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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 BASIC VALUE II FUND
Annual Report to Shareholders o October 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM BASIC VALUE II FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
================================================================================
ABOUT INFORMATION THROUGHOUT THIS REPORT:
<Table>
o Unless otherwise stated, information return. As the fund's assets grow, the o The unmanaged Lipper Multi-Cap Value
presented is as of 10/31/03 and is based impact of IPO investments will decline, Fund Index represents an average of the
on total net assets. which may reduce the effect of IPO performance of the 30 largest
investments on the fund's total return. multi-capitalization value funds tracked
o AIM Basic Value II Fund's performance by Lipper, Inc., an independent mutual
figures are historical, and they reflect o The fund's investment return and fund performance monitor.
fund expenses, the reinvestment of principal value will fluctuate, so an
distributions, and changes in net asset investor's shares, when redeemed, may be o Industry classifications used in this
value. worth more or less than their original report are generally according to the
cost. Global Industry Classification Standard,
o When sales charges are included in which was developed by and is the
performance figures, Class A share o Investing in small and mid-size exclusive property and a service mark of
performance reflects the maximum 5.50% companies may involve risks not Morgan Stanley Capital International
sales charge, and Class B and Class C associated with investing in more Inc. and Standard & Poor's.
share performance reflects the established companies. Also, small
applicable contingent deferred sales companies may have business risk, o A direct investment cannot be made in
charge (CDSC) for the period involved. significant stock price fluctuations and an index. Unless otherwise indicated,
The CDSC on Class B shares declines from illiquidity. index results include reinvested
5% beginning at the time of purchase to dividends, and they do not reflect sales
0% at the beginning of the seventh year. charges. Performance of an index of
The CDSC on Class C shares is 1% for the o The unmanaged Standard & Poor's funds reflects fund expenses;
first year after purchase. The Composite Index of 500 Stocks (the S&P performance of a market index does not.
performance of the fund's share classes 500--Registered Trademark--) is an
will differ due to different sales index of common stocks frequently A description of the policies and
charge structures and class expenses. used as a general measure of procedures that the fund uses to
U.S. stock market performance. determine how to vote proxies relating
o Had the advisor and distributor not to portfolio securities is available
waived fees and/or reimbursed expenses, o The unmanaged Russell 1000 without charge, upon request, by calling
returns would have been lower. --Registered Trademark-- Value 800-959-4246, or on the AIM Web site,
Index is a subset of the unmanaged AIMinvestments.com.
o The fund may participate in the Russell 1000 Index, which represents the
initial public offering (IPO) market in performance of the stocks of large-
some market cycles. Because of the capitalization companies; the Value
fund's small asset base, any investment subset measures the performance of
the fund may make in IPOs may Russell 1000 companies with lower
significantly affect the fund's total price/book ratios and lower 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.
=====================================================
AIMinvestments.com
</Table>
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER IN
THE AIM FAMILY OF FUNDS
--Registered Trademark--:
As you may be aware, there has been a new policies and strengthened existing ones--to discourage
[PHOTO OF great deal of media coverage recently harmful short-term trading. These steps include:
ROBERT H. about the mutual fund industry and
GRAHAM] 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
INVESCO Funds Group (IFG), the former believe may be vulnerable to harmful short-term
[PHOTO OF adviser to certain INVESCO Funds, was trading activity.
MARK H. recently named as a defendant in
WILLIAMSON] separate civil enforcement actions by o Implementing an enhanced exchange policy (effective on
the U.S. Securities and Exchange or about March 1, 2004) designed to limit exchanges
MARK H. WILLIAMSON Commission (SEC), the Office of the New between funds.
York Attorney General and the State of
Colorado over an issue known as "market timing." A number o Employing an enhanced fair value pricing policy on
of private class or derivative actions also were filed in certain foreign securities as well as certain illiquid
the wake of the regulators' actions. securities.
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 trading
opportunity to assure you that, based on an investigation strategies that may be detrimental to a fund. Moreover, each
conducted by an outside firm, IFG and its parent company, of these tools involves judgments that are inherently
AMVESCAP PLC, believe that these civil actions are without subjective. We have always sought and continue to seek to
merit. IFG is contesting the charges. make these judgments to the best of our abilities and in a
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--
A COMPLEX ISSUE Index 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.
Thank you for your continued participation in AIM
AIM Investments has policies in place designed to Investments. Please call your financial advisor or one of
identify, prevent and eliminate harmful trading or other our Client Service representatives at 800-959-4246 if you
activities deemed to be detrimental to the funds. We have have any further questions or concerns about your AIM
also recently taken additional steps--implemented 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 OUTPERFORMS FOUR INDEXES ========================================
This report covers the fiscal year ended and utilities were the top-performing WE ARE PLEASED TO
October 31, 2003. Class A shares of AIM sectors. The telecommunication services
Basic Value II Fund returned 29.12% at sector turned in the weakest BE ABLE TO REPORT
net asset value for the year. This performance, followed by consumer
return exceeds the return the S&P 500, a staples and health care. Over the fiscal POSITIVE, DOUBLE-DIGIT
well-known broad market index, which year, small and mid-cap stocks generally
returned 20.79%. In addition, the fund outperformed large-cap stocks. RETURNS FOR THE FISCAL
captured higher returns than the Russell
1000 Index (22.32%) and the Russell 1000 For most of the fiscal year, the YEAR THAT EXCEEDED THE
Value Index (22.87%). It also Federal Reserve Board (the Fed) kept the
outperformed the Lipper Multi-Cap Value short-term fed funds rate at 1.25%. On RETURNS OF SEVERAL
Fund Index (27.27%), an index of funds June 25, 2003, it lowered that rate to
which, like AIM Basic Value II Fund, 1.00%, its lowest level since 1958. The RELEVANT INDEXES.
