 2003, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
three years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. 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. Our procedures included confirmation of securities
owned as of October 31, 2003, by correspondence with the custodian and brokers
or by other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Emerging Growth Fund as of October 31, 2003, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the three years
in the period then ended, in conformity with accounting principles generally
accepted in the United States.
Houston, Texas /s/ ERNST & YOUNG LLP
December 16, 2003
F-14
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Equity Funds, a Delaware statutory
trust, was held on October 21, 2003. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHOLDING
DIRECTORS/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 983,597,298 14,109,942
Frank S. Bayley.............................. 983,595,385 14,111,855
James T. Bunch............................... 983,970,384 13,736,856
Bruce L. Crockett............................ 983,967,974 13,739,266
Albert R. Dowden............................. 983,892,850 13,814,390
Edward K. Dunn, Jr........................... 983,672,087 14,035,153
Jack M. Fields............................... 983,987,281 13,719,959
Carl Frischling.............................. 983,352,244 14,354,996
Robert H. Graham............................. 983,794,290 13,912,950
Gerald J. Lewis.............................. 983,317,525 14,389,715
Prema Mathai-Davis........................... 983,676,086 14,031,154
Lewis F. Pennock............................. 983,703,651 14,003,589
Ruth H. Quigley.............................. 983,356,521 14,350,719
Louis S. Sklar............................... 983,812,619 13,894,621
Larry Soll, Ph.D............................. 983,820,425 13,886,815
Mark H. Williamson........................... 983,676,844 14,030,396
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Equity Funds
F-15
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S)
TRUST SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management Group Inc.
Trustee, Chairman and (financial services holding company); and Director and Vice
President 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); and
Director and Chairman, A I M Capital Management, Inc.
(registered investment advisor), A I M Distributors, Inc.
(registered broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management Company
(registered broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ----------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President Director, Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor) and A I M
Distributors, Inc. (registered broker dealer); Director and
Chairman, AIM Investment Services, Inc. (registered transfer
agent); and Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global investment management
firm)
Formerly: Director, Chairman, President and Chief Executive
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 2003 Consultant
Trustee
Formerly: President and Chief Executive Officer, AMC Cancer
Research Center; and Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie
Trustee
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd.,
Trustee (investment banking firm); and Director, Policy Studies,
Inc. and Van Gilder Insurance Corporation
Formerly: General Counsel and Director, Boettcher & Co.; and
Chairman and Managing Partner, law firm of Davis, Graham &
Stubbs
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology
Trustee consulting company)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business
Trustee corporations, including the Boss Group Ltd. (private
investment and management) and Magellan 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 Group
companies
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and
Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares Corp.
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc.
Trustee (government affairs company) and Texana Timber LP
- ----------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S)
TRUST HELD BY TRUSTEE
- -------------------------------- ----------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 None
Trustee, Chairman and
President
- ------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 Director and Chairman,
Trustee and Executive Vice INVESCO Bond Funds,
President Inc., INVESCO
Combination Stock &
Bond Funds, Inc.,
INVESCO Counselor
Series Funds, Inc.,
INVESCO International
Funds, Inc., INVESCO
Manager Series Funds,
Inc., INVESCO Money
Market Funds, Inc.,
INVESCO Sector Funds,
Inc., INVESCO Stock
Funds, Inc., INVESCO
Treasurer's Series
Funds, Inc. and
INVESCO Variable
Investment Funds, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 Badgley Funds, Inc.
Trustee (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 ACE Limited (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 Cortland Trust, Inc.
Trustee (Chairman) (registered
investment company);
Annuity and Life Re
(Holdings), Ltd.
(insurance company)
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 Administaff
Trustee
- ----------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust. Mr. Williamson became Executive Vice President of
the Trust on March 4, 2003.
(3) Elected trustee of the Trust on October 21, 2003.
Trustees and Officers (continued)
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President Counsel, A I M Management Group Inc. (financial services
holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and 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(5) -- 1947 1988 Director, Chairman and Director of Investments, A I M
Senior Vice President 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 -- Fixed
Vice President 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 M Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 1999 Vice President, A I M Advisors, Inc., and President, Chief
Vice President 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 Advisors, Inc.
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Gary T. Crum(5) -- 1947 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Dana R. Sutton -- 1959 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
</Table>
(3) Elected trustee of the Trust on October 21, 2003.
(4) Mr. Carome became Senior Vice President of the Trust on May 13, 2003.
(5) Information is current as of January 10, 2003.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center
Houston, TX 77046 Suite 100 Suite 100 1401 McKinney, Suite 1200
Houston, TX 77046 Houston, TX 77046-1173 Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
Andrews & Ingersoll, LLP Frankel LLP P.O. Box 4739 Trust Company
1735 Market Street 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103 New York, NY 10022-3852 Boston, MA 02110
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(4) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(5)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) AIM Small Cap Equity Fund was closed to most
investors on December 19, 2003. For information on who may continue to invest in
AIM Small Cap Equity Fund, please contact your financial advisor. (3) AIM Small
Cap Growth Fund was closed to most investors on March 18, 2002. For information
on who may continue to invest in AIM Small Cap Growth Fund, please contact your
financial advisor. (4) Effective April 30, 2003, AIM Worldwide Spectrum Fund was
renamed AIM Global Value Fund. (5) Effective November 24, 2003, INVESCO
International Blue Chip Value Fund was renamed INVESCO International Core Equity
Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
it carefully before investing. If used after January 20, 2004, this brochure
must be accompanied by a fund Performance & Commentary or by an AIM Quarterly
Performance Review for the most recent quarter-end. Mutual funds distributed by
A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $142 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $345 billion in assets
under management. Data as of September 30, 2003.
AIMinvestments.com EMG-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- ---------------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash AIM INVESTMENT LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Servicemark--
Plans Accounts
</Table>
AIM LARGE CAP GROWTH FUND
Annual Report to Shareholders o October 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM LARGE CAP GROWTH FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
================================================================================
ABOUT INFORMATION THROUGHOUT THIS REPORT:
<Table>
o Unless otherwise stated, information IPO investments on the fund's o The unmanaged Lipper Large-Cap Growth
presented is as of 10/31/03 and is based performance, please see the fund's Fund Index represents an average of the
on total net assets. prospectus. performance of the 30 largest
large-capitalization growth funds
o AIM Large Cap Growth Fund's performance o Class R shares are available only to tracked by Lipper, Inc., an independent
figures are historical, and they reflect certain retirement plans. Please see the mutual fund performance monitor.
fund expenses, the reinvestment of prospectus for more information. Class R
distributions, and changes in net asset shares are sold at net asset value, that o A direct investment cannot be made in
value. is, without up-front sales charges. an index. Unless otherwise indicated,
index results include reinvested
o When sales charges are included in o Investor Class shares are closed to dividends, and they do not reflect sales
performance figures, Class A share most investors. For more information on charges. Performance of an index of
performance reflects the maximum 5.50% who may continue to invest in the funds reflects fund expenses;
sales charge, and Class B and Class C Investor Class shares, please see the performance of a market index does not.
share performance reflects the applicable appropriate prospectus.
contingent deferred sales charge (CDSC) A description of the policies and
for the period involved. The CDSC on o The fund's investment return and procedures that the fund uses to
Class B shares declines from 5% principal value will fluctuate, so an determine how to vote proxies relating
beginning at the time of purchase to 0% investor's shares, when redeemed, may be to portfolio securities is available
at the beginning of the seventh year. worth more or less than their original without charge, upon request, by calling
The CDSC on Class C shares is 1% for the cost. 800-959-4246, or on the AIM Web site,
first year after purchase. The AIMinvestments.com.
performance of the fund's share classes o Industry classifications used in this
will differ due to different sales report are generally according to the
charge structures and class expenses. Global Industry Classification Standard,
which was developed by and is the
o Effective 9/30/03, Class B shares are exclusive property and a service mark of
not available as an investment for Morgan Stanley Capital International
retirement plans maintained pursuant to Inc. and Standard & Poor's.
Section 401 of the Internal Revenue
Code, including 401(k) plans, money o The unmanaged Standard & Poor's
purchase pension plans and profit Composite Index of 500 Stocks (the S&P
sharing plans. Plans that have existing 500--Registered Trademark--) is an index
accounts invested in Class B shares will of common stocks frequently used as a
continue to be allowed to make general measure of U.S. stock market
additional purchases. performance.
o A significant portion of the fund's o The unmanaged Russell 1000
returns during certain periods was --Registered Trademark-- Index
attributable to its investments in represents the performance of the stocks
initial public offerings (IPOs). These of large-capitalization companies. The
investments had a magnified impact when unmanaged Russell 1000 --Registered
the fund's asset base was relatively Trademark-- Growth Index is a subset of
small. As the fund's assets grow, the the unmanaged Russell 1000 Index; the
impact of IPO investments will decline, Growth subset measures the performance
which may reduce the effect of IPO of Russell 1000 companies with higher
investments on the fund's total return. price/book ratios and higher forecasted
For additional information regarding the growth values.
impact of
</Table>
<Table>
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE This report may be distributed only to shareholders or to
=================================================== persons who have received a current prospectus of the fund.
</Table>
AIMinvestments.com
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER IN new policies and strengthened existing ones--to discourage
THE AIM FAMILY OF FUNDS--Registered harmful short-term trading. These steps include:
Trademark--:
o Strengthening daily monitoring of trading activities.
[PHOTO OF As you may be aware, there has been a
ROBERT H. great deal of media coverage recently o Imposing redemption fees on additional funds we believe
GRAHAM] about the mutual fund industry and may be vulnerable to harmful short-term trading
allegations of improper activities by activity.
ROBERT H. GRAHAM certain individuals and companies. As
part of these widespread o Implementing an enhanced exchange policy (effective on
[PHOTO OF investigations, INVESCO Funds Group or about March 1, 2004) designed to limit exchanges
MARCK H. (IFG), the former adviser to certain between funds.
WILLIAMSON INVESCO Funds, was recently named as a
defendant in separate civil enforcement o Employing an enhanced fair value pricing policy on
MARK H. WILLIAMSON actions by the U.S. Securities and certain foreign securities as well as certain illiquid
Exchange Commission (SEC), the Office securities.
of the New York Attorney General and
the State of Colorado over an issue known as "market None of these tools alone, nor all of them taken together,
timing." A number of private class or derivative actions eliminate the possibility of short-term trading strategies
also were filed in the wake of the regulators' actions. that may be detrimental to a fund. Moreover, each of these
tools involves judgments that are inherently subjective. We
Investors are understandably concerned and frustrated have always sought and continue to seek to make these
about these reports, and we would like to take this judgments to the best of our abilities and in a manner that
opportunity to assure you that, based on an investigation we believe is consistent with the best interests of our fund
conducted by an outside firm, IFG and its parent company, shareholders. And we remain committed to being as vigilant as
AMVESCAP PLC, believe that these civil actions are without possible in the future to identify and address any harmful
merit. IFG is contesting the charges. market timing investors who have the potential to harm our
long-term fund shareholders.
We encourage you to continue to monitor this situation,
particularly as IFG has the opportunity to address the We sincerely hope these developments and the media
allegations that have been made. Current information will be coverage surrounding them do not result in you or other
posted on our Web site at AIMinvestments.com. We will shareholders losing confidence in AIM or INVESCO Funds.
continue to communicate to you on our Web site about our Amidst this storm of controversy in the mutual fund industry,
finding, and the actions we are taking to protect and promote we believe we can find encouragement in the recovering
the interests of our shareholders. The independent trustees economy and rising equity markets. As we write this letter,
of the funds are receiving regular reports from their for instance, the S&P 500--Registered Trademark-- Index is up
independent counsel and outside counsel hired by AMVESCAP approximately 23% year-to-date. Although past performance is
PLC, the parent of AIM and IFG, to perform an ongoing no guarantee of future results, there appear to be indicators
investigation of market timing. that the economy and stock markets are showing signs of
welcomed improvement. We encourage you to read the enclosed
A COMPLEX ISSUE discussion of your fund's performance during this past
reporting period.
Market timing is an investment technique not defined in any
regulation that involves frequent short-term trading of OUR UNWAVERING COMMITMENT
mutual fund shares, sometimes with a goal to exploit
inefficiencies in the way mutual funds price their shares. We At AIM Investments, we have never wavered in our commitment
recognize that fund management companies have tried to deal to helping you build solutions for your financial goals. Our
with this complex issue in various ways and believe that company was founded on a core principle of integrity, and we
industry-wide guidance is in order. To that end, we welcome have always worked hard to earn the trust of our
SEC Chairman William Donaldson's pledge to adopt new rules shareholders. We are committed to doing all we can to
designed to curb market timing abuses. Comprehensive maintain your trust and confidence.
rulemaking is necessary and is the best way to establish new
industry responsibilities designed to protect shareholders. Thank you for your continued participation in AIM
We support practical rule changes and structural Investments. Please call your financial advisor or one of our
modifications that are fair, enforceable and, most Client Service representatives at 800-959-4246 if you have
importantly, beneficial for investors. any further questions or concerns about your AIM Investments
account.
AIM Investments has policies in place designed to
identify, prevent and eliminate harmful trading or other Sincerely,
activities deemed to be detrimental to the funds. We have
also recently taken additional steps--implemented /s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Chairman and President President and CEO
The AIM Family of Funds AIM Investments
--Registered Trademark--
December 18, 2003
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND OUTPERFORMS INDEX OF PEERS YOUR FUND
This report covers the fiscal year ended The S&P 500 Index, frequently cited as a AIM Large Cap Growth's objective,
October 31, 2003. Class A shares of AIM measure of the performance of the U.S. strategies, and processes remained
Large Cap Growth Fund returned 20.49% at stock market in general, returned 20.79% unchanged throughout the fiscal year.
net asset value, that is, excluding sales for the year ended October 31, 2003. All The fund's portfolio is built using a
charges, for the year. This return is in sectors of the S&P 500 recorded gains for stock-by-stock analysis, so when
line with the return for the same period the year. holdings and sector weightings change,
of the fund's broad market index and it is a result of our individual stock
slightly under its style-specific index. For most of the fiscal year, the selection process.
It exceeds its peer-group index, the Federal Reserve Board (the Fed) kept the
Lipper Large-Cap Growth Fund Index, which short-term federal funds rate at 1.25%. When the fiscal year began, we
returned 18.51%. (A table comparing the On June 25, 2003, it lowered that rate characterized the fund as being
fund's performance to that of its indexes to 1.00%, its lowest level since 1958. relatively conservatively positioned. By
is found on page 3.) The Fed said it favored a more expansive this we mean that our more aggressive,
monetary policy because the economy had cyclical, or economically sensitive
MARKET CONDITIONS not yet exhibited sustainable growth. holdings were balanced by our more
The Fed met three times between June 25 defensive, less economically sensitive
Gross domestic product (GDP) growth and the close of the fiscal year, but it holdings.
improved over the reporting period. The did not change the federal funds rate.
annualized GDP growth for both the last Information technology and consumer
quarter of 2002 and the first quarter of discretionary are considered economically
2003 was 1.4%. For second-quarter 2003, The job market was comparatively weak sensitive holdings because the amount of
it was 3.3%, annualized. On November 25, throughout the period, with the U.S. money that businesses and consumers have
after the close of the reporting period, unemployment rate measuring 6.0% for the to spend can drastically affect the
the preliminary estimate for last two months of 2002, reaching a high returns of these sectors. By contrast,
third-quarter GDP growth was announced for the reporting period of 6.4% in health care and consumer staples are
as 8.2%, annualized. June, and declining in August and defensive, or less economically sensitive,
October to end the period at 6.0%. because certain expenditures will be made
even in a poor economy.