invest in value stocks of all market Fed said it favored a more expansive
capitalizations. (A table comparing the monetary policy because the economy had ========================================
fund's performance to that of its not yet exhibited sustainable growth. By
indexes is found on page 4.) October, the Fed reported that the pace YOUR FUND
of economic expansion had picked up,
MARKET CONDITIONS consumer spending had generally Subsequent to the lows reached in March
strengthened and residential real estate of this year, the broader markets surged
Gross domestic product (GDP) growth was strong, but commercial real estate in anticipation of an improving economic
improved over the reporting period. The was sluggish, and labor markets remained outlook. More economically sensitive
annualized GDP growth for both the last weak. areas of the market proved to be the
quarter of 2002 and the first quarter of best performing sectors, and,
2003 was 1.4%. For second-quarter 2003, The job market was comparatively weak accordingly, our strongest performers
it was 3.3%, annualized. On November 25, throughout the period, with the U.S. came from those sectors such as
after the close of the reporting period, unemployment rate measuring 6.0% for the financials, industrials, consumer
the preliminary estimate for last two months of 2002, reaching a high discretionary and technology.
third-quarter GDP growth was announced for the reporting period of 6.4% in Additionally, the fund benefited from
as 8.2%, annualized. June, and declining in August and its overweight position in health care
October to end the period at 6.0%. stocks. In four of these five sectors,
All sectors of the S&P 500 recorded the stocks in AIM Basic Value II Fund
gains for the year. Information outperformed their respective sectors in
technology, materials the Russell 1000 Value Index.
Among the biggest contributors to
fund performance were Computer
Associates, in the information
technology sector, and Cendant,
</Table>
<Table>
==================================================================================================================================
PORTFOLIO COMPOSITION BY TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
MARKET CAPITALIZATION
Based on total equity holdings 1. Merrill Lynch & Co. 5.0% 1. Advertising 6.2%
2. Citigroup Inc. 4.4 2. Thrifts & Mortgage Finance 5.7
[PIE CHART]
3. Computer Associates 3. Investment Banking & Brokerage 5.0
MID-CAP STOCKS 44% International, Inc. 4.4
4. Diversified Commercial Services 4.9
SMALL-CAP STOCKS 2% 4. Tyco International Ltd. (Bermuda) 4.1
5. Data Processing & Outsourced
LARGE-CAP STOCKS 54% 5. Cendant Corp. 3.5 Services 4.6
Source: Lipper, Inc. 6. Fannie Mae 3.4 6. Health Care Distributors 4.6
7. Novellus Systems, Inc. 3.3 7. Other Diversified Financial
Services 4.4
8. Interpublic Group of Cos., Inc.
(The) 3.2 8. System Software 4.4
9. Waste Management, Inc. 3.1 9. Industrial Conglomerates 4.1
10. Omnicom Group Inc. 3.1 10. Food Retail 3.9
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
==================================================================================================================================
</Table>
2
<Table>
in the industrials sector, both of which IN CLOSING BRET W. STANLEY
exceeded the returns of their respective [PHOTO OF Mr. Stanley, Chartered
sectors. We are pleased to be able to report BRET W. Financial Analyst, is
positive, double-digit returns for the STANLEY] lead portfolio manager
Computer Associates, one of the fiscal year that exceeded the returns of of AIM Basic Value II Fund.
world's largest business software several relevant indexes. We believe Prior to joining AIM in 1998, Mr. Stanley
development companies, posted the that many of the best valuation was a vice president and portfolio manager
strongest contribution, having rebounded opportunities can be found in more with Van Kampen American Capital, Inc.
sharply from the prior year's lows. For economically sensitive companies--those
the quarter ended September 30, 2003, whose performance correlates most Mr. Stanley received a B.B.A. in
the company reported an 8% increase in strongly to the overall level of finance from The University of Texas at
total revenue over the same quarter of economic activity. Austin and an M.S. in finance from the
the previous year. University of Houston.
We continued to follow a long-term
Much like Computer Associates, strategy of buying quality companies R. CANON COLEMAN II
Cendant also posted strong returns in selling at a substantial discount to [PHOTO OF R. Mr. Coleman, Chartered
the period after a disappointing 2002. their intrinsic value. While stock CANON Financial Analyst, is a
Cendant is a leading provider of prices may experience periods of high COLEMAN II] portfolio manager of AIM
business and consumer services focused volatility, we believe that the inherent Basic Value II Fund. He
on the travel and residential real value of a business is much more stable joined AMVESCAP in 1999 in its corporate
estate markets with such brands as over time, so we continued to take associate rotation program, working with
Ramada, Avis, Budget, Century 21 and advantage of market volatility to invest fund managers throughout AMVESCAP before
Coldwell Banker. For the nine months in good companies that we believed were joining AIM in 2000.
ended September 30, 2003, Cendant significantly undervalued on an absolute
revenues rose 34%. In our view, basis. Mr. Coleman earned a B.S. and an M.S.
Cendant's returns improved on the heels in accounting from the University of
of the company's strategic shift from an Florida. He also has an M.B.A. from The
acquisitive growth company to one more See important fund and index Wharton School at the University of
focused on improving profitability and disclosures inside front cover. Pennsylvania.
investment returns.
MATTHEW W. SEINSHEIMER
One holding that detracted from the [PHOTO OF Mr. Seinsheimer, Chartered
fund's return was offshore oil- and MATTHEW W. Financial Analyst, is a
gas-drilling giant Transocean. In July, SEINSHEIMER] portfolio manager of AIM
Transocean's second-quarter earnings Basic Value II Fund. He
statement announced that the company began his investment
anticipated a difficult earnings career in 1992 as a fixed-income trader
environment for the remainder of 2003 at Neuberger & Berman. Mr. Seinsheimer
because of increased competition for joined AIM as a senior analyst in 1998
shallow-water drilling contracts and a and assumed his current responsibilities
scarcity of opportunities for deep-water in 2000.
drilling contracts, wherein the company
believes it has a more competitive edge. Mr. Seinsheimer received a B.B.A.
Subsequently, the share price declined. from Southern Methodist University and
We continue to own shares in Transocean an M.B.A. from the University of Texas
and believe that this stock offers at Austin.
excellent upside potential.
MICHAEL J. SIMON
[PHOTO OF Mr. Simon, Chartered
MICHAEL J. Financial Analyst, is
SIMON] a portfolio manager of
AIM Basic Value II Fund.
prior to joining AIM in 2001,Mr. Simon was
vice president, equity analyst and
portfolio manager with Luther King
capital Management.
Mr. Simon received a B.B.A. in
finance from Texas Christian University
and an M.B.A. from the University of
Chicago.
Assisted by the Basic Value Team.
</Table>
[GRAPHIC]
For More Information Visit
AIMinvestments.com
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM Basic Value II Fund: 8/30/02-10/31/03
[MOUNTAIN CHART]
<Table>
<Caption>
DATE AIM BASIC AIM BASIC AIM BASIC
VALUE II FUND VALUE II FUND VALUE II FUND RUSSELL 1000
CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX
8/30/2002 9450 10000 10000 10000
9/30/02 7995 8460 8460 8926
10/31/02 8628 9130 9130 9668
11/30/02 9393 9940 9940 10233
12/31/02 8807 9320 9320 9654
1/31/03 8597 9097 9097 9420
2/28/03 8233 8712 8712 9275
3/31/03 8252 8732 8732 9371
4/30/03 9036 9562 9562 10127
5/31/03 10078 10664 10664 10704
6/30/03 10259 10856 10856 10845
7/31/03 10584 11200 11200 11061
8/31/03 10871 11504 11504 11286
9/30/03 10680 11301 11301 11170
10/31/03 11142 11388 11788 11825
Source: Lipper, Inc.
</Table>
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 on sale of fund shares.
Performance of the index does not reflect the effects of taxes.
Russell 1000 Index: 8/31/02-10/31/03
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>
====================================================================================================================================
FUND VS. INDEXES AVERAGE ANNUAL TOTAL RETURNS In addition to fund returns as of the
Total returns 10/31/02-10/31/03, As of 10/31/03, including sales charges close of the fiscal year, industry
excluding sales charges regulations require us to provide
Class A Shares average annual total returns (including
Class A Shares 29.12% Inception (8/30/02) 9.69% sales charges) for periods ended
1 Year 22.03 9/30/03, the most recent calendar
Class B Shares 29.12 quarter-end, which were as follows.