During the fiscal year, more
aggressive holdings began meeting our
selection criteria, and we began adding
to our holdings in information technology
and consumer
</Table>
<Table>
===================================================================================================================================
PORTFOLIO COMPOSITION BY SECTOR* TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
Consumer Discretionary 19.7% 1. Intel Corp. 4.8% 1. Systems Software 9.4%
Consumer Staples 4.0 2. Cisco Systems, Inc. 4.0 2. Semiconductors 7.9
Financials 6.4 3. Microsoft Corp. 3.4 3. Health Care Equipment 7.1
Health Care 18.4 4. Dell Inc. 2.6 4. Communications Equipment 7.0
Industrials 7.3 5. VERITAS Software Corp. 2.5 5. Computer Storage & Peripherals 4.5
Information Technology 39.6 6. Yahoo! Inc. 2.4 6. Specialty Stores 4.3
Telecommunication Services 1.8 7. Amazon.com, Inc. 2.2 7. Diversified Commercial Services 4.0
8. Cendant Corp. 2.2 8. Consumer Finance 3.9
9. Boston Scientific Corp. 2.2 9. Pharmaceuticals 3.3
10. EMC Corp. 2.2 10. Biotechnology 3.2
TOTAL NUMBER OF HOLDINGS* 77
TOTAL NET ASSETS $322.6 MILLION
* Excludes money market funds and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
===================================================================================================================================
</Table>
2
<Table>
discretionary. Conversely, we reduced advertising. Yahoo! reported a 43% be slow. However, we believe that, for
our holdings in the more defensive increase in its third-quarter 2003 net most investors, the inclusion of an
sectors, health care and consumer revenues when compared to the same actively managed fund that invests in
staples. period of 2002. large-cap market leaders could be an
important part of a diversified
Stocks that contributed positively to AIM Large Cap Growth Fund has a investment portfolio. We appreciate your
the portfolio's return for the period strong sell discipline, evidenced by the continued investment in AIM Large Cap
include holdings in the information fact that the five largest detractors to Growth Fund.
technology, consumer discretionary and fund performance for the fiscal year
health care sectors. Two were no longer held by the fund as of See important fund and index
Internet-related stocks provided October 31, 2003, because these holdings disclosures inside front cover.
excellent returns. no longer met our investment criteria.
One company that detracted from fund
Internet retailer Amazon.com, in the performance during the third quarter,
consumer discretionary sector, began as which we still held at the end of the
an online bookstore and has expanded to period, is health care sector holding
offer a wide variety of products and St. Jude Medical. St. Jude Medical
services. In its earnings report for the manufactures devices to treat
quarter ended September 30, 2003, Amazon cardiovascular disease. Though it
reported net sales of $1.3 billion, a experienced a dip in its stock price in
33% increase over net sales for the same September, by the close of the fiscal
quarter of the previous year. year, it had made up the ground it had
lost.
In the information technology sector,
Internet software and services provider IN CLOSING For More Information Visit
Yahoo! Inc., is the top Internet portal, [GRAPHIC]
offering its registered users We are encouraged by the most recent AIMinvestments.com
personalized Web pages, e-mail, chat earnings reports and the positive
rooms and message boards. In July, economic news of late. We are pleased to
Yahoo! inked an agreement to acquire be able to report positive, double-digit
Overture, Inc., a global leader in returns for the fiscal year. We believe
commercial Internet search services, that market volatility will continue to
thereby making Yahoo! the largest player be a factor and that complete recovery
in global Internet may
================================================================================================================================
FUND VS. INDEXES
Total returns 10/31/02-10/31/03, GEOFFREY V. KEELING
excluding sales charges [PHOTO OF Geoff Keeling, Chartered Financial Analyst, is co-manager of AIM Large
=========================================== GEOFFREY V. Cap Growth Fund. Mr. Keeling joined AIM in 1995 as an equity analyst
CLASS A SHARES 20.49% KEELING specializing in large-cap stocks. He assumed his present
CLASS B SHARES 19.58 responsibilities in 1999.
CLASS C SHARES 19.56 Mr. Keeling received a B.B.A. in finance from The University of
CLASS R SHARES 20.35 Texas at Austin.
INVESTOR CLASS SHARES* 20.49
S&P 500 INDEX
(BROAD MARKET INDEX) 20.79
RUSSELL 1000 GROWTH INDEX ROBERT L. SHOSS
(STYLE-SPECIFIC INDEX) 21.81 [PHOTO OF Robert Shoss is co-manager of AIM Large Cap Growth Fund. Mr. Shoss
LIPPER LARGE-CAP GROWTH FUND INDEX ROBERT L. joined AIM in 1995 as an analyst. In 1999, he was promoted to his
(PEER-GROUP INDEX) 18.51 SHOSS current position.
Mr. Shoss received a bachelor's degree from The University of Texas
Source: Lipper, Inc. at Austin and an M.B.A. and a J.D. from the University of Houston.
===========================================
Assisted by the Large Cap Growth Team.
*The one-year return shown for Investor
Class shares is the blended return of
Investor Class shares since their inception
and the restated one-year performance of
the fund's Class A shares at the net asset
value, adjusted to 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 of the fund's Class A shares is
3/1/99. The inception date of the fund's
Investor Class shares is 9/30/03.
</Table>
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM LARGE CAP GROWTH FUND VS. BENCHMARK INDEXES 3/1/99-10/31/03
<Table>
<Caption>
DATE AIM LARGE CAP LIPPER LARGE-CAP
GROWTH FUND GROWTH FUND RUSSELL 1000 RUSSELL 1000 S&P 500
CLASS A SHARES INDEX GROWTH INDEX INDEX INDEX
3/1/1999 $ 9450 $10000 $10000 $10000 $10000
3/31/1999 10116 10568 10527 10383 10400
4/30/1999 9935 10605 10540 10817 10803
5/31/1999 9621 10253 10216 10584 10548
6/30/1999 10354 10966 10932 11123 11132
7/31/1999 10098 10622 10584 10783 10786
8/31/1999 10117 10624 10757 10682 10732
9/30/1999 10098 10516 10531 10389 10438
10/31/1999 10745 11323 11327 11087 11099
11/30/1999 11458 11882 11938 11372 11324
12/31/1999 13180 13202 13179 12057 11990
1/31/2000 13313 12672 12561 11564 11388
2/29/2000 16092 13338 13175 11533 11173
3/31/2000 16692 14274 14119 12584 12265
[MOUNTAIN CHART] 4/30/2000 15808 13170 13447 12164 11896
5/31/2000 14818 12412 12770 11849 11652
6/30/2000 16778 13233 13737 12152 11939
7/31/2000 16911 12965 13165 11950 11753
8/31/2000 19529 14086 14357 12834 12482
9/30/2000 18578 13012 12999 12238 11823
10/31/2000 16883 12324 12384 12091 11773
11/30/2000 13809 10670 10558 10985 10846
12/31/2000 14303 10604 10224 11118 10899
1/31/2001 13770 10912 10930 11484 11285
2/28/2001 10762 9223 9075 10413 10257
3/31/2001 9402 8265 8087 9721 9608
4/30/2001 10497 9152 9110 10502 10354
5/31/2001 10258 9083 8976 10573 10423
6/30/2001 9954 8821 8768 10334 10170
7/31/2001 9582 8505 8549 10193 10069
8/31/2001 8812 7858 7850 9572 9440
9/30/2001 7936 7068 7066 8760 8677
10/31/2001 8393 7361 7437 8943 8843
11/30/2001 9049 8036 8151 9631 9521
12/31/2001 9135 8073 8136 9734 9605
1/31/2002 9021 7890 7992 9610 9465
2/28/2002 8517 7564 7661 9419 9282
3/31/2002 8984 7868 7926 9806 9631
4/30/2002 8365 7344 7279 9244 9047
5/31/2002 8184 7210 7103 9163 8981
6/30/2002 7670 6623 6446 8486 8341
7/31/2002 7147 6125 6091 7858 7691
8/31/2002 7156 6159 6109 7899 7742
9/30/2002 6671 5562 5476 7051 6901
10/31/2002 7014 5990 5978 7637 7508
11/30/2002 7062 6238 6303 8084 7949
12/31/2002 6719 5803 5867 7626 7483
1/31/2003 6586 5670 5725 7441 7287
2/28/2003 6624 5609 5699 7326 7178
3/31/2003 6767 5714 5805 7402 7247
4/30/2003 7129 6132 6234 8000 7844
5/31/2003 7529 6433 6545 8456 8257
6/30/2003 7586 6486 6635 8567 8362
7/31/2003 7748 6674 6800 8738 8510
8/31/2003 7995 6838 6969 8915 8675
9/30/2003 7843 6693 6895 8824 8583
10/31/2003 $ 8449 $ 7099 $ 7282 $ 9341 $ 9069
Source: Lipper, Inc.
</Table>
Since the last reporting period, the fund has elected to use the S&P 500 as its
broad-based market index since the S&P 500 is such a widely recognized gauge of
the U.S. equity market. The fund will no longer measure its performance against
the Russell 1000 Index, the index published in previous reports to shareholders.
Because this is the first reporting period since we have adopted the new index,
SEC guidelines require that we compare the fund's performance to both the old
and the new index. The fund has also included a style-specific index, the
Russell 1000 Growth Index. The fund believes this index more closely reflects
the performance of the securities in which the fund invests. In addition, the
unmanaged Lipper Large-Cap Growth Fund Index, which may or may not include AIM
Large Cap Growth Fund, is included for comparison to a peer group.
Your fund's total return includes sales charges, expenses and management
fees.
The performance of the fund's share classes 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 and table does not reflect deduction of
taxes a shareholder would pay on fund distributions or on sale of fund shares.
Performance of the indexes does not reflect the effects of taxes.
Past performance cannot guarantee comparable future results. DUE TO 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.
<Table>
==================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS In addition to fund returns as of the INVESTOR CLASS SHARES**
As of 10/31/03, including sales charges close of the fiscal year, industry Inception -3.99%
CLASS A SHARES regulations require us to provide 1 Year 17.55
Inception (3/1/99) -3.55% average annual total returns (including
1 Year 13.85 sales charges) for periods ended * The returns shown for these periods
9/30/03, the most recent calendar are the blended returns of the
CLASS B SHARES quarter-end, which were as follows. historical performance of the fund's
Inception (4/5/99) -5.67% Class R shares since their inception and
1 Year 14.58 AVERAGE ANNUAL TOTAL RETURNS the restated historical performance of
As of 9/30/03, including sales charges the fund's Class A shares (for the
CLASS C SHARES periods prior to inception of the Class
Inception (4/5/99) -5.23% CLASS A SHARES R shares) at net asset value, adjusted
1 Year 18.56 Inception (3/1/99) -5.17% to reflect the higher Rule 12b-1 fees
1 Year 11.05 applicable to the Class R shares. The
CLASS R SHARES* inception date of Class A shares is
Inception -2.49% CLASS B SHARES 3/1/99. The inception date of the fund's
1 Year 20.35 Inception (4/5/99) -7.33% Class R shares is 6/3/02.
1 Year 11.64
INVESTOR CLASS SHARES** ** The returns shown as of 10/31/03
Inception -2.37% CLASS C SHARES are the blended returns of the
1 Year 20.49 Inception (4/5/99) -6.89% historical performance of Investor Class
1 Year 15.62 shares since their inception and the
restated historical performance of the
CLASS R SHARES* fund's Class A shares (for the periods
Inception -4.12% prior to inception of the Investor Class
1 Year 17.40 shares) at 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 of the
fund's Class A shares is 3/1/99. The
inception date of the fund's Investor
Class shares is 9/30/03. Because 9/30/03
is the inception date of the Investor
Class shares, performance as of 9/30/03
is the restated historical performance
of the fund's Class A shares as
described.