Class B Shares
Class C Shares 29.12 Inception (8/30/02) 11.75 AVERAGE ANNUAL TOTAL RETURNS
1 Year 24.12 As of 9/30/03, including sales charges
S&P 500 Index 20.79
Class C Shares Class A Shares
Russell 1000 Index 22.32 Inception (8/30/02) 15.10 Inception (8/30/02) 6.28%
1 Year 28.12 1 Year 26.29
Russell 1000 Value Index 22.87
Class B Shares
Lipper Multi-Cap Value Fund Index 27.27 Inception (8/30/02) 8.29
Source: Lipper, Inc. 1 Year 28.60
TOTAL NUMBER OF HOLDINGS 38 Class C Shares
TOTAL NET ASSETS $1.18 million Inception (8/30/02) 11.95
1 Year 32.60
====================================================================================================================================
</Table>
4
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------
COMMON STOCKS-99.98%
ADVERTISING-6.20%
Interpublic Group of Cos., Inc. (The) 2,500 $ 37,200
- ------------------------------------------------------------------
Omnicom Group Inc. 450 35,910
==================================================================
73,110
==================================================================
AEROSPACE & DEFENSE-1.82%
Honeywell International Inc. 700 21,427
==================================================================
APPAREL RETAIL-2.59%
Gap, Inc. (The) 1,600 30,528
==================================================================
BUILDING PRODUCTS-2.84%
American Standard Cos. Inc.(a) 350 33,495
==================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.61%
Ceridian Corp.(a) 1,400 29,400
- ------------------------------------------------------------------
First Data Corp. 700 24,990
==================================================================
54,390
==================================================================
DIVERSIFIED BANKS-2.52%
Bank One Corp. 700 29,715
==================================================================
DIVERSIFIED CAPITAL MARKETS-3.05%
J.P. Morgan Chase & Co. 1,000 35,900
==================================================================
DIVERSIFIED COMMERCIAL SERVICES-4.87%
Cendant Corp.(a) 2,000 40,860
- ------------------------------------------------------------------
H&R Block, Inc. 350 16,481
==================================================================
57,341
==================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-2.93%
Waters Corp.(a) 1,100 34,573
==================================================================
EMPLOYMENT SERVICES-2.20%
Robert Half International Inc.(a) 1,100 25,971
==================================================================
ENVIRONMENTAL SERVICES-3.08%
Waste Management, Inc. 1,400 36,288
==================================================================
FOOD RETAIL-3.88%
Kroger Co. (The)(a) 1,650 28,858
- ------------------------------------------------------------------
Safeway Inc.(a) 800 16,880
==================================================================
45,738
==================================================================
</Table>
<Table>
- ------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
GENERAL MERCHANDISE STORES-2.02%
Target Corp. 600 $ 23,844
==================================================================
HEALTH CARE DISTRIBUTORS-4.58%
Cardinal Health, Inc. 450 26,703
- ------------------------------------------------------------------
McKesson Corp. 900 27,243
==================================================================
53,946
==================================================================
HEALTH CARE FACILITIES-3.69%
HCA Inc. 400 15,300
- ------------------------------------------------------------------
Universal Health Services, Inc.-Class B(a) 600 28,230
==================================================================
43,530
==================================================================
HEALTH CARE SERVICES-2.90%
IMS Health Inc. 1,450 34,118
==================================================================
HOTELS, RESORTS & CRUISE LINES-2.86%
Starwood Hotels & Resorts Worldwide, Inc. 1,000 33,730
==================================================================
INDUSTRIAL CONGLOMERATES-4.07%
Tyco International Ltd. (Bermuda) 2,300 48,024
==================================================================
INVESTMENT BANKING & BROKERAGE-5.02%
Merrill Lynch & Co., Inc. 1,000 59,200
==================================================================
LEISURE PRODUCTS-3.02%
Brunswick Corp. 1,200 35,604
==================================================================
MANAGED HEALTH CARE-2.68%
Aetna Inc. 550 31,576
==================================================================
OIL & GAS DRILLING-3.64%
Pride International, Inc.(a) 1,450 23,751
- ------------------------------------------------------------------
Transocean Inc. (Cayman Island)(a) 1,000 19,190
==================================================================
42,941
==================================================================
OIL & GAS EQUIPMENT & SERVICES-1.33%
Weatherford International Ltd. (Bermuda)(a) 450 15,638
==================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-4.42%
Citigroup Inc. 1,100 52,140
==================================================================
PHARMACEUTICALS-3.19%
Aventis S.A. (France) 320 16,886
- ------------------------------------------------------------------
Wyeth 470 20,746
==================================================================
37,632
==================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-2.60%
ACE Ltd. (Cayman Island) 850 $ 30,600
==================================================================
SEMICONDUCTOR EQUIPMENT-3.33%
Novellus Systems, Inc.(a) 950 39,226
==================================================================
SYSTEMS SOFTWARE-4.39%
Computer Associates International, Inc. 2,200 51,744
==================================================================
THRIFTS & MORTGAGE FINANCE-5.65%
Fannie Mae 560 40,146
- ------------------------------------------------------------------
Radian Group Inc. 500 26,450
==================================================================
66,596
==================================================================
Total Domestic Common Stocks (Cost
$963,353) 1,178,565
==================================================================
TOTAL INVESTMENTS-99.98% (Cost $963,353) 1,178,565
==================================================================
OTHER ASSETS LESS LIABILITIES-0.02% 260
==================================================================
NET ASSETS-100.00% $1,178,825
__________________________________________________________________
==================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
See Notes to Financial Statements.