==================================================================================================================================
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.13%
AEROSPACE & DEFENSE-0.71%
United Technologies Corp. 27,000 $ 2,286,630
========================================================================
APPAREL RETAIL-0.77%
Gap, Inc. (The) 131,000 2,499,480
========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.45%
Coach, Inc.(a) 132,000 4,682,040
========================================================================
APPLICATION SOFTWARE-1.28%
Amdocs Ltd. (United Kingdom)(a) 91,000 1,952,860
- ------------------------------------------------------------------------
SAP A.G.-ADR (Germany) 60,000 2,192,400
========================================================================
4,145,260
========================================================================
BIOTECHNOLOGY-3.17%
Amgen Inc.(a) 59,000 3,643,840
- ------------------------------------------------------------------------
Genentech, Inc.(a) 80,300 6,582,191
========================================================================
10,226,031
========================================================================
CASINOS & GAMING-2.04%
International Game Technology 201,200 6,589,300
========================================================================
COMMUNICATIONS EQUIPMENT-6.96%
Cisco Systems, Inc.(a) 611,200 12,822,976
- ------------------------------------------------------------------------
Corning Inc.(a) 230,000 2,525,400
- ------------------------------------------------------------------------
Juniper Networks, Inc.(a) 188,000 3,382,120
- ------------------------------------------------------------------------
QLogic Corp.(a) 35,000 1,961,750
- ------------------------------------------------------------------------
UTStarcom, Inc.(a) 56,000 1,764,000
========================================================================
22,456,246
========================================================================
COMPUTER & ELECTRONICS RETAIL-2.13%
Best Buy Co., Inc. 118,000 6,880,580
========================================================================
COMPUTER HARDWARE-2.58%
Dell Inc.(a) 230,900 8,340,108
========================================================================
COMPUTER STORAGE & PERIPHERALS-4.50%
EMC Corp.(a) 505,000 6,989,200
- ------------------------------------------------------------------------
Network Appliance, Inc.(a) 132,000 3,257,760
- ------------------------------------------------------------------------
SanDisk Corp.(a) 25,000 2,015,000
- ------------------------------------------------------------------------
Seagate Technology (Cayman Islands) 98,000 2,252,040
========================================================================
14,514,000
========================================================================
CONSUMER FINANCE-3.90%
American Express Co. 76,800 3,604,224
- ------------------------------------------------------------------------
Capital One Financial Corp. 32,000 1,945,600
- ------------------------------------------------------------------------
MBNA Corp. 80,000 1,980,000
- ------------------------------------------------------------------------
SLM Corp. 129,000 5,051,640
========================================================================
12,581,464
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
<Caption>
- ------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES-0.68%
First Data Corp. 61,600 $ 2,199,120
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-4.01%
Apollo Group, Inc.-Class A(a) 92,000 5,844,760
- ------------------------------------------------------------------------
Cendant Corp.(a) 347,000 7,089,210
========================================================================
12,933,970
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.91%
Rockwell Automation, Inc. 95,000 2,949,750
========================================================================
FOOTWEAR-0.61%
NIKE, Inc.-Class B 31,000 1,980,900
========================================================================
GENERAL MERCHANDISE STORES-0.87%
Dollar General Corp. 125,000 2,808,750
========================================================================
HEALTH CARE EQUIPMENT-7.07%
Becton, Dickinson & Co. 65,000 2,376,400
- ------------------------------------------------------------------------
Boston Scientific Corp.(a) 104,000 7,042,880
- ------------------------------------------------------------------------
Guidant Corp. 42,000 2,142,420
- ------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 35,200 2,047,232
- ------------------------------------------------------------------------
Stryker Corp. 40,600 3,293,066
- ------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 92,800 5,921,568
========================================================================
22,823,566
========================================================================
HEALTH CARE SERVICES-1.60%
Caremark Rx, Inc.(a) 124,000 3,106,200
- ------------------------------------------------------------------------
IMS Health Inc. 87,000 2,047,110
========================================================================
5,153,310
========================================================================
HEALTH CARE SUPPLIES-0.80%
Alcon, Inc. (Switzerland) 46,700 2,573,637
========================================================================
HOME ENTERTAINMENT SOFTWARE-1.27%
Electronic Arts Inc.(a) 41,300 4,090,352
========================================================================
HOME IMPROVEMENT RETAIL-2.98%
Home Depot, Inc. (The) 126,000 4,670,820
- ------------------------------------------------------------------------
Lowe's Cos., Inc. 84,000 4,950,120
========================================================================
9,620,940
========================================================================
HOUSEWARES & SPECIALTIES-0.78%
Fortune Brands, Inc. 38,600 2,514,790
========================================================================
HYPERMARKETS & SUPER CENTERS-1.88%
Wal-Mart Stores, Inc. 102,700 6,054,165
========================================================================
INDUSTRIAL CONGLOMERATES-1.03%
3M Co. 42,000 3,312,540
========================================================================
INDUSTRIAL MACHINERY-0.60%
Dover Corp. 50,000 1,951,000
========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
INTERNET RETAIL-3.03%
Amazon.com, Inc.(a) 131,600 $ 7,161,672
- ------------------------------------------------------------------------
eBay Inc.(a) 46,600 2,606,804
========================================================================
9,768,476
========================================================================
INTERNET SOFTWARE & SERVICES-2.44%
Yahoo! Inc.(a) 179,900 7,861,630
========================================================================
IT CONSULTING & OTHER SERVICES-0.80%
Accenture Ltd.-Class A (Bermuda)(a) 110,000 2,574,000
========================================================================
MANAGED HEALTH CARE-2.44%
Anthem, Inc.(a) 41,200 2,819,316
- ------------------------------------------------------------------------
UnitedHealth Group Inc. 99,200 5,047,296
========================================================================
7,866,612
========================================================================
OFFICE ELECTRONICS-0.77%
Canon Inc. (Japan) 51,000 2,469,239
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.81%
Citigroup Inc. 123,000 5,830,200
========================================================================
PERSONAL PRODUCTS-1.23%
Avon Products, Inc. 58,300 3,962,068
========================================================================
PHARMACEUTICALS-3.30%
Mylan Laboratories Inc. 106,850 2,580,428
- ------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 86,000 4,892,540
- ------------------------------------------------------------------------
Wyeth 72,000 3,178,080
========================================================================
10,651,048
========================================================================
RESTAURANTS-0.65%
Starbucks Corp.(a) 66,000 2,085,600
========================================================================
SEMICONDUCTOR EQUIPMENT-1.09%
Applied Materials, Inc.(a) 150,000 3,505,500
========================================================================
SEMICONDUCTORS-7.91%
Altera Corp.(a) 99,800 2,018,954
- ------------------------------------------------------------------------
Analog Devices, Inc.(a) 58,400 2,588,872
- ------------------------------------------------------------------------
Intel Corp. 467,000 15,434,350
- ------------------------------------------------------------------------
Linear Technology Corp. 76,900 3,276,709
- ------------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 50,000 2,193,500
========================================================================
25,512,385
========================================================================
SOFT DRINKS-0.90%
PepsiCo, Inc. 61,000 2,917,020
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
SPECIALTY STORES-4.33%
AutoNation, Inc.(a) 100,000 $ 1,870,000
- ------------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 72,000 3,041,280
- ------------------------------------------------------------------------
Staples, Inc.(a) 199,800 5,358,636
- ------------------------------------------------------------------------
Tiffany & Co. 78,000 3,701,100
========================================================================
13,971,016
========================================================================
SYSTEMS SOFTWARE-9.35%
Adobe Systems Inc. 84,000 3,682,560
- ------------------------------------------------------------------------
Computer Associates International, Inc. 72,000 1,693,440
- ------------------------------------------------------------------------
Microsoft Corp. 414,600 10,841,790
- ------------------------------------------------------------------------
Oracle Corp.(a) 212,600 2,542,696
- ------------------------------------------------------------------------
Symantec Corp.(a) 49,000 3,265,850
- ------------------------------------------------------------------------
VERITAS Software Corp.(a) 225,000 8,133,750
========================================================================
30,160,086
========================================================================
THRIFTS & MORTGAGE FINANCE-0.66%
Washington Mutual, Inc. 48,700 2,130,625
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.84%
Nextel Communications, Inc.-Class A(a) 245,400 5,938,680
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $250,184,300) 313,372,114
========================================================================
MONEY MARKET FUNDS-3.30%
STIC Liquid Assets Portfolio(b) 5,325,601 5,325,601
- ------------------------------------------------------------------------
STIC Prime Portfolio(b) 5,325,601 5,325,601
========================================================================
Total Money Market Funds (Cost
$10,651,202) 10,651,202
========================================================================
TOTAL INVESTMENTS-100.43% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $260,835,502) 324,023,316
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.85%
STIC Liquid Assets Portfolio(b)(c) 5,969,563 5,969,563
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $5,969,563) 5,969,563
========================================================================
TOTAL INVESTMENTS-102.28% (Cost $266,805,065) 329,992,879
========================================================================
OTHER ASSETS LESS LIABILITIES-(2.28%) (7,355,958)
========================================================================
NET ASSETS-100.00% $322,636,921
________________________________________________________________________
========================================================================
</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.
F-2
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$250,184,300)* $313,372,114
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $16,620,765) 16,620,765
- -----------------------------------------------------------
Foreign currencies, at value (cost $2,276) 2,287
- -----------------------------------------------------------
Receivables for:
Investments sold 4,752,804
- -----------------------------------------------------------
Fund shares sold 415,069
- -----------------------------------------------------------
Dividends 184,733
- -----------------------------------------------------------
Investment for deferred compensation plan 25,159
- -----------------------------------------------------------
Other assets 32,756
===========================================================
Total assets 335,405,687
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 5,638,174
- -----------------------------------------------------------
Fund shares reacquired 645,625
- -----------------------------------------------------------
Deferred compensation plan 25,159
- -----------------------------------------------------------
Collateral upon return of securities loaned 5,969,563
- -----------------------------------------------------------
Accrued distribution fees 183,792
- -----------------------------------------------------------
Accrued trustees' fees 5,997
- -----------------------------------------------------------
Accrued transfer agent fees 201,861
- -----------------------------------------------------------
Accrued operating expenses 98,595
===========================================================
Total liabilities 12,768,766
===========================================================
Net assets applicable to shares outstanding $322,636,921
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $661,651,023
- -----------------------------------------------------------
Undistributed net investment income (loss) (32,869)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (402,169,057)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 63,187,824
===========================================================
$322,636,921
___________________________________________________________
===========================================================
NET ASSETS:
Class A $154,052,105
___________________________________________________________
===========================================================
Class B $122,011,241
___________________________________________________________
===========================================================
Class C $ 44,272,422
___________________________________________________________
===========================================================
Class R $ 2,126,829
___________________________________________________________
===========================================================
Investor Class $ 174,324
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 17,349,490
___________________________________________________________
===========================================================
Class B 14,166,195
___________________________________________________________
===========================================================
Class C 5,137,113
___________________________________________________________
===========================================================
Class R 239,758
___________________________________________________________
===========================================================
Investor Class 19,630
___________________________________________________________
===========================================================
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 $ 8.61
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 8.62
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 8.87
___________________________________________________________
===========================================================
Investor Class:
Net asset value and offering price per
share $ 8.88
___________________________________________________________
===========================================================
</Table>
* At October 31, 2003, securities with an aggregate market value of $5,853,935
were on loan to brokers.
See Notes to Financial Statements.
F-3
STATEMENT OF OPERATIONS
For the year ended October 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $24,308) $ 2,022,318
- --------------------------------------------------------------------------
Dividends from affiliated money market funds 101,100
- --------------------------------------------------------------------------
Interest 6,536
- --------------------------------------------------------------------------
Securities lending 5,580
==========================================================================
Total investment income 2,135,534
==========================================================================
EXPENSES:
Advisory fees 1,987,347
- --------------------------------------------------------------------------
Administrative services fees 91,795
- --------------------------------------------------------------------------
Custodian fees 54,586
- --------------------------------------------------------------------------
Distribution fees:
Class A 416,198
- --------------------------------------------------------------------------
Class B 1,075,412
- --------------------------------------------------------------------------
Class C 376,000
- --------------------------------------------------------------------------
Class R 4,613
- --------------------------------------------------------------------------
Investor Class 5
- --------------------------------------------------------------------------
Transfer agent fees 1,515,190
- --------------------------------------------------------------------------
Trustees' fees 13,398
- --------------------------------------------------------------------------
Other 244,762
==========================================================================
Total expenses 5,779,306
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (9,603)
==========================================================================
Net expenses 5,769,703
==========================================================================
Net investment income (loss) (3,634,169)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (11,279,810)
- --------------------------------------------------------------------------
Foreign currencies (22,563)
- --------------------------------------------------------------------------
Futures contracts (254,779)
==========================================================================
(11,557,152)
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 66,633,066
- --------------------------------------------------------------------------
Foreign currencies (138)
==========================================================================
66,632,928
==========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 55,075,776
==========================================================================
Net increase in net assets resulting from operations $ 51,441,607
__________________________________________________________________________
==========================================================================
</Table>
See Notes to Financial Statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (3,634,169) $ (4,375,738)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities, foreign
currencies, futures contracts and option contracts (11,557,152) (87,652,595)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 66,632,928 38,162,681
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 51,441,607 (53,865,652)
==========================================================================================
Share transactions-net:
Class A 24,813,254 (10,042,539)
- ------------------------------------------------------------------------------------------
Class B (2,160,788) (18,237,379)
- ------------------------------------------------------------------------------------------
Class C 594,530 (12,801,049)
- ------------------------------------------------------------------------------------------
Class R 1,830,726 10,502
- ------------------------------------------------------------------------------------------
Investor Class 173,236 --
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions 25,250,958 (41,070,465)
==========================================================================================
Net increase (decrease) in net assets 76,692,565 (94,936,117)
==========================================================================================
NET ASSETS:
Beginning of year 245,944,356 340,880,473
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(32,869) and $(25,407) for 2003 and 2002,
respectively) $322,636,921 $245,944,356
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Market trends, movement in exchange traded funds and ADRs, and
the bid/ask quotes of brokers and information providers may be reviewed in
the course of
F-5
making a good faith determination of a security's fair value. 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
ordinarily 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
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
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. Reported net realized foreign currency gains or losses arise
from sales of foreign currencies, currency gains or losses realized between
the trade and settlement dates on securities transactions, and the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
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
F-6
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.
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. 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% over $1 billion up to
and including $2 billion of the Fund's average daily net assets and 0.625% of
the Fund's average daily net assets 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 year ended October 31, 2003, AIM waived
fees of $1,994. Under a prior agreement to limit the aggregate costs of certain
shareholder services provided by third party administrators, AIM reimbursed fees
of $2,430 for Class A, Class B, Class C and Class R shares based on the relative
net assets of those classes.
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, 2003, AIM was
paid $91,795 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly A I M Fund Services, Inc.,
a fee for providing transfer agency and shareholder services to the Fund. During
the year ended October 31, 2003, AISI retained $793,265 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 Investor Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C, Class R and the Investor Class
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.35% of the Fund's average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B and Class C shares, 0.50% of the average daily net assets of Class R
shares and 0.25% of the average daily net assets of the Investor Class shares.
Of these amounts, AIM Distributors may pay a service fee up to 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 shares of such
classes. Any amounts not paid as a service fee under the Plans would constitute
an asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the year ended October 31, 2003,
the Class A, Class B, Class C, Class R and the Investor Class shares paid
$416,198, $1,075,412, $376,000, $4,613 and $5, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2003, AIM Distributors retained $64,104 in front-end sales
commissions from the sale of Class A shares and $711, $69, $4,058 and $0 from
Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed
upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
For the year ended October 31, 2003, the Fund received reductions in transfer
agency fees from AISI (an affiliate of AIM) of $5,152 and reductions in
custodian fees of $27 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $5,179.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. The Trustees deferring compensation have the
option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. Certain former Trustees also
participate in a retirement plan and receive benefits under such plan.
During the year ended October 31, 2003, the Fund paid legal fees of $2,539
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds. An interfund loan will be
made under this facility only if the loan rate (an average of the rate available
on bank loans and the rate available on investments in overnight repurchase
agreements) is favorable to both the lending fund and the borrowing fund. Under
certain circumstances, a loan will be secured by collateral. To the extent that
the loan is required to be secured by collateral, the collateral is marked to
market daily to ensure that the market value is at least 102% of the outstanding
principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties
F-7
to the line of credit can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the 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 year ended October 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving line of credit facility or the committed line of credit
facility.
Additionally the Fund is permitted to carry a negative or overdrawn balance
in its account with the custodian bank. To compensate the custodian bank for
such overdrafts, the overdrawn Fund may either (i) leave funds in the account so
the custodian can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank. In either case, the custodian bank will
be compensated an amount equal to the Federal Funds rate plus 100 basis points.
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral 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
held may be temporarily less than the value of the securities on loan.
At October 31, 2003, securities with an aggregate value of $5,853,935 were
on loan to brokers. The loans were secured by cash collateral of $5,969,563
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2003, the Fund received fees of $5,580 for
securities lending.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2003 and 2002.
Tax Components of Net Assets:
As of October 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 61,303,166
- ------------------------------------------------------------
Temporary book/tax differences (32,869)
- ------------------------------------------------------------
Capital loss carryforward (400,284,399)
- ------------------------------------------------------------
Shares of beneficial interest 661,651,023
============================================================
Total net assets $ 322,636,921
____________________________________________________________
============================================================
</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
and straddle deferrals. The tax-basis unrealized appreciation on investments
amount includes appreciation on foreign currencies of $10.
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
trustee retirement plan expenses.