AIM Basic Value II
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2003
<Table>
<Caption>
Assets:
Investments, at market value (cost $963,353) $ 1,178,565
-----------
Cash 7,025
-----------
Receivables for:
Dividends 703
-----------
Amount due from advisor 9,475
-----------
Investment for deferred compensation plan 3,462
-----------
Other assets 99
===========
Total assets 1,199,329
===========
Liabilities:
Payables for:
Deferred compensation plan 3,462
-----------
Accrued trustees' fees 567
-----------
Accrued transfer agent fees 19
-----------
Accrued operating expenses 16,456
===========
Total liabilities 20,504
===========
Net assets applicable to shares outstanding $ 1,178,825
===========
Net assets consist of:
Shares of beneficial interest $ 995,507
-----------
Undistributed net investment income (loss) (3,792)
-----------
Undistributed net realized gain (loss) from investment securities
and foreign currencies (28,102)
-----------
Unrealized appreciation of investment securities 215,212
-----------
$ 1,178,825
===========
Net Assets:
Class A $ 471,527
===========
Class B $ 353,649
===========
Class C $ 353,649
===========
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized:
Class A 40,477
===========
Class B 30,357
===========
Class C 30,357
===========
Class A :
Net asset value per share $ 11.65
-----------
Offering price per share:
(Net asset value of $11.65 / 94.50%) $ 12.33
===========
Class B :
Net asset value and offering price per share $ 11.65
===========
Class C :
Net asset value and offering price per share $ 11.65
===========
</Table>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
For the year ended October 31, 2003
<Table>
<Caption>
Investment income:
Dividends $ 10,127
---------
Expenses:
Advisory fees 7,610
---------
Administrative services fees 50,000
---------
Custodian fees 2,064
---------
Distribution fees:
Class A 1,420
---------
Class B 3,044
---------
Class C 3,044
---------
Transfer agent fees 32
---------
Trustees' fees 8,856
---------
Printing and postage fees 5,518
---------
Professional fees 24,419
---------
Other 2,174
=========
Total expenses 108,181
=========
Less: Fees waived, expenses reimbursed and expense offset arrangements (90,438)
=========
Net expenses 17,743
=========
Net investment income (loss) (7,616)
=========
Realized and unrealized gain (loss) from investment securities and foreign
currencies:
Net realized gain (loss) from:
Investment securities (7,764)
---------
Foreign currencies 66
=========
(7,698)
=========
Change in net unrealized appreciation of investment securities 281,016
=========
Net gain from investment securities
and foreign currencies 273,318
=========
Net increase in net assets resulting from operations $ 265,702
=========
</Table>
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
For the year ended October 31, 2003 and the period August 30, 2002 (Date
operations commenced) to October 31, 2002
<Table>
<Caption>
2003 2002
----------- -----------
Operations:
Net investment income (loss) $ (7,616) $ (765)
----------- -----------
Net realized gain (loss) from investment securities
and foreign currencies (7,698) (20,338)
----------- -----------
Change in net unrealized appreciation (depreciation) of investment securities 281,016 (65,804)
=========== ===========
Net increase (decrease) in net assets resulting from operations 265,702 (86,907)
=========== ===========
Distributions to shareholders from net investment income:
Class A (4,400) --
----------- -----------
Class B (3,300) --
----------- -----------
Class C (3,300) --
=========== ===========
Decrease in net assets resulting from distributions (11,000) --
=========== ===========
Share transactions-net:
Class A 4,400 400,010
----------- -----------
Class B 3,300 300,010
----------- -----------
Class C 3,300 300,010
=========== ===========
Net increase in net assets resulting from share transactions 11,000 1,000,030
=========== ===========
Net increase in net assets 265,702 913,123
=========== ===========
Net assets:
Beginning of year 913,123 --
=========== ===========
End of year (including undistributed net investment income
(loss) of $(3,792) and $6,231 for 2--3 and 2002, respectively) 1,178,825 $ 913,123
=========== ===========
</Table>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Basic Value II Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
consists of multiple classes of shares. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund. The Fund is currently closed to
new investors.
The Fund's investment objective is to provide long-term growth of
capital. Each company listed in the Schedule of Investments is organized in the
United States 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 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 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% of the Fund's next $1
billion of average daily net assets, plus 0.65% of the Fund's average daily net
assets in excess of $2 billion. AIM has voluntarily agreed to waive fees and/or
reimburse expenses (excluding interest, taxes, fund merger and reorganization
expenses, extraordinary items, including other items designated as such by the
Board of Trustees, and increases in expenses due to expense offset arrangements,
if any) for Class A, Class B and Class C shares to the extent necessary to limit
the total annual fund operating expenses of Class A, Class B and Class C shares
to 1.75%. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time without further notice to investors. During periods of
voluntary waivers or reimbursements to the extent the annualized expense ratio
does not exceed the voluntary limit for the period committed, AIM will retain
its ability to be reimbursed for such fee waivers or reimbursements prior to the
end of each fiscal year. Further, AIM has voluntarily agreed to waive advisory
fees of the Fund in the amount of 25% of the advisory fee AIM receives from the
affiliated money market funds in which the Fund has invested. For the year ended
October 31, 2003, AIM waived fees of $7,610 and reimbursed expenses of $74,541.
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 Services, Inc., a fee for providing transfer agency and shareholder
services to the Fund. During the year ended October 31, 2003, AISI retained $107
for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A,
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 of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
shares of such classes. Any amounts not paid as a service fee under the Plans
would constitute an asset-based sales charge. NASD Rules also impose a cap on
the total amount of sales charges, including asset-based sales charges that may
be paid by any class of shares of the Fund. AIM Distributors has voluntarily
agreed to waive all fees during the time the shares are not available for sale.
This waiver may be modified or discontinued at any time. Pursuant to the Plans,
for the year ended October 31, 2003, the Class A, Class B and Class C shares
paid $0, $0 and $0, respectively, after AIM Distributors waived plan fees of
$1,420, $3,044, and $3,044, respectively.
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 and reductions in custodian
fees of $768 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $779.
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
$2,189 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 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 Principal on each loan outstanding shall bear interest at the
bid rate quoted by SSB at the time of the request for the loan.
During the year ended October 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted 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 - DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
- -----------------------------
The tax character of distributions paid during the year ended October 31, 2003
and the period August 30, 2002 (date operations commenced) through October 31,
2002 were as follows:
<Table>
<Caption>
2003 2002
---------------------- ----------------------
Distributions paid from ordinary income $ 11,000 $ --
====================== ======================
</Table>
Tax Components of Net Assets:
- ----------------------------
As of October 31, 2003, the components of net assets a tax basis were as
follows:
<Table>
Unrealized appreciation - investments $ 215,212
Temporary book/tax differences (3,792)
Capital loss carryforward (28,102)
Shares of beneficial interest 995,507
-----------------------
Total net assets $ 1,178,825
=======================
</Table>
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of trustee deferral of compensation.
The Fund has a capital loss carryforward for tax purposes which expires
as follows:
<Table>
<Caption>
CAPITAL
EXPIRATION LOSS CARRYFORWARD
--------------------------------- -----------------------
October 31, 2010 $ 20,338
October 31, 2011 7,764
-----------------------
Total capital loss carryforward $ 28,102
=======================
</Table>
NOTE 7 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2003 was $205,615 and $194,571, respectively.
<Table>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
Aggregate unrealized appreciation of investment securities $ 235,418
--------------
Aggregate unrealized (depreciation) of investment securities (20,206)
--------------
Net unrealized appreciation of investment securities $ 215,212
==============
Investments have the same cost for tax and financial statement purposes.
</Table>
NOTE 8 - RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions,
nondeductible stock issuance costs, nondeductible excise tax paid, and net
operating losses, on October 31, 2003, undistributed net investment income was
increased by $8,593 undistributed net realized gains decreased by $66 and shares
of beneficial interest decreased by $8,527. This reclassification had no effect
on the net assets of the Fund.
NOTE 9 - SHARE INFORMATION
The Fund currently consists of three different classes of shares that are not
currently available for sale: Class A shares, Class B shares and Class C shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with 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
- ------------------------------------------------------------------------------------------------------
AUGUST 30, 2002 (DATE
OPERATIONS COMMENCED) TO
YEAR ENDED OCTOBER 31, OCTOBER 31,
2003 2002
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------ ------------ ------------------
Sold:
Class A * -- $ -- 40,001 $ 400,010
------------- ------------ ------------ ------------------
Class B * -- -- 30,001 300,010
------------- ------------ ------------ ------------------
Class C * -- -- 30,001 300,010
------------- ------------ ------------ ------------------
Issued as reinvestment of dividends:
Class A * 476 4,400 -- --
------------- ------------ ------------ ------------------
Class B * 356 3,300 -- --
------------- ------------ ------------ ------------------
Class C * 356 3,300 -- --
============ ============ ============ ==================
1,188 $ 11,000 100,003 $ 1,000,030
============ ============ ============ ==================
* Currently, the Fund is not open to investors and consequently all shares
are owned by AIM.
</Table>
NOTE 10-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
-------------- ------------------
2003 2002
-------------- ------------------
Net asset value, beginning of period $ 9.13 $ 10.00
-------------- ------------------
Income from investment operations:
Net investment income (loss) (0.07) (0.01)
-------------- ------------------
Net gains (losses) on securities (both realized and unrealized) 2.70 (0.86)
============== ==================
Total from investment operations 2.63 (0.87)
============== ==================
Less dividends from net investment income (0.11) --
============== ==================
Net asset value, end of period $ 11.65 $ 9.13
============== ==================
Total return(a) 29.12% (8.70)%
============== ==================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 472 $ 365
============== ==================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.83%(b) 1.75%(c)
-------------- ------------------
Without fee waivers and expense reimbursements 10.27%(b) 23.74%(c)
============== ==================
Ratio of net investment income (loss) to average net assets (0.75)%(b) (0.49)(c)
============== ==================
Portfolio turnover rate(d) 20% 4%
============== ==================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales
charges and is not annualized for periods less than one year.
(b) Ratios are based on average daily net assets of $405,837.
(c) Annualized.
(d) Not annualized for periods less than one year.
NOTE 10-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
-------------- ----------------
2003 2002
-------------- ----------------
Net asset value, beginning of period $ 9.13 $ 10.00
-------------- ----------------
Income from investment operations:
Net investment income (loss) (0.07) (0.01)
-------------- ----------------
Net gains (losses) on securities (both realized and unrealized) 2.70 (0.86)
============== ================
Total from investment operations 2.63 (0.87)
============== ================
Less dividends from net investment income (0.11) --
============== ================
Net asset value, end of period $ 11.65 $ 9.13
============== ================
Total return (a) 29.12% (8.70)%
============== ================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 354 $ 274
============== ================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.83%(b) 1.75% (c)
-------------- ----------------
Without fee waivers and expense reimbursements 10.92%(b) 24.39% (c)
============== ================
Ratio of net investment income (loss) to average net assets (0.75)%(b) (0.49)(c)
============== ================
Portfolio turnover rate (d) 20% 4%
============== ================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales
charges and is not annualized for periods less than one year.