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
- ------------------------------------------------------
October 31, 2011 11,281,239
======================================================
Total capital loss carryforward $400,284,399
______________________________________________________
======================================================
</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 year ended
October 31, 2003 was $332,300,069 and $313,469,304, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $64,755,309
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (3,452,153)
===========================================================
Net unrealized appreciation of investment
securities $61,303,156
___________________________________________________________
===========================================================
Cost of investments for tax purposes is
$268,689,723.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currencies and
net operating losses, on October 31, 2003, undistributed net investment income
was increased by $3,626,707, undistributed net realized gain was increased by
$22,563 and shares of beneficial interest decreased by $3,649,270. This
reclassification had no effect on the net assets of the Fund.
F-8
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 Investor Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and the Investor Class shares are
sold at net asset value. Under some circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2003 2002
------------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 9,469,394 $73,883,856 5,159,669 $ 44,948,977
- --------------------------------------------------------------------------------------------------------------------------
Class B 4,041,264 29,817,268 3,444,001 28,987,280
- --------------------------------------------------------------------------------------------------------------------------
Class C 2,208,427 16,412,874 1,465,202 12,332,848
- --------------------------------------------------------------------------------------------------------------------------
Class R* 278,067 2,156,076 1,259 10,502
- --------------------------------------------------------------------------------------------------------------------------
Investor Class** 20,194 178,134 -- --
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 325,063 2,536,902 136,498 1,177,906
- --------------------------------------------------------------------------------------------------------------------------
Class B (334,300) (2,536,902) (139,167) (1,177,906)
==========================================================================================================================
Reacquired:
Class A (6,726,902) (51,607,504) (6,691,678) (56,169,422)
- --------------------------------------------------------------------------------------------------------------------------
Class B (3,989,440) (29,441,154) (5,553,485) (46,046,753)
- --------------------------------------------------------------------------------------------------------------------------
Class C (2,147,493) (15,818,344) (3,059,594) (25,133,897)
- --------------------------------------------------------------------------------------------------------------------------
Class R* (39,568) (325,350) -- --
- --------------------------------------------------------------------------------------------------------------------------
Investor Class** (564) (4,898) -- --
==========================================================================================================================
3,104,142 $25,250,958 (5,237,295) $(41,070,465)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
** Investor Class shares commenced sales on September 30, 2003.
F-9
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 1, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------------------- 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) (0.08)(a) (0.09)(a) (0.08)(a) (0.15)(a) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.59 (1.36) (8.84) 6.60 1.33
=================================================================================================================================
Total from investment operations 1.51 (1.45) (8.92) 6.45 1.29
=================================================================================================================================
Net asset value, end of period $ 8.88 $ 7.37 $ 8.82 $ 17.74 $11.29
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 20.49% (16.44)% (50.28)% 57.13% 13.70%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $154,052 $105,320 $138,269 $225,255 $7,785
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.82%(c) 1.70% 1.57% 1.58% 1.53%(d)(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (1.01)%(c) (1.01)% (0.72)% (0.82)% (0.59)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 123% 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 based on average daily net assets of $118,913,817.
(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
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------------------- 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) (0.12)(a) (0.14)(a) (0.16)(a) (0.27)(a) (0.08)(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.53 (1.33) (8.71) 6.56 0.31
==============================================================================================================================
Total from investment operations 1.41 (1.47) (8.87) 6.29 0.23
==============================================================================================================================
Net asset value, end of period $ 8.61 $ 7.20 $ 8.67 $ 17.54 $11.25
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 19.58% (16.96)% (50.57)% 55.91% 2.09%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $122,011 $104,040 $144,747 $210,224 $5,183
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets 2.47%(c) 2.35% 2.23% 2.24% 2.23%(d)(e)
==============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.66)%(c) (1.66)% (1.39)% (1.48)% (1.29)%(d)
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate(f) 123% 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 based on average daily net assets of $107,541,190.
(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.
F-10
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------------
APRIL 5, 1999
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------------------- 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) (0.12)(a) (0.14)(a) (0.16)(a) (0.27)(a) (0.08)(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.53 (1.32) (8.72) 6.57 0.31
============================================================================================================================
Total from investment operations 1.41 (1.46) (8.88) 6.30 0.23
============================================================================================================================
Net asset value, end of period $ 8.62 $ 7.21 $ 8.67 $ 17.55 $11.25
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 19.56% (16.84)% (50.60)% 56.00% 2.09%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $44,272 $ 36,575 $ 57,865 $79,392 $ 901
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 2.47%(c) 2.35% 2.23% 2.24% 2.23%(d)(e)
============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.66)%(c) (1.66)% (1.39)% (1.48)% (1.29)%(d)
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(f) 123% 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 based on average daily net assets of $37,600,034.
(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
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.37 $ 8.40
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.04)(a)
- ---------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.59 (0.99)
=============================================================================================
Total from investment operations 1.50 (1.03)
=============================================================================================
Net asset value, end of period $ 8.87 $ 7.37
_____________________________________________________________________________________________
=============================================================================================
Total return(b) 20.35% (12.26)%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,127 $ 9
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets 1.97%(c) 1.85%(d)
=============================================================================================
Ratio of net investment income (loss) to average net assets (1.16)%(c) (1.16)%(d)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(e) 123% 111%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $922,495.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-11
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
------------------
SEPTEMBER 30, 2003
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2003
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.24
- ----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a)
- ----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.65
==================================================================================
Total from investment operations 0.64
==================================================================================
Net asset value, end of period $ 8.88
__________________________________________________________________________________
==================================================================================
Total return(b) 7.77%
__________________________________________________________________________________
==================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 174
__________________________________________________________________________________
==================================================================================
Ratio of expenses to average net assets 1.56%(c)
==================================================================================
Ratio of net investment income (loss) to average net assets (0.75)%(c)
__________________________________________________________________________________
==================================================================================
Portfolio turnover rate(d) 123%
__________________________________________________________________________________
==================================================================================
</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 $24,659.
(d) Not annualized for periods less than one year.
NOTE 12--SUBSEQUENT EVENTS
On November 3, 2003, INVESCO Growth Fund ("Selling Fund") transferred
substantially all of its assets to the Fund in exchange for shares of the
Selling Fund in a tax-free reorganization.
The results of the reorganization are as follows: The acquisition was
accomplished by a tax-free exchange of 51,442,688 shares of the Fund for
234,385,533 shares of INVESCO Growth Fund outstanding as of the open of business
on November 3, 2003. INVESCO Growth Fund's net assets at that date of
$456,983,407 including $93,333,500 of unrealized appreciation, were combined
with those of the Fund. The aggregate net assets of the Fund immediately before
the acquisition were $322,706,968. Included in net assets of the acquired fund
is undistributed net investment income (loss) of $(1,103,356) and undistributed
net realized gain (loss) of $(1,579,650,080) for INVESCO Growth Fund.
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM") is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("INVESCO"), was, until
recently, the investment advisor to the INVESCO Funds.
On December 2, 2003, each of the Securities and Exchange Commission ("SEC")
and the Office of the Attorney General of the State of New York ("NYAG") filed
civil proceedings against INVESCO and Raymond R. Cunningham, in his capacity as
the Chief Executive Officer of INVESCO. Mr. Cunningham currently holds the
positions of Chief Operating Officer and Senior Vice President of A I M
Management Group, Inc., the parent company of AIM, and he also holds the
position of Senior Vice President with AIM. In addition, on December 2, 2003,
the State of Colorado filed civil proceedings against INVESCO. Neither your Fund
nor any of the funds in the AIM Family of Funds(R), which includes the INVESCO
Funds (the "Funds") has been named as a defendant in any of these proceedings.
The SEC proceeding alleges that INVESCO failed to disclose in the INVESCO
Funds' prospectuses and to the INVESCO Funds' independent directors that INVESCO
had entered into certain arrangements permitting market timing of the INVESCO
Funds. The SEC is seeking injunctions, including permanent injunctions from
serving as an investment advisor, officer or director of an investment company;
an accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG proceeding is also based on the circumstances described above. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief.
The Colorado proceeding is also based on the circumstances described above.
The State of Colorado is seeking injunctions; restitution, disgorgement and
other equitable relief; civil monetary penalties; and other relief.
If INVESCO is unsuccessful in its defense of these proceedings, it could be
barred from serving as an investment advisor for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Similarly, if Mr. Cunningham is unsuccessful in his
defense of these proceedings, he could be barred from serving as an officer or
director of any registered investment company. Such results could also affect
the ability of AIM, or any other investment advisor directly or indirectly owned
by AMVESCAP, from serving as an investment advisor to any registered investment
company, including your Fund. Your Fund has been informed by AIM that, if either
of these results occurs, AIM will seek exemptive
F-12
NOTE 12--SUBSEQUENT EVENTS (CONTINUED)
relief from the SEC to permit it to continue to serve as your Fund's investment
advisor. There can be no assurance that such exemptive relief will be granted.
AIM has received inquiries from the SEC, the NASD, Inc., the NYAG and the
Secretary of the Commonwealth of Massachusetts with respect to market timing,
late trading, fair value pricing and other similar issues and AIM has been
providing full cooperation with respect to these inquiries.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
certain Funds, INVESCO, AIM, AMVESCAP and certain related parties, primarily
based upon the allegations in the complaints described above, but also regarding
the funds' fair valuation pricing methodology. Such lawsuits allege a variety of
theories for recovery including, but not limited to: (i) violation of various
provisions of the Federal securities laws; (ii) breach of fiduciary duty; and
(iii) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; interest and the payment of attorneys'
and experts' fees. Additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
Funds, INVESCO, AIM, AMVESCAP and related parties in the future.
As a result of these developments, investors in the Funds might react by
redeeming their investments. This might require the Funds to sell investments to
provide for sufficient liquidity and could also have an adverse effect on the
investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of these matters described above may have on
the Fund or AIM's financial condition.
F-13
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 of AIM Equity Funds), including the schedule
of investments, as of October 31, 2003, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
three years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. 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. Our procedures included confirmation of securities
owned as of October 31, 2003, by correspondence with the custodian and brokers
or by other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Large Cap Growth Fund as of October 31, 2003, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the three years
in the period then ended, in conformity with accounting principles generally
accepted in the United States.
Houston, Texas /s/ ERNST & YOUNG LLP
December 16, 2003
F-14
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Equity Funds, a Delaware statutory
trust, was held on October 21, 2003. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHOLDING
DIRECTORS/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 983,597,298 14,109,942
Frank S. Bayley.............................. 983,595,385 14,111,855
James T. Bunch............................... 983,970,384 13,736,856
Bruce L. Crockett............................ 983,967,974 13,739,266
Albert R. Dowden............................. 983,892,850 13,814,390
Edward K. Dunn, Jr........................... 983,672,087 14,035,153
Jack M. Fields............................... 983,987,281 13,719,959
Carl Frischling.............................. 983,352,244 14,354,996
Robert H. Graham............................. 983,794,290 13,912,950
Gerald J. Lewis.............................. 983,317,525 14,389,715
Prema Mathai-Davis........................... 983,676,086 14,031,154
Lewis F. Pennock............................. 983,703,651 14,003,589
Ruth H. Quigley.............................. 983,356,521 14,350,719
Louis S. Sklar............................... 983,812,619 13,894,621
Larry Soll, Ph.D............................. 983,820,425 13,886,815
Mark H. Williamson........................... 983,676,844 14,030,396
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Equity Funds
F-15
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement,
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S)
TRUST SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management Group Inc.
Trustee, Chairman and (financial services holding company); and Director and Vice
President 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); and
Director and Chairman, A I M Capital Management, Inc.
(registered investment advisor), A I M Distributors, Inc.
(registered broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management Company
(registered broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ----------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President Director, Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor) and A I M
Distributors, Inc. (registered broker dealer); Director and
Chairman, AIM Investment Services, Inc. (registered transfer
agent); and Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global investment management
firm)
Formerly: Director, Chairman, President and Chief Executive
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 2003 Consultant
Trustee
Formerly: President and Chief Executive Officer, AMC Cancer
Research Center; and Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie
Trustee
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd.,
Trustee (investment banking firm); and Director, Policy Studies,
Inc. and Van Gilder Insurance Corporation
Formerly: General Counsel and Director, Boettcher & Co.; and
Chairman and Managing Partner, law firm of Davis, Graham &
Stubbs
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology
Trustee consulting company)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business
Trustee corporations, including the Boss Group Ltd. (private
investment and management) and Magellan 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 Group
companies
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and
Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares Corp.
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc.
Trustee (government affairs company) and Texana Timber LP
- ----------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S)
TRUST HELD BY TRUSTEE
- -------------------------------- ----------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 None
Trustee, Chairman and
President
- ------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 Director and Chairman,
Trustee and Executive Vice INVESCO Bond Funds,
President Inc., INVESCO
Combination Stock &
Bond Funds, Inc.,
INVESCO Counselor
Series Funds, Inc.,
INVESCO International
Funds, Inc., INVESCO
Manager Series Funds,
Inc., INVESCO Money
Market Funds, Inc.,
INVESCO Sector Funds,
Inc., INVESCO Stock
Funds, Inc., INVESCO
Treasurer's Series
Funds, Inc. and
INVESCO Variable
Investment Funds, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 Badgley Funds, Inc.
Trustee (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 ACE Limited (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 Cortland Trust, Inc.
Trustee (Chairman) (registered
investment company);
Annuity and Life Re
(Holdings), Ltd.
(insurance company)
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 Administaff
Trustee
- ----------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust. Mr. Williamson became Executive Vice President of
the Trust on March 4, 2003.
(3) Elected trustee of the Trust on October 21, 2003.
Trustees and Officers (continued)
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement,
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President Counsel, A I M Management Group Inc. (financial services
holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and 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(5) -- 1947 1988 Director, Chairman and Director of Investments, A I M
Senior Vice President 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 -- Fixed
Vice President 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 M Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 1999 Vice President, A I M Advisors, Inc., and President, Chief
Vice President 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 Advisors, Inc.
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Gary T. Crum(5) -- 1947 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Dana R. Sutton -- 1959 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
</Table>
(3) Elected trustee of the Trust on October 21, 2003.
(4) Mr. Carome became Senior Vice President of the Trust on May 13, 2003.
(5) Information is current as of January 10, 2003.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center
Houston, TX 77046 Suite 100 Suite 100 1401 McKinney, Suite 1200
Houston, TX 77046 Houston, TX 77046-1173 Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
Andrews & Ingersoll, LLP Frankel LLP P.O. Box 4739 Trust Company
1735 Market Street 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103 New York, NY 10022-3852 Boston, MA 02110
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(4) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(5)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) AIM Small Cap Equity Fund was closed to most
investors on December 19, 2003. For information on who may continue to invest in
AIM Small Cap Equity Fund, please contact your financial advisor. (3) AIM Small
Cap Growth Fund was closed to most investors on March 18, 2002. For information
on who may continue to invest in AIM Small Cap Growth Fund, please contact your
financial advisor. (4) Effective April 30, 2003, AIM Worldwide Spectrum Fund was
renamed AIM Global Value Fund. (5) Effective November 24, 2003, INVESCO
International Blue Chip Value Fund was renamed INVESCO International Core Equity
Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
it carefully before investing. If used after January 20, 2004, this brochure
must be accompanied by a fund Performance & Commentary or by an AIM Quarterly
Performance Review for the most recent quarter-end. Mutual funds distributed by
A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $142 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $345 billion in assets
under management. Data as of September 30, 2003.
AIMinvestments.com LCG-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- ------------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Servicemark--
Plans Accounts
</Table>
AIM WEINGARTEN FUND
Annual Report to Shareholders o October 31, 2003
[COVER ART]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
[COVER ART]
================================================================================
AIM WEINGARTEN FUND SEEKS TO PROVIDE GROWTH OF CAPITAL.
================================================================================
ABOUT INFORMATION THROUGHOUT THIS REPORT:
<Table>
o Unless otherwise stated, information o Class R shares are available only to o The unmanaged Standard & Poor's
presented is as of 10/31/03 and is certain retirement plans. Please see Composite Index of 500 Stocks (the
based on total net assets. the prospectus for more information. S&P 500--Registered Trademark--) is
They are sold at net asset value, an index of common stocks frequently
o AIM Weingarten Fund's performance that is, without up-front sales used as a general measure of U.S.
figures are historical, and they charges. stock market performance.
reflect fund expenses, the
reinvestment of distributions, and o The fund's investment return and o Bloomberg, Inc. is a well-known
changes in net asset value. principal value will fluctuate, so an independent financial research and
investor's shares, when redeemed, may reporting firm.
o When sales charges are included in be worth more or less than their
performance figures, Class A share original cost. o A direct investment cannot be made in
performance reflects the maximum an index. Unless otherwise indicated,
5.50% sales charge, and Class B and o Industry classifications used in this index results include reinvested
Class C share performance reflects report are generally according to the dividends, and they do not reflect
the applicable contingent deferred Global Industry Classification sales charges or fund expenses.
sales charge (CDSC) for the period Standard, which was developed by and Performance of an index of funds
involved. The CDSC on Class B shares is the exclusive property and a reflects fund expenses; performance
declines from 5% beginning at the service mark of Morgan Stanley of a market index does not.
time of purchase to 0% at the Capital International Inc. and
beginning of the seventh year. The Standard & Poor's. A description of the policies and
CDSC on Class C shares is 1% for the procedures that the fund uses to
first year after purchase. The o The unmanaged Lipper Large-Cap Growth determine how to vote proxies
performance of the fund's share Fund Index represents an average of relating to portfolio securities is
classes will differ due to different the performance of the 30 largest available without charge, upon
sales charge structures and class large-capitalization growth funds request, by calling 800-959-4246, or
expenses. tracked by Lipper, Inc., an on the AIM Web site,
independent mutual fund performance AIMinvestments.com.
o Effective 9/30/03, Class B shares are monitor.
not available as an investment for
retirement plans maintained pursuant o The unmanaged Russell
to Section 401 of the Internal 1000--Registered Trademark-- Growth
Revenue Code, including 401(k) plans, Index is a subset of the unmanaged
money purchase pension plans and Russell 1000--Registered Trademark--
profit sharing plans. Plans that have Index, which represents the
existing accounts invested in Class B performance of the stocks of
shares continued to be allowed to large-capitalization companies. The
make additional purchases after Growth subset measures the
9/30/03. performance of Russell 1000 companies
with higher price/book ratios and
higher forecasted growth values.
</Table>
<Table>
======================================================
Not FDIC Insured May lose value No bank guarantee This report may be distributed only to shareholders or to
persons who have received a current prospectus of the fund.
======================================================
</Table>
AIMinvestments.com
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER IN new policies and strengthened existing ones--to discourage
THE AIM FAMILY OF FUNDS--Registered harmful short-term trading. These steps include:
Trademark--:
o Strengthening daily monitoring of trading activities.
[PHOTO OF As you may be aware, there has been a
ROBERT H. great deal of media coverage recently o Imposing redemption fees on additional funds we believe
GRAHAM] about the mutual fund industry and may be vulnerable to harmful short-term trading
allegations of improper activities by activity.
certain individuals and companies. As
ROBERT H. GRAHAM part of these widespread investigations, o Implementing an enhanced exchange policy (effective on
INVESCO Funds Group (IFG), the former or about March 1, 2004) designed to limit exchanges
adviser to certain INVESCO Funds, was between funds.
[PHOTO OF recently named as a defendant in separate
MARK H. civil enforcement actions by the U.S. o Employing an enhanced fair value pricing policy on
WILLIAMSON] Securities and Exchange Commission (SEC), certain foreign securities as well as certain illiquid
the Office of the New York Attorney securities.
MARK H. WILLIAMSON General and the State of Colorado over an
issue known as "market timing." A number None of these tools alone, nor all of them taken together,
of private class or derivative actions also were filed in the eliminate the possibility of short-term trading strategies
wake of the regulators' actions. that may be detrimental to a fund. Moreover, each of these
tools involves judgments that are inherently subjective. We
Investors are understandably concerned and frustrated have always sought and continue to seek to make these
about these reports, and we would like to take this judgments to the best of our abilities and in a manner that
opportunity to assure you that, based on an investigation we believe is consistent with the best interests of our fund
conducted by an outside firm, IFG and its parent company, shareholders. And we remain committed to being as vigilant as
AMVESCAP PLC, believe that these civil actions are without possible in the future to identify and address any harmful
merit. IFG is contesting the charges. market timing investors who have the potential to harm our
long-term fund shareholders.
We encourage you to continue to monitor this situation,
particularly as IFG has the opportunity to address the We sincerely hope these developments and the media
allegations that have been made. Current information will be coverage surrounding them do not result in you or other
posted on our Web site at AIMinvestments.com. We will shareholders losing confidence in AIM or INVESCO Funds.
continue to communicate to you on our Web site about our Amidst this storm of controversy in the mutual fund industry,
finding, and the actions we are taking to protect and promote we believe we can find encouragement in the recovering
the interests of our shareholders. The independent trustees economy and rising equity markets. As we write this letter,
of the funds are receiving regular reports from their for instance, the S&P 500--Registered Trademark-- Index is up
independent counsel and outside counsel hired by AMVESCAP approximately 23% year-to-date. Although past performance is
PLC, the parent of AIM and IFG, to perform an ongoing no guarantee of future results, there appear to be indicators
investigation of market timing. that the economy and stock markets are showing signs of
welcomed improvement. We encourage you to read the enclosed
A COMPLEX ISSUE discussion of your fund's performance during this past
reporting period.
Market timing is an investment technique not defined in any
regulation that involves frequent short-term trading of OUR UNWAVERING COMMITMENT
mutual fund shares, sometimes with a goal to exploit
inefficiencies in the way mutual funds price their shares. We At AIM Investments, we have never wavered in our commitment
recognize that fund management companies have tried to deal to helping you build solutions for your financial goals. Our
with this complex issue in various ways and believe that company was founded on a core principle of integrity, and we
industry-wide guidance is in order. To that end, we welcome have always worked hard to earn the trust of our
SEC Chairman William Donaldson's pledge to adopt new rules shareholders. We are committed to doing all we can to
designed to curb market timing abuses. Comprehensive maintain your trust and confidence.
rulemaking is necessary and is the best way to establish new
industry responsibilities designed to protect shareholders. Thank you for your continued participation in AIM
We support practical rule changes and structural Investments. Please call your financial advisor or one of our
modifications that are fair, enforceable and, most Client Service representatives at 800-959-4246 if you have
importantly, beneficial for investors. any further questions or concerns about your AIM Investments
account.
AIM Investments has policies in place designed to
identify, prevent and eliminate harmful trading or other Sincerely,
activities deemed to be detrimental to the funds. We have
also recently taken additional steps--implemented /s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Chairman and President President and CEO
The AIM Family of AIM Investments
Funds--Registered Trademark--
December 18, 2003
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
SIGNS OF ECONOMIC rations that had reported third-quarter
RECOVERY BENEFIT FUND 2003 earnings exceeded analysts'
expectations.
Signs of a strengthening economy MARKET CONDITIONS
benefited the broad U.S. stock market and For most of the fiscal year, the
AIM Weingarten Fund for the fiscal year Signs of a generally improving economy Federal Reserve (the Fed) kept the
ended October 31, 2003. For the fiscal helped the U.S. stock market rise for short-term federal funds rate at 1.25%.
year covered by this report, the fund's much of the fiscal year ended October 31, On June 25, 2003, it lowered that rate to
Class A, Class B, Class C, and Class R 2003. The S&P 500 rose in November 2002, 1.00%, its lowest level since 1958,
shares returned 22.26%, 21.43%, 21.40%, but then declined for several months, saying that it favored a more expansive
and 21.94%, respectively, at net asset reaching a low for the fiscal year on monetary policy because the economy had
value. For the fiscal year, AIM March 11, 2003. The market rallied for not yet exhibited sustainable growth. By
Weingarten Fund outperformed the S&P 500, the remainder of the fiscal year. October, the Fed reported that the pace
which returned 20.79%, and the Lipper of economic expansion had picked up,
Large-Cap Growth Fund Index, which The start of the market's rally consumer spending generally strengthened,
returned 18.51%. It paced the Russell coincided with the commencement of and residential real estate was
1000 Growth Index, which returned 21.81% Operation Iraqi Freedom on March 19, strong--but that commercial real estate
for the fiscal year. 2003. U.S. and allied forces quickly was sluggish and that labor markets
toppled the regime of Saddam Hussein, and remained weak. Indeed, the nation's
========================================= by May 1 President Bush was able to unemployment rate was 6.0% at the close
announce that major combat operations in of the fiscal year.
FOR THE FISCAL YEAR, AIM Iraq had ended.
For the fiscal year:
WEINGARTEN FUND The U.S. economy expanded during the
fiscal year. Gross domestic product, the o All sectors of the S&P 500 recorded
OUTPERFORMED THE broadest measure of economic activity, gains.
grew at an annualized rate of 1.4% in the
S&P 500... AND THE first quarter of 2003, 3.3% in the second o Information technology, materials, and
quarter, and 8.2% in the third quarter. utilities were the top-performing
LIPPER LARGE-CAP Corporate earnings also showed signs of sectors while telecommunication
strength. According to Bloomberg, as of services, consumer staples, and health
GROWTH FUND INDEX.... the close of the fiscal year, more than care were the weakest-performing
65% of S&P 500 corpo- sectors.
=========================================
o Small- and mid-cap stocks generally
outperformed large-cap stocks, the
type of stocks in which the fund
primarily invests.
</Table>
<Table>
====================================================================================================================================
TOTAL NUMBER OF HOLDINGS* 92 TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
TOTAL NET ASSETS $2.8 billion 1. Microsoft Corp. 3.3% 1. Semiconductors 9.3%
PORTFOLIO COMPOSITION BY SECTOR* 2. Cisco Systems, Inc. 3.0 2. Systems Software 7.3
Information Technology 37.8% 3. Citigroup Inc. 2.5 3. Communications Equipment 6.3
Health Care 18.1 4. Tyco International Ltd. (Bermuda) 2.2 4. Pharmaceuticals 5.5
Consumer Discretionary 14.9 5. Novellus Systems, Inc. 2.2 5. Investment Banking & Brokerage 4.9
Financials 13.6 6. Intel Corp. 2.1 6. Health Care Equipment 4.3
Industrials 6.8 7. Boston Scientific Corp. 2.1 7. Internet Retail 3.5
All Others 8.8 8. Aetna Inc. 2.0 8. Biotechnology 3.3
9. Amazon.com, Inc. 1.9 9. Semiconductor Equipment 3.2
10. VERITAS Software Corp. 1.9 10. Managed Health Care 3.1
*Excludes money market fund holdings.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
====================================================================================================================================
</Table>
2
<Table>
YOUR FUND Amazon.com. In August, Cisco reported JAMES G. BIRDSALL
fiscal 2003 net income of $3.6 billion, [PHOTO OF Mr. Birdsall is a portfolio
At the close of the fiscal year, the fund up sharply from $1.9 billion for fiscal JAMES G. manager of AIM Weingarten
was overweight consumer discretionary, 2002. In our view, Cisco is one of a BIRDSALL] Fund. He has been
financials, and information technology growing number of companies benefiting associated with AIM since
stocks, and underweight consumer staples, from the ongoing economic recovery. By 1995, and assumed his current position in
health care, and industrials stocks aggressively cutting prices and offering 1999. Mr. Birdsall received his B.B.A.
relative to the Russell 1000 Growth customers free shipping, Amazon has with a concentration in finance from
Index. For the fiscal year, information sharply increased its sales and Stephen F. Austin State University before
technology, health care, consumer profitability. For the third quarter, earning his M.B.A. with a concentration
discretionary, and financials stocks sales rose from $851 million in 2002 to in finance and international business
contributed most significantly to the $1.13 billion in 2003, transforming a $10 from the University of St. Thomas.
fund's positive performance. million third-quarter loss in 2002 into a
Telecommunications services was the only $52 million third-quarter profit in 2003
sector that negatively affected fund and boosting the company's share price. MONIKA H. DEGAN
performance for the year. [PHOTO OF Ms. Degan, Chartered
========================================= MONIKA H. Financial Analyst, is a
While the number of equities in the DEGAN] senior portfolio manager of
fund declined significantly--from 135 at FOR THE FISCAL YEAR, AIM Weingarten Fund. She
the start of the fiscal year to 92 at its joined AIM in 1995 as an investment
close-- the weighting of top 10 holdings INFORMATION TECHNOLOGY, officer and portfolio analyst for equity
remained relatively steady at securities and was promoted to her
approximately 23% of total net assets. HEALTH CARE, current position in 1997. She has been in
The decrease in the number of fund the investment business since 1991. Ms.
holdings resulted from our growing CONSUMER DISCRETIONARY, Degan received a B.B.A. in finance and an
confidence about the economic recovery M.B.A. in finance and international
and the increasing likelihood of AND FINANCIALS STOCKS business, both from the University of
subsequent improvements in business and Houston.
earnings fundamentals. CONTRIBUTED MOST
LANNY H. SACHNOWITZ
As our outlook for corporate earnings SIGNIFICANTLY TO [PHOTO OF Mr. Sachnowitz is the lead
improved and corporations met or exceeded LANNY H. portfolio manager of AIM
their earnings expectations, we reduced THE FUND'S POSITIVE SACHNOWITZ] Weingarten Fund. He joined
the number of holdings in an attempt to AIM in 1987 as a money
focus on those companies that we believed PERFORMANCE. market trader and research analyst. In
represented the most compelling 1990, Mr. Sachnowitz's trading
investment opportunities--while still ========================================= responsibilities were expanded to include
being mindful of the benefits of head of equity trading. He was named to
remaining diversified across enough IN CLOSING his current position in 1991. Mr.
individual holdings and industries. This Sachnowitz received a B.S. in finance
diversification helps mitigate the fund's As the fiscal year ended, there were from the University of Southern
downside risk of earnings signs that the economy was strengthening; California and an M.B.A. from the
disappointments, which undoubtedly will time will tell whether that recovery is University of Houston.
arise as increasing earnings expectations sustainable. Regardless, we will continue
are reflected in higher stock prices. The to seek out investments primarily in Assisted by the Large Cap Growth Team.
percentage of total net assets invested larger-capitalized companies
in large-cap stocks rose, from 78% to demonstrating market-leading
85%, over the course of the fiscal year, characteristics with excellent prospects
while the percentage invested in mid-cap of near-term and long-term earnings and
stocks declined from 21% to 15%. revenue growth in an attempt to achieve
the fund's investment objective.