(b) Ratios are based on average daily net assets of $304,382.
(c) Annualized.
(d) Not annualized for periods less than one year.
NOTE 10-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
-------------- ----------------
2003 2002
-------------- ----------------
Net asset value, beginning of period $ 9.13 $ 10.00
-------------- ----------------
Income from investment operations:
Net investment income (loss) (0.07) (0.01)
-------------- ----------------
Net gains (losses) on securities (both realized and unrealized) 2.70 (0.86)
============== ================
Total from investment operations 2.63 (0.87)
============== ================
Less dividends from net investment income (0.11) --
============== ================
Net asset value, end of period $ 11.65 $ 9.13
============== ================
Total return (a) 29.12% (8.70)%
============== ================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 354 $ 274
============== ================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.83%(b) 1.75% (c)
============== ================
Without fee waivers and expense reimbursements 10.92%(b) 24.39% (c)
============== ================
Ratio of net investment income (loss) to average net assets (0.75)%(b) (0.49)(c)
============== ================
Portfolio turnover rate (d) 20% 4%
============== ================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales
charges and is not annualized for periods less than one year.
(b) Ratios are based on average daily net assets of $304,382.
(c) Annualized.
(d) Not annualized for periods less than one year.
NOTE 11 - SUBSEQUENT EVENT
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.
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.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Basic Value II Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Basic Value II Fund (a portfolio 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, and the statements of changes in net assets and financial
highlights for each of the two years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
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
Basic Value II Fund as of October 31, 2003, the results of its operations for
the year then ended, and the changes in its net assets and the financial
highlights for each of the two years in the period then ended, in conformity
with accounting principles generally accepted in the United States.
Houston, Texas /s/ ERNST & YOUNG LLP
December 16, 2003
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
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 BVA2-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 DIVERSIFIED DIVIDEND FUND
Annual Report to Shareholders o October 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM DIVERSIFIED DIVIDEND FUND SEEKS TO PROVIDE GROWTH OF CAPITAL AND,
SECONDARILY, CURRENT INCOME.
================================================================================
ABOUT INFORMATION THROUGHOUT THIS REPORT:
<Table>
o Unless otherwise stated, information o The fund may participate in the initial o The unmanaged Standard & Poor's
presented is as of 10/31/03 and is based public offering (IPO) market in some Composite Index of 500 Stocks (the S&P
on total net assets. market cycles. Because of the fund's 500--Registered Trademark--) is an index
small asset base, any investment the fund of common stocks frequently used as a
o AIM Diversified Dividend Fund's may make in IPOs may significantly affect general measure of U.S. stock market
performance figures are historical, and the fund's total return. As the fund's performance.
they reflect fund expenses, the assets grow, the impact of IPO
reinvestment of distributions, and investments will decline, which may o Bloomberg, Inc. is a well-known
changes in net asset value. reduce the effect of IPO investments on independent financial research and
the fund's total return. reporting firm.
o Had the advisor not waived fees and/or
reimbursed expenses, returns would have o The fund's investment return and o A direct investment cannot be made in
been lower. principal value will fluctuate, so an an index. Unless otherwise indicated,
investor's shares, when redeemed, may be index results include reinvested
o When sales charges are included in worth more or less than their original dividends, and they do not reflect sales
performance figures, Class A share cost. charges. Performance of an index of funds
performance reflects the maximum 5.50% reflects fund expenses; performance of a
sales charge, and Class B and Class C o Industry classifications used in this market index does not.
share performance reflects the applicable report are generally according to the
contingent deferred sales charge (CDSC) Global Industry Classification Standard, A description of the policies and
for the period involved. The CDSC on which was developed by and is the procedures that the fund uses to
Class B shares declines from 5% beginning exclusive property and a service mark of determine how to vote proxies relating to
at the time of purchase to 0% at the Morgan Stanley Capital International Inc. portfolio securities is available without
beginning of the seventh year. The CDSC and Standard & Poor's. charge, upon request, by calling
on Class C shares is 1% for the first 800-959-4246, or on the AIM Web site,
year after purchase. The performance of o The unmanaged Lipper Large-Cap Core AIMinvestments.com.
the fund's share classes will differ due Fund Index represents an average of the
to different sales charge structures and performance of the 30 largest
class expenses. large-capitalization core equity funds
tracked by Lipper, Inc., an independent
o Effective 9/30/03, Class B shares are mutual fund performance monitor.
not available as an investment for
retirement plans maintained pursuant to o The unmanaged Russell 1000--Registered
Section 401 of the Internal Revenue Code, Trademark-- Index represents the
including 401(k) plans, money purchase performance of the stocks of
pension plans and profit sharing plans. large-capitalization companies.