Stocks that contributed to fund [GRAPHIC] For More Information Visit
performance included Cisco, a worldwide See important fund and index
leader in networking for the Internet, disclosures inside front cover. AIMinvestments.com
and online retailer
</Table>
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
6/17/69-10/31/03
[MOUNTAIN CHART]
<Table>
<Caption>
Date AIM Weingarten Fund S&P 500
Class A Shares Index
6/17/1969 $ 9450 $ 10000
10/31/1969 9412 10063
10/31/1970 8239 8948
10/31/1971 11479 10456
10/31/1972 14242 12748
10/31/1973 12901 12749
10/31/1974 8113 9080
10/31/1975 10270 11438
10/31/1976 10492 13744
10/31/1977 12919 12914
10/31/1978 15590 13734
10/31/1979 21778 15855
10/31/1980 40403 20946
10/31/1981 40775 21066
10/31/1982 46283 24496
10/31/1983 65454 31342
10/31/1984 63085 33338
10/31/1985 75461 39782
10/31/1986 107199 52984
10/31/1987 113273 56374
10/31/1988 127769 64694
10/31/1989 172650 81744
10/31/1990 165700 75630
10/31/1991 240064 100902
10/31/1992 256524 110940
10/31/1993 272346 127481
10/31/1994 282539 132398
10/31/1995 362254 167362
10/31/1996 415916 207665
10/31/1997 527513 274323
10/31/1998 592670 334707
10/31/1999 821856 420602
10/31/2000 908729 446165
10/31/2001 478173 335120
10/31/2002 358332 284528
10/31/2003 $438256 $343672
Source: Lipper, Inc.
===========================================================================================================================
</Table>
<Table>
AVERAGE ANNUAL TOTAL RETURNS CLASS R SHARES* CLASS B SHARES
As of 10/31/03, including sales charges 10 Years 4.66% Inception (6/26/95) 1.94%
5 Years -6.05 5 Years -7.02
CLASS A SHARES 1 Year 21.94 1 Year 19.94
Inception (6/17/69) 11.63%
10 Years 4.27 In addition to returns as of the close of CLASS C SHARES
5 Years -6.92 the fiscal year, industry regulations Inception (8/4/97) -4.96%
1 Year 15.55 require us to provide average annual 5 Years -6.75
total returns (including sales charges) 1 Year 23.91
CLASS B SHARES for periods ended 9/30/03, the most
Inception (6/26/95) 2.68% recent calendar quarter-end. CLASS R SHARES*
5 Years -6.82 10 Years 4.08%
1 Year 16.43 AVERAGE ANNUAL TOTAL RETURNS 5 Years -6.23
As of 9/30/03, including sales charges 1 Year 25.81
CLASS C SHARES
Inception (8/4/97) -3.95% CLASS A SHARES *The returns shown for these periods are
5 Years -6.56 Inception (6/17/69) 11.45% the blended returns of the historical
1 Year 20.40 10 Years 3.69 performance of the fund's Class R shares
5 Years -7.11 since their inception and the restated
1 Year 19.02 historical performance of the fund's
Class A shares (for the periods prior to
inception of the Class R
</Table>
4
Your fund's total return includes sales
charges, expenses and management fees.
The performance of the fund's share
classes 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
and table does not reflect deduction of
taxes a shareholder would pay on fund
distributions or sale of fund shares.
Performance of 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
[CHART] 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 create the
potential for the original investment to
grow to very large numbers.
S&P 500 Index data from 6/30/69.
Source: Lipper Inc.
<Table>
- --------------------------------------------------------------------------------------------------------------------------
shares) at net asset value, adjusted to reflect FUND VS. INDEX
the higher Rule 12b-1 fees applicable to the Class Total returns 10/31/02-10/31/03, excluding sales charges
R shares. The inception date of Class A shares is
6/17/69. The inception date of the fund's Class R [BAR CHART]
shares is 6/3/02. Calculation of blended returns
as of 10/31/03 is from 10/31/93. Calculation of AIM WEINGARTEN FUND
blended returns as of 9/30/03 is from 9/30/93. CLASS A SHARES 22.26%
Past performance cannot guarantee comparable AIM WEINGARTEN FUND
future results. Due to significant market CLASS B SHARES 21.43%
volatility, results of an investment made today
may differ substantially from the historical AIM WEINGARTEN FUND
performance shown. Call your financial advisor for CLASS C SHARES 21.40%
more current performance.
AIM WEINGARTEN FUND
CLASS R SHARES 21.94%
S&P 500 INDEX 20.79%
Source: Lipper, Inc.
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/03
AIM WEINGARTEN FUND
<Table>
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is not
For periods ended 10/31/03 indicative of future results. More
The following information has been recent returns may be more or less than
prepared to provide Institutional Class INCEPTION (10/8/91) 5.90% those shown. All returns assume
shareholders with a performance overview 10 Years 5.37 reinvestment of distributions at net
specific to their holdings. 5 Years -5.39 asset value. Investment return and
Institutional Class shares are offered 1 Year 23.11 principal value will fluctuate so your
exclusively to institutional investors, shares, when redeemed, may be worth more
including defined contribution plans AVERAGE ANNUAL TOTAL RETURNS or less than their original cost. See
that meet certain criteria. Performance For periods ended 9/30/03 full report for information on
of Institutional Class shares will (most recent calendar quarter-end) comparative benchmarks. If you have
differ from performance of Class A questions, please consult your fund
shares due to differing sales charges INCEPTION (10/8/91) 5.39% prospectus or call 800-451-4246. A I M
and class expenses. 10 Years 4.78 Distributors, Inc.
5 Years -5.59
1 Year 26.77
</Table>
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is prepared for institutional investor use only and may not be
quoted, reproduced or shown to members of the public, nor used in written form
as sales literature for public use.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
AIMinvestments.com WEI-INS-1 10/03
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.50%
ADVERTISING-0.85%
Omnicom Group Inc. 300,000 $ 23,940,000
=============================================================================
APPAREL RETAIL-1.53%
Gap, Inc. (The) 2,250,000 42,930,000
=============================================================================
APPLICATION SOFTWARE-0.55%
PeopleSoft, Inc.(a) 750,000 15,570,000
=============================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.67%
Franklin Resources, Inc. 400,000 18,968,000
=============================================================================
BIOTECHNOLOGY-3.30%
Amgen Inc.(a) 750,000 46,320,000
- -----------------------------------------------------------------------------
Genentech, Inc.(a) 400,000 32,788,000
- -----------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 250,000 13,645,000
=============================================================================
92,753,000
=============================================================================
BREWERS-0.53%
Anheuser-Busch Cos., Inc. 300,000 14,778,000
=============================================================================
CASINOS & GAMING-0.76%
International Game Technology 650,000 21,287,500
=============================================================================
COMMUNICATIONS EQUIPMENT-6.32%
Cisco Systems, Inc.(a) 4,000,000 83,920,000
- -----------------------------------------------------------------------------
Corning Inc.(a) 2,000,000 21,960,000
- -----------------------------------------------------------------------------
Juniper Networks, Inc.(a) 1,250,000 22,487,500
- -----------------------------------------------------------------------------
Motorola, Inc. 2,000,000 27,060,000
- -----------------------------------------------------------------------------
Nortel Networks Corp. (Canada)(a) 5,000,000 22,250,000
=============================================================================
177,677,500
=============================================================================
COMPUTER & ELECTRONICS RETAIL-1.66%
Best Buy Co., Inc. 800,000 46,648,000
=============================================================================
COMPUTER HARDWARE-2.60%
Dell Inc.(a) 1,400,000 50,568,000
- -----------------------------------------------------------------------------
International Business Machines Corp. 250,000 22,370,000
=============================================================================
72,938,000
=============================================================================
COMPUTER STORAGE & PERIPHERALS-2.05%
EMC Corp.(a) 3,000,000 41,520,000
- -----------------------------------------------------------------------------
Seagate Technology (Cayman Islands) 700,000 16,086,000
=============================================================================
57,606,000
=============================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.54%
Deere & Co. 250,000 15,155,000
=============================================================================
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
CONSUMER FINANCE-3.03%
American Express Co. 750,000 $ 35,197,500
- -----------------------------------------------------------------------------
MBNA Corp. 1,150,000 28,462,500
- -----------------------------------------------------------------------------
SLM Corp. 550,000 21,538,000
=============================================================================
85,198,000
=============================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.15%
Affiliated Computer Services, Inc.-Class A(a) 300,000 14,679,000
- -----------------------------------------------------------------------------
First Data Corp. 300,000 10,710,000
- -----------------------------------------------------------------------------
Fiserv, Inc.(a) 550,000 19,426,000
- -----------------------------------------------------------------------------
Paychex, Inc. 400,000 15,568,000
=============================================================================
60,383,000
=============================================================================
DIVERSIFIED BANKS-0.57%
Wachovia Corp. 350,000 16,054,500
=============================================================================
DIVERSIFIED CAPITAL MARKETS-1.15%
J.P. Morgan Chase & Co. 900,000 32,310,000
=============================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.90%
Apollo Group, Inc.-Class A(a) 300,000 19,059,000
- -----------------------------------------------------------------------------
Cendant Corp.(a) 2,250,000 45,967,500
- -----------------------------------------------------------------------------
H&R Block, Inc. 350,000 16,481,500
=============================================================================
81,508,000
=============================================================================
DRUG RETAIL-0.50%
CVS Corp. 400,000 14,072,000
=============================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.80%
Agilent Technologies, Inc.(a) 900,000 22,428,000
=============================================================================
FOOTWEAR-0.57%
NIKE, Inc.-Class B 250,000 15,975,000
=============================================================================
GENERAL MERCHANDISE STORES-1.25%
Family Dollar Stores, Inc. 350,000 15,263,500
- -----------------------------------------------------------------------------
Target Corp. 500,000 19,870,000
=============================================================================
35,133,500
=============================================================================
HEALTH CARE EQUIPMENT-4.32%
Becton, Dickinson & Co. 350,000 12,796,000
- -----------------------------------------------------------------------------
Boston Scientific Corp.(a) 850,000 57,562,000
- -----------------------------------------------------------------------------
Guidant Corp. 400,000 20,404,000
- -----------------------------------------------------------------------------
Medtronic, Inc. 250,000 11,392,500
- -----------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-(CONTINUED)
Zimmer Holdings, Inc.(a) 300,000 $ 19,143,000
=============================================================================
121,297,500
=============================================================================
HEALTH CARE SERVICES-0.89%
Caremark Rx, Inc.(a) 1,000,000 25,050,000
=============================================================================
HEALTH CARE SUPPLIES-0.98%
Alcon, Inc. (Switzerland) 500,000 27,555,000
=============================================================================
HOME ENTERTAINMENT SOFTWARE-0.88%
Electronic Arts Inc.(a) 250,000 24,760,000
=============================================================================
HOME IMPROVEMENT RETAIL-1.65%
Home Depot, Inc. (The) 1,250,000 46,337,500
=============================================================================
HOTELS, RESORTS & CRUISE LINES-0.48%
Starwood Hotels & Resorts Worldwide, Inc. 400,000 13,492,000
=============================================================================
HOUSEHOLD PRODUCTS-1.91%
Colgate-Palmolive Co. 175,000 9,308,250
- -----------------------------------------------------------------------------
Procter & Gamble Co. (The) 450,000 44,230,500
=============================================================================
53,538,750
=============================================================================
INDUSTRIAL CONGLOMERATES-2.23%
Tyco International Ltd. (Bermuda) 3,000,000 62,640,000
=============================================================================
INDUSTRIAL MACHINERY-1.17%
Danaher Corp. 250,000 20,712,500
- -----------------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 200,000 12,080,000
=============================================================================
32,792,500
=============================================================================
INTERNET RETAIL-3.45%
Amazon.com, Inc.(a) 1,000,000 54,420,000
- -----------------------------------------------------------------------------
eBay Inc.(a) 400,000 22,376,000
- -----------------------------------------------------------------------------
InterActiveCorp.(a) 550,000 20,190,500
=============================================================================
96,986,500
=============================================================================
INTERNET SOFTWARE & SERVICES-1.55%
Yahoo! Inc.(a) 1,000,000 43,700,000
=============================================================================
INVESTMENT BANKING & BROKERAGE-4.93%
Charles Schwab Corp. (The) 1,650,000 22,374,000
- -----------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 500,000 46,950,000
- -----------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 550,000 39,600,000
- -----------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 500,000 29,600,000
=============================================================================
138,524,000
=============================================================================
IT CONSULTING & OTHER SERVICES-1.04%
Accenture Ltd.-Class A (Bermuda)(a) 1,250,000 29,250,000
=============================================================================
MANAGED HEALTH CARE-3.13%
Aetna Inc. 1,000,000 57,410,000
- -----------------------------------------------------------------------------
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
MANAGED HEALTH CARE-(CONTINUED)
UnitedHealth Group Inc. 600,000 $ 30,528,000
=============================================================================
87,938,000
=============================================================================
MOTORCYCLE MANUFACTURERS-0.42%
Harley-Davidson, Inc. 250,000 11,852,500
=============================================================================
MOVIES & ENTERTAINMENT-0.99%
Viacom Inc.-Class B 700,000 27,909,000
=============================================================================
MULTI-LINE INSURANCE-0.76%
American International Group, Inc. 350,000 21,290,500
=============================================================================
OIL & GAS DRILLING-0.73%
ENSCO International Inc. 350,000 9,222,500
- -----------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 300,000 11,340,000
=============================================================================
20,562,500
=============================================================================
OIL & GAS EQUIPMENT & SERVICES-0.33%
Schlumberger Ltd. (Netherlands) 200,000 9,394,000
=============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.53%
Citigroup Inc. 1,500,000 71,100,000
=============================================================================
PHARMACEUTICALS-5.47%
Johnson & Johnson 550,000 27,681,500
- -----------------------------------------------------------------------------
Lilly (Eli) & Co. 325,000 21,651,500
- -----------------------------------------------------------------------------
Pfizer Inc. 1,350,000 42,660,000
- -----------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 350,000 19,911,500
- -----------------------------------------------------------------------------
Wyeth 950,000 41,933,000
=============================================================================
153,837,500
=============================================================================
SEMICONDUCTOR EQUIPMENT-3.24%
Applied Materials, Inc.(a) 1,250,000 29,212,500
- -----------------------------------------------------------------------------
Novellus Systems, Inc.(a) 1,500,000 61,935,000
=============================================================================
91,147,500
=============================================================================
SEMICONDUCTORS-9.26%
Analog Devices, Inc.(a) 1,000,000 44,330,000
- -----------------------------------------------------------------------------
Intel Corp. 1,800,000 59,490,000
- -----------------------------------------------------------------------------
Linear Technology Corp. 700,000 29,827,000
- -----------------------------------------------------------------------------
Maxim Integrated Products, Inc. 600,000 29,826,000
- -----------------------------------------------------------------------------
Microchip Technology Inc. 1,000,000 32,710,000
- -----------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan) 2,000,000 22,120,000
- -----------------------------------------------------------------------------
Texas Instruments Inc. 1,450,000 41,934,000
=============================================================================
260,237,000
=============================================================================
SOFT DRINKS-0.77%
PepsiCo, Inc. 450,000 21,519,000
=============================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
SPECIALTY CHEMICALS-0.48%
Ecolab Inc. 500,000 $ 13,445,000
=============================================================================
SPECIALTY STORES-1.32%
Bed Bath & Beyond Inc.(a) 500,000 21,120,000
- -----------------------------------------------------------------------------
Staples, Inc.(a) 600,000 16,092,000
=============================================================================
37,212,000
=============================================================================
SYSTEMS SOFTWARE-7.31%
Computer Associates International, Inc. 1,850,000 43,512,000
- -----------------------------------------------------------------------------
Microsoft Corp. 3,500,000 91,525,000
- -----------------------------------------------------------------------------
Oracle Corp.(a) 1,500,000 17,940,000
- -----------------------------------------------------------------------------
VERITAS Software Corp.(a) 1,450,000 52,417,500
=============================================================================
205,394,500
=============================================================================
Total Common Stocks & Other Equity
Interests (Cost $2,125,580,640) 2,712,075,750
=============================================================================
MONEY MARKET FUNDS-2.59%
STIC Liquid Assets Portfolio(b) 36,428,079 36,428,079
- -----------------------------------------------------------------------------
STIC Prime Portfolio(b) 36,428,079 36,428,079
=============================================================================
Total Money Market Funds (Cost
$72,856,158) 72,856,158
=============================================================================
TOTAL INVESTMENTS-99.09% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $2,198,436,798) 2,784,931,908
=============================================================================
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.39%
STIC Liquid Assets Portfolio(b)(c) 38,996,800 $ 38,996,800
=============================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $38,996,800) 38,996,800
=============================================================================
TOTAL INVESTMENTS-100.48% (Cost
$2,237,433,598) 2,823,928,708
=============================================================================
OTHER ASSETS LESS LIABILITIES-(0.48%) (13,478,280)
=============================================================================
NET ASSETS-100.00% $2,810,450,428
_____________________________________________________________________________
=============================================================================
</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.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$2,125,580,640)* $ 2,712,075,750
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $111,852,958) 111,852,958
- ------------------------------------------------------------
Foreign currencies, at value (cost $361) 368
- ------------------------------------------------------------
Cash 38,826
- ------------------------------------------------------------
Receivables for:
Investments sold 56,632,123
- ------------------------------------------------------------
Fund shares sold 752,372
- ------------------------------------------------------------
Dividends 1,956,386
- ------------------------------------------------------------
Investment for deferred compensation plan 202,866
- ------------------------------------------------------------
Other assets 118,747
============================================================
Total assets 2,883,630,396
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 24,490,221
- ------------------------------------------------------------
Fund shares reacquired 5,738,163
- ------------------------------------------------------------
Deferred compensation plan 202,866
- ------------------------------------------------------------
Collateral upon return of securities
loaned 38,996,800
- ------------------------------------------------------------
Accrued distribution fees 1,089,622
- ------------------------------------------------------------
Accrued trustees' fees 267,499
- ------------------------------------------------------------
Accrued transfer agent fees 1,913,397
- ------------------------------------------------------------
Accrued operating expenses 481,400
============================================================
Total liabilities 73,179,968
============================================================
Net assets applicable to shares outstanding $ 2,810,450,428
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 5,800,081,560
- ------------------------------------------------------------
Undistributed net investment income (loss) (462,775)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (3,575,663,474)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 586,495,117
============================================================
$ 2,810,450,428
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 2,160,823,000
____________________________________________________________
============================================================
Class B $ 555,778,704
____________________________________________________________
============================================================
Class C $ 91,324,993
____________________________________________________________
============================================================
Class R $ 311,194
____________________________________________________________
============================================================
Institutional Class $ 2,212,537
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 186,477,767
____________________________________________________________
============================================================
Class B 51,888,597
____________________________________________________________
============================================================
Class C 8,518,684
____________________________________________________________
============================================================
Class R 26,927
____________________________________________________________
============================================================
Institutional Class 181,315
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 11.59
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $11.59 divided by
94.50%) $ 12.26
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 10.71
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 10.72
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 11.56
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 12.20
____________________________________________________________
============================================================
</Table>
* At October 31, 2003, securities with an aggregate market value of $37,694,563
were on loan to brokers.
See Notes to Financial Statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $119,306) $ 20,368,727
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds 414,720
- ---------------------------------------------------------------------------
Interest 3,316
- ---------------------------------------------------------------------------
Securities lending 71,442
===========================================================================
Total investment income 20,858,205
===========================================================================
EXPENSES:
Advisory fees 17,030,956
- ---------------------------------------------------------------------------
Administrative services fees 519,857
- ---------------------------------------------------------------------------
Custodian fees 187,065
- ---------------------------------------------------------------------------
Distribution fees:
Class A 6,092,977
- ---------------------------------------------------------------------------
Class B 5,246,170
- ---------------------------------------------------------------------------
Class C 852,575
- ---------------------------------------------------------------------------
Class R 920
- ---------------------------------------------------------------------------
Transfer agent fees 12,045,211
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 1,175
- ---------------------------------------------------------------------------
Trustees' fees 56,657
- ---------------------------------------------------------------------------
Other 1,125,910
===========================================================================
Total expenses 43,159,473
===========================================================================
Less: Fees waived and expense offset arrangements (56,902)
===========================================================================
Net expenses 43,102,571
===========================================================================
Net investment income (loss) (22,244,366)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (151,651,661)
- ---------------------------------------------------------------------------
Foreign currencies 115,427
- ---------------------------------------------------------------------------
Option contracts written (1,282,993)
===========================================================================
(152,819,227)
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 703,746,614
- ---------------------------------------------------------------------------
Foreign currencies (19)
- ---------------------------------------------------------------------------
Option contracts written (44,617)
===========================================================================
703,701,978
===========================================================================
Net gain from investment securities, foreign currencies and
option contracts 550,882,751
===========================================================================
Net increase in net assets resulting from operations $ 528,638,385
___________________________________________________________________________
===========================================================================
</Table>
See Notes to Financial Statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (22,244,366) $ (32,392,421)
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts (152,819,227) (796,583,815)
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts 703,701,978 (246,187,556)
===============================================================================================
Net increase (decrease) in net assets resulting from
operations 528,638,385 (1,075,163,792)
===============================================================================================
Share transactions-net:
Class A (354,029,189) (1,064,806,254)
- -----------------------------------------------------------------------------------------------
Class B (78,758,321) (180,109,268)
- -----------------------------------------------------------------------------------------------
Class C (11,803,823) (30,575,415)
- -----------------------------------------------------------------------------------------------
Class R 190,176 72,385
- -----------------------------------------------------------------------------------------------
Institutional Class (83,682) (5,419,461)
===============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (444,484,839) (1,280,838,013)
===============================================================================================
Net increase (decrease) in net assets 84,153,546 (2,356,001,805)
===============================================================================================
NET ASSETS:
Beginning of year 2,726,296,882 5,082,298,687
===============================================================================================
End of year (including undistributed net investment income
(loss) of $(462,775) and $(437,153) for 2003 and 2002,
respectively) $2,810,450,428 $ 2,726,296,882
_______________________________________________________________________________________________
===============================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Market trends, movement in exchange traded funds and ADRs, and
the bid/ask quotes of brokers and information providers may be reviewed in
the course of making a good faith determination of a security's fair value.
Short-
F-6
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
ordinarily 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
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
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. Reported net realized foreign currency gains or losses arise
from sales of foreign currencies, currency gains or losses realized between
the trade and settlement dates on securities transactions, and the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
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
F-7
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. 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.
J. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses relating to all other classes are
allocated among those classes based on relative net assets. All other
expenses are allocated among the classes based on relative net assets.
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 1.00% of the first
$30 million of the Fund's average daily net assets, plus 0.75% of the Fund's
average daily net assets in excess of $30 million up to and including $350
million, plus 0.625% of the Fund's average daily net assets in excess of $350
million. AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds 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 year ended October 31, 2003, AIM waived fees of $8,168. 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, 2003, AIM was
paid $519,857 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as AIM Fund Services,
Inc., a fee for providing transfer agency and shareholder services to the Fund.
For the Institutional Class, the transfer agent has contractually agreed to
reimburse class specific transfer agent fees to the extent necessary to limit
transfer agent fees to 0.10% of the average net assets. During the year ended
October 31, 2003, AISI retained $6,264,097 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, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.30% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, AIM Distributors may pay a service fee up to 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 shares of such classes. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the year ended October 31, 2003,
the Class A, Class B, Class C and Class R shares paid $6,092,977, $5,246,170,
$852,575 and $920, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2003, AIM Distributors retained $286,925 in front-end sales
commissions from the sale of Class A shares and $3,720, $0, $7,667 and $0 from
Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed
upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
For the year ended October 31, 2003, the Fund received reductions in transfer
agency fees from AISI (an affiliate of AIM) of $47,339 and reductions in
custodian fees of $1,395 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $48,734.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. The Trustees deferring compensation have the
option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. Certain former Trustees also
participate in a retirement plan and receive benefits under such plan.
During the year ended October 31, 2003, the Fund paid legal fees of $6,495
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as
F-8
counsel to the Independent Trustees. A member of that firm is a Trustee of the
Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds. An interfund loan will be
made under this facility only if the loan rate (an average of the rate available
on bank loans and the rate available on investments in overnight repurchase
agreements) is favorable to both the lending fund and the borrowing fund. Under
certain circumstances, a loan will be secured by collateral. To the extent that
the loan is required to be secured by collateral, the collateral is marked to
market daily to ensure that the market value is at least 102% of the outstanding
principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the 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 year ended October 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving line of credit facility or the committed line of credit
facility.
Additionally the Fund is permitted to carry a negative or overdrawn balance
in its account with the custodian bank. To compensate the custodian bank for
such overdrafts, the overdrawn Fund may either (i) leave funds in the account so
the custodian can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank. In either case, the custodian bank will
be compensated an amount equal to the Federal Funds rate plus 100 basis points.
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral 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
held may be temporarily less than the value of the securities on loan.
At October 31, 2003, securities with an aggregate value of $37,694,563 were
on loan to brokers. The loans were secured by cash collateral of $38,996,800
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2003, the Fund received fees of $71,442 for
securities lending.
NOTE 7--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------
CALL OPTION CONTRACTS
-------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------
Beginning of year 2,500 $ 585,867
- ------------------------------------------------------------
Written 87,660 14,767,945
- ------------------------------------------------------------
Closed (68,350) (12,127,993)
- ------------------------------------------------------------
Exercised (20,307) (2,862,014)
- ------------------------------------------------------------
Expired (1,503) (363,805)
============================================================
End of year -- $ --
____________________________________________________________
============================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2003 and 2002.
Tax Components of Net Assets:
As of October 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 529,571,996
- ------------------------------------------------------------
Temporary book/tax differences (462,775)
- ------------------------------------------------------------
Capital loss carryforward (3,518,740,353)
- ------------------------------------------------------------
Shares of beneficial interest 5,800,081,560
============================================================
Total net assets $ 2,810,450,428
____________________________________________________________
============================================================
</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
and the tax deferral of losses on certain option transactions. Amount includes
appreciation on foreign currencies of $7.
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
trustee retirement plan expenses.
F-9
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
- ------------------------------------------------------------------------------
October 31, 2011 196,611,268
==============================================================================
Total capital loss carryforward $3,518,740,353
______________________________________________________________________________
==============================================================================
</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 year ended
October 31, 2003 was $2,894,591,510 and $3,402,084,060, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION)OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $572,406,984
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (42,834,995)
==============================================================================
Net unrealized appreciation of investment securities $529,571,989
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $2,294,356,719.
</Table>
NOTE 10--RECLASSIFICATIONS OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions and
net operating losses on October 31, 2003, undistributed net investment income
increased by $22,218,744, undistributed net realized gains decreased by $115,427
and shares of beneficial interest decreased by $22,103,317. This
reclassification had no effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and 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 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 CDSC. Generally, Class B shares will
automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2003 2002
---------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 10,192,956 $ 102,256,843 16,597,940 $ 199,251,597
- -----------------------------------------------------------------------------------------------------------------------------
Class B 5,051,931 47,044,808 5,995,984 66,787,479
- -----------------------------------------------------------------------------------------------------------------------------
Class C 1,715,252 15,941,057 1,919,777 21,362,371
- -----------------------------------------------------------------------------------------------------------------------------
Class R* 23,136 234,973 7,975 72,385
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class 16,638 177,847 45,598 504,589
=============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 1,369,192 14,331,798 368,013 4,307,233
- -----------------------------------------------------------------------------------------------------------------------------
Class B (1,477,850) (14,331,798) (393,806) (4,307,233)
=============================================================================================================================
Reacquired:
Class A (47,251,093) (470,617,830) (111,225,206) (1,268,365,084)
- -----------------------------------------------------------------------------------------------------------------------------
Class B (12,154,199) (111,471,331) (22,942,810) (242,589,514)
- -----------------------------------------------------------------------------------------------------------------------------
Class C (2,990,841) (27,744,880) (4,815,984) (51,937,786)
- -----------------------------------------------------------------------------------------------------------------------------
Class R* (4,184) (44,797) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class (25,361) (261,529) (438,298) (5,924,050)
=============================================================================================================================
(45,534,423) $(444,484,839) (114,880,817) $(1,280,838,013)
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
F-10
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,
-----------------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.47 $ 12.65 $ 28.16 $ 28.31 $ 21.72
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07) (0.07)(a) (0.10) (0.14)(a) (0.10)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 2.19 (3.11) (11.87) 3.18 8.16
=================================================================================================================================
Total from investment operations 2.12 (3.18) (11.97) 3.04 8.06
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (3.54) (3.19) (1.46)
=================================================================================================================================
Total distributions -- -- (3.54) (3.19) (1.47)
=================================================================================================================================
Net asset value, end of period $ 11.59 $ 9.47 $ 12.65 $ 28.16 $ 28.31
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 22.39% (25.14)% (47.38)% 10.61% 38.62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,160,823 $2,104,660 $4,001,552 $8,948,781 $8,089,739
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.47%(c) 1.33% 1.21% 1.03% 1.03%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.47%(c) 1.33% 1.22% 1.07% 1.08%
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.68)%(c) (0.64)% (0.56)% (0.45)% (0.38)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 111% 217% 240% 145% 124%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(c) Ratios are based on average daily net assets of $2,030,992,456.
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------------
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.82 $ 11.86 $ 26.82 $ 27.29 $ 21.12
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14) (0.15)(a) (0.21) (0.36)(a) (0.30)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 2.03 (2.89) (11.21) 3.08 7.93
===============================================================================================================================
Total from investment operations 1.89 (3.04) (11.42) 2.72 7.63
===============================================================================================================================
Less distributions from net realized gains -- -- (3.54) (3.19) (1.46)
===============================================================================================================================
Net asset value, end of period $ 10.71 $ 8.82 $ 11.86 $ 26.82 $ 27.29
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 21.43% (25.63)% (47.75)% 9.76% 37.59%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $555,779 $533,224 $922,476 $1,927,514 $1,291,456
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.17%(c) 2.04% 1.92% 1.78% 1.82%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.17%(c) 2.04% 1.93% 1.82% 1.87%
===============================================================================================================================
Ratio of net investment income (loss) to average
net assets (1.38)%(c) (1.34)% (1.27)% (1.20)% (1.17)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 111% 217% 240% 145% 124%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(c) Ratios are based on average daily net assets of $524,617,004.
F-11
AIM
WEINGARTEN FUND
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.83 $ 11.87 $ 26.85 $ 27.30 $ 21.14
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14) (0.15)(a) (0.21) (0.36)(a) (0.30)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.03 (2.89) (11.23) 3.10 7.92
===============================================================================================================================
Total from investment operations 1.89 (3.04) (11.44) 2.74 7.62
===============================================================================================================================
Less distributions from net realized gains -- -- (3.54) (3.19) (1.46)
===============================================================================================================================
Net asset value, end of period $ 10.72 $ 8.83 $ 11.87 $ 26.85 $ 27.30
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 21.40% (25.61)% (47.77)% 9.83% 37.50%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $91,325 $86,455 $150,604 $301,590 $105,420
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.17%(c) 2.04% 1.92% 1.78% 1.82%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.17%(c) 2.04% 1.93% 1.82% 1.87%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.38)%(c) (1.34)% (1.27)% (1.20)% (1.17)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 111% 217% 240% 145% 124%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(c) Ratios are based on average daily net assets of $85,257,460.
<Table>
<Caption>
CLASS R
---------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.47 $ 11.36
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.03)(a)
- -----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.15 (1.86)
===============================================================================================
Total from investment operations 2.09 (1.89)
===============================================================================================
Net asset value, end of period $11.56 $ 9.47
_______________________________________________________________________________________________
===============================================================================================
Total return(b) 22.07% (16.64)%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 311 $ 76
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets: 1.67%(c) 1.53%(d)
_______________________________________________________________________________________________
===============================================================================================
Ratio of net investment income (loss) to average net assets (0.88)%(c) (0.84)%(d)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(e) 111% 217%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $184,086.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-12
AIM
WEINGARTEN FUND
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.91 $ 13.16 $ 29.00 $ 28.96 $ 22.18
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00 (0.01)(a) (0.01) (0.06)(a) 0.02
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.29 (3.24) (12.29) 3.29 8.32
============================================================================================================================
Total from investment operations 2.29 (3.25) (12.30) 3.23 8.34
============================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.10)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (3.54) (3.19) (1.46)
============================================================================================================================
Total distributions -- -- (3.54) (3.19) (1.56)
============================================================================================================================
Net asset value, end of period $12.20 $ 9.91 $ 13.16 $ 29.00 $ 28.96
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 23.11% (24.70)% (47.11)% 11.07% 39.20%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,213 $ 1,883 $ 7,667 $18,634 $114,076
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 0.78%(c) 0.82% 0.69% 0.64% 0.63%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers 0.78%(c) 0.82% 0.70% 0.68% 0.68%
============================================================================================================================
Ratio of net investment income (loss) to average net assets 0.01%(c) (0.12)% (0.04)% (0.04)% 0.02%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 111% 217% 240% 145% 124%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America.
(c) Ratios are based on average daily net assets of $1,901,891.
NOTE 13--SUBSEQUENT EVENTS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM") is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("INVESCO"), was, until
recently, the investment advisor to the INVESCO Funds.
On December 2, 2003, each of the Securities and Exchange Commission ("SEC")
and the Office of the Attorney General of the State of New York ("NYAG") filed
civil proceedings against INVESCO and Raymond R. Cunningham, in his capacity as
the Chief Executive Officer of INVESCO. Mr. Cunningham currently holds the
positions of Chief Operating Officer and Senior Vice President of A I M
Management Group, Inc., the parent company of AIM, and he also holds the
position of Senior Vice President with AIM. In addition, on December 2, 2003,
the State of Colorado filed civil proceedings against INVESCO. Neither your Fund
nor any of the funds in the AIM Family of Funds(R), which includes the INVESCO
Funds (the "Funds") has been named as a defendant in any of these proceedings.
The SEC proceeding alleges that INVESCO failed to disclose in the INVESCO
Funds' prospectuses and to the INVESCO Funds' independent directors that INVESCO
had entered into certain arrangements permitting market timing of the INVESCO
Funds. The SEC is seeking injunctions, including permanent injunctions from
serving as an investment advisor, officer or director of an investment company;
an accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG proceeding is also based on the circumstances described above. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief.
The Colorado proceeding is also based on the circumstances described above.
The State of Colorado is seeking injunctions; restitution, disgorgement and
other equitable relief; civil monetary penalties; and other relief.
If INVESCO is unsuccessful in its defense of these proceedings, it could be
barred from serving as an investment advisor for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Similarly, if Mr. Cunningham is unsuccessful in his
defense of these proceedings, he could be barred from serving as an officer or
director of any registered investment company. Such results could also affect
the ability of AIM, or any other investment advisor directly or indirectly owned
by AMVESCAP, from serving as an investment advisor to any registered investment
company, including your Fund. Your Fund has been informed by AIM that, if either
of these results occurs, AIM will seek exemptive relief from the SEC to permit
it to continue to serve as your Fund's investment advisor. There can be no
assurance that such exemptive relief will be granted.
F-13
NOTE 13--SUBSEQUENT EVENTS (CONTINUED)
AIM has received inquiries from the SEC, the NASD, Inc., the NYAG and the
Secretary of the Commonwealth of Massachusetts with respect to market timing,
late trading, fair value pricing and other similar issues and AIM has been
providing full cooperation with respect to these inquiries.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
certain Funds, INVESCO, AIM, AMVESCAP and certain related parties, primarily
based upon the allegations in the complaints described above, but also regarding
the funds' fair valuation pricing methodology. Such lawsuits allege a variety of
theories for recovery including, but not limited to: (i) violation of various
provisions of the Federal securities laws; (ii) breach of fiduciary duty; and
(iii) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; interest and the payment of attorneys'
and experts' fees. Additional lawsuits arising out of these circumstances and
presenting similar allegations and requests for relief may be filed against the
Funds, INVESCO, AIM, AMVESCAP and related parties in the future.
As a result of these developments, investors in the Funds might react by
redeeming their investments. This might require the Funds to sell investments to
provide for sufficient liquidity and could also have an adverse effect on the
investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of these matters described above may have on
the Fund or AIM's financial condition.
F-14
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 of AIM Equity Funds), including the schedule of
investments, as of October 31, 2003, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
three years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. 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. Our procedures included confirmation of securities
owned as of October 31, 2003, by correspondence with the custodian and brokers
or by other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Weingarten Fund as of October 31, 2003, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended, in conformity with accounting principles generally
accepted in the United States.
Houston, Texas -s- ERNST & YOUNG LLP
December 16, 2003
F-15
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Equity Funds, a Delaware statutory
trust, was held on October 21, 2003. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHOLDING
DIRECTORS/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 983,597,298 14,109,942
Frank S. Bayley.............................. 983,595,385 14,111,855
James T. Bunch............................... 983,970,384 13,736,856
Bruce L. Crockett............................ 983,967,974 13,739,266
Albert R. Dowden............................. 983,892,850 13,814,390
Edward K. Dunn, Jr........................... 983,672,087 14,035,153
Jack M. Fields............................... 983,987,281 13,719,959
Carl Frischling.............................. 983,352,244 14,354,996
Robert H. Graham............................. 983,794,290 13,912,950
Gerald J. Lewis.............................. 983,317,525 14,389,715
Prema Mathai-Davis........................... 983,676,086 14,031,154
Lewis F. Pennock............................. 983,703,651 14,003,589
Ruth H. Quigley.............................. 983,356,521 14,350,719
Louis S. Sklar............................... 983,812,619 13,894,621
Larry Soll, Ph.D............................. 983,820,425 13,886,815
Mark H. Williamson........................... 983,676,844 14,030,396
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Equity Funds
F-16
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (The Trust), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement,
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S)
TRUST SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management Group Inc.
Trustee, Chairman and (financial services holding company); and Director and Vice
President 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); and
Director and Chairman, A I M Capital Management, Inc.
(registered investment advisor), A I M Distributors, Inc.
(registered broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management Company
(registered broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ----------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President Director, Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor) and A I M
Distributors, Inc. (registered broker dealer); Director and
Chairman, AIM Investment Services, Inc. (registered transfer
agent); and Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global investment management
firm)
Formerly: Director, Chairman, President and Chief Executive
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 2003 Consultant
Trustee
Formerly: President and Chief Executive Officer, AMC Cancer
Research Center; and Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie
Trustee
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd.,
Trustee (investment banking firm); and Director, Policy Studies,
Inc. and Van Gilder Insurance Corporation
Formerly: General Counsel and Director, Boettcher & Co.; and
Chairman and Managing Partner, law firm of Davis, Graham &
Stubbs
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology
Trustee consulting company)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business
Trustee corporations, including the Boss Group Ltd. (private
investment and management) and Magellan 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 Group
companies
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and
Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares Corp.
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc.
Trustee (government affairs company) and Texana Timber LP
- ----------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S)
TRUST HELD BY TRUSTEE
- -------------------------------- ----------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 None
Trustee, Chairman and
President
- ------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 Director and Chairman,
Trustee and Executive Vice INVESCO Bond Funds,
President Inc., INVESCO
Combination Stock &
Bond Funds, Inc.,
INVESCO Counselor
Series Funds, Inc.,
INVESCO International
Funds, Inc., INVESCO
Manager Series Funds,
Inc., INVESCO Money
Market Funds, Inc.,
INVESCO Sector Funds,
Inc., INVESCO Stock
Funds, Inc., INVESCO
Treasurer's Series
Funds, Inc. and
INVESCO Variable
Investment Funds, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker(3) -- 1936 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 Badgley Funds, Inc.
Trustee (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 ACE Limited (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 Cortland Trust, Inc.
Trustee (Chairman) (registered
investment company);
Annuity and Life Re
(Holdings), Ltd.
(insurance company)
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 Administaff
Trustee
- ----------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust. Mr. Williamson became Executive Vice President of
the Trust on March 4, 2003.
(3) Elected trustee of the Trust on October 21, 2003.
Trustees and Officers (continued)
As of January 1, 2003
The address of each trustee and officer of AIM Equity Funds (The Trust) is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement,
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President Counsel, A I M Management Group Inc. (financial services
holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and 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(5) -- 1947 1988 Director, Chairman and Director of Investments, A I M
Senior Vice President 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 -- Fixed
Vice President 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 M Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 1999 Vice President, A I M Advisors, Inc., and President, Chief
Vice President 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 Advisors, Inc.
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Gary T. Crum(5) -- 1947 N/A
Senior Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(5) -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Dana R. Sutton -- 1959 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
</Table>
(3) Elected trustee of the Trust on October 21, 2003.
(4) Mr. Carome became Senior Vice President of the Trust on May 13, 2003.
(5) Information is current as of January 10, 2003.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center
Houston, TX 77046 Suite 100 Suite 100 1401 McKinney, Suite 1200
Houston, TX 77046 Houston, TX 77046-1173 Houston, TX 77010-4035
COUNSEL TO THE FUND
Ballard Spahr COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis & AIM Investment Services, State Street Bank and
1735 Market Street Frankel LLP Inc. Trust Company
Philadelphia, PA 19103 919 Third Avenue P.O. Box 4739 225 Franklin Street
New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110
OFFICE OF THE FUND SUB-ADVISOR
11 Greenway Plaza A I M Capital Management,
Suite 100 Inc.
Houston, TX 77046 11 Greenway Plaza
Suite 100
Houston, TX 77046
COUNSEL TO THE FUND
Ballard Spahr
Andrews & Ingersoll, LLP
1735 Market Street
Philadelphia, PA 19103
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(4) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(5)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) AIM Small Cap Equity Fund was closed to most
investors on December 19, 2003. For information on who may continue to invest in
AIM Small Cap Equity Fund, please contact your financial advisor. (3) AIM Small
Cap Growth Fund was closed to most investors on March 18, 2002. For information
on who may continue to invest in AIM Small Cap Growth Fund, please contact your
financial advisor. (4) Effective April 30, 2003, AIM Worldwide Spectrum Fund was
renamed AIM Global Value Fund. (5) Effective November 24, 2003, INVESCO
International Blue Chip Value Fund was renamed INVESCO International Core Equity
Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
it carefully before investing. If used after January 20, 2004, this brochure
must be accompanied by a fund Performance & Commentary or by an AIM Quarterly
Performance Review for the most recent quarter-end. Mutual funds distributed by
A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $142 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $345 billion in assets
under management. Data as of September 30, 2003.
AIMinvestments.com WEI-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- ----------------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Servicemark--
Plans Accounts
</Table>
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, Registrant had adopted a
code of ethics (the "Code") that applies to the Registrant's principal executive
office ("PEO") and principal financial officer ("PFO"). There were no amendments
to the Code during the period covered by the report. The Registrant did not
grant any waivers, including implicit waivers, from any provisions of the Code
to the PEO or PFO during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the registrant has at least one audit
committee financial expert serving on its Audit Committee. The Audit Committee
financial expert is Prema Mathai-Davis. Ms. Mathai-Davis is "independent" within
the meaning of that term used in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) As of December 18, 2003, an evaluation was performed under the
supervision and with the participation of the officers of AIM Equity
Funds (the "Company"), including the Principal Executive Officer (PEO")
and Principal Financial Officer ("PFO"), to assess the effectiveness of
the Company's disclosure controls and procedures, as that term in
defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the
"Act"), as amended. Based on that evaluation, the Company's officers,
including the PEO and PFO, concluded that, as of December 18, 2003, the
Company's disclosure controls and procedures were reasonably designed
so as to ensure: (1) that information required to be disclosed by the
Company on Form N-C SR is recorded, processed, summarized and reported
with in the time periods specified by the rules and forms of the
Securities and Exchange Commission; and (2) that material information
relating to the Company is made known to the PEO and PFO as appropriate
to allow timely decisions regarding required disclosure.
1
(b) There have been no changes in the Company's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the Company's last fiscal half-year (the Company's
second fiscal half-year in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
ITEM 10. EXHIBITS. CODE OF ETHICS.
(a)(1) Code of Ethics.
(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Act.
(b) Certification of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Act and Section 906 of
the Sarbanes-Oxley Act of 2002.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Registrant: AIM Equity Funds
By: /s/ ROBERT H. GRAHAM
-----------------------------------
Robert H. Graham
Principal Executive Officer
Date: December 18, 2003
---------------------------------
By: /s/ DANA R. SUTTON
---------------------------------
Dana R. Sutton
Principal Financial Officer
Date: December 18, 2003
---------------------------------
EXHIBIT INDEX
10(a)(1) Code of Ethics
10(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940, as amended.
(b) Certification of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002.