Plans that have existing 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 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
[PHOTO OF INVESCO Funds Group (IFG), the former on or about March 1, 2004) designed to limit
MARK H. adviser to certain INVESCO Funds, was exchanges between funds.
WILLIAMSON] recently named as a defendant in separate
civil enforcement actions by the U.S. o Employing an enhanced fair value pricing policy on
MARK H. WILLIAMSON Securities and Exchange Commission (SEC), certain foreign securities as well as certain
the Office of the New York Attorney illiquid securities.
General and the State of Colorado over an
issue known as "market timing." A number of private class or None of these tools alone, nor all of them taken
derivative actions also were filed in the wake of the together, eliminate the possibility of short-term trading
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 as
AMVESCAP PLC, believe that these civil actions are without vigilant as possible in the future to identify and address
merit. IFG is contesting the charges. 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 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 Funds AIM Investments
--Registered Trademark--
December 18, 2003
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
SIGNS OF ECONOMIC RECOVERY estate was strong--but that commercial
BENEFIT FUND real estate was sluggish and that labor
markets remained weak. Indeed, the
Signs of a strengthening economy Hussein, and by May 1 President Bush was nation's unemployment rate was 6.0% at
benefited the broad U.S. stock market and able to announce that major combat the close of the fiscal year.
AIM Diversified Dividend Fund for the operations in Iraq had ended.
fiscal year ended October 31, 2003. For For the fiscal year:
the fiscal year covered by this report, The U.S. economy expanded during the
the fund's Class A, Class B, and Class C fiscal year. Gross domestic product, the o All sectors of the S&P 500 recorded
shares returned 18.39%, 17.67%, and broadest measure of economic activity, gains.
17.55%, respectively, at net asset value. grew at an annualized rate of 1.4% in the
For the fiscal year, the fund first quarter of 2003, 3.3% in the second o Information technology, materials,
underperformed the S&P 500, which quarter, and 8.2% in the third quarter. and utilities were the top-performing
returned 20.79%, but outperformed the Corporate earnings also showed signs of sectors of the S&P 500.
Lipper Large-Cap Core Fund Index, which strength. According to Bloomberg, as of
returned 16.86%. the close of the fiscal year, more than o Telecommunication services, consumer
65% of S&P 500 corporations that had staples, and health care were the
MARKET CONDITIONS reported their third-quarter 2003 weakest-performing sectors.
earnings exceeded analysts' expectations.
Signs of a generally improving economy YOUR FUND
helped the U.S. stock market rise for For most of the fiscal year, the
much of the fiscal year ended October 31, Federal Reserve (the Fed) kept the It was an eventful year for the fund. It
2003. The S&P 500 rose in November 2002, short-term federal funds rate at 1.25%. was renamed AIM Diversified Dividend Fund
but then declined for several months, On June 25, 2003, it lowered that rate to from AIM Large Cap Core Equity Fund, and
hitting a low for the fiscal year on 1.00%, its lowest level since 1958, it changed its investment strategy on May
March 11, 2003. The market rallied saying that it favored a more expansive 2, 2003. The fund now focuses on equities
through the remainder of the fiscal year. monetary policy because the economy had issued by companies that have paid
not yet exhibited sustainable growth. By consistent or increasing dividends. The
The start of the market's rally October, the Fed reported that the pace fund remains generally focused on
coincided with the commencement of of economic expansion had picked up, large-cap U.S. equities, and at the close
Operation Iraqi Freedom on March 19, consumer spending generally strengthened, of the fiscal year all stocks in the fund
2003. U.S. and allied forces quickly and residential real were income producing.
toppled the regime of Saddam
While dividends have been in the news
as of late due to newly reduced tax
rates, the fund's emphasis on dividends
is a by-product of our
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION BY SECTOR TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
Based on total investments
1. Bristol-Myers Squibb Co. 1.9% 1. Pharmaceuticals 8.8%
[PIE CHART]
2. V. F. Corp. 1.6 2. Integrated Oil & Gas 6.4
FINANCIALS 22.7%
3. Fannie Mae 1.6 3. Electric Utilities 5.3
ALL OTHERS 37.1%
4. Altria Group, Inc. 1.5 4. Diversified Banks 5.2
HEALTH CARE 12.4%
5. Exxon Mobil Corp. 1.5 5. Industrial Machinery 4.9
CONSUMER DISCRETIONARY 12.9%
6. Eaton Corp. 1.5 6. Property & Casualty Insurance 4.1
INDUSTRIALS 14.9%
7. Pfizer Inc. 1.5 7. Packaged Foods & Meats 3.0
8. FleetBoston Financial Corp. 1.4 8. Investment Banking & Brokerage 2.8
9. Omnicom Group Inc. 1.4 9. Thrifts & Mortgage Finance 2.5
10. Pitney Bowes, Inc. 1.4 10. Diversified Commercial Services 2.4
*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>
investment philosophy. Our belief as services, and utilities stocks relative [PHOTO OF J. PHILIP FERGUSON
investors is that attractively valued, to the S&P 500. It was overweight J. PHILIP Mr. Ferguson is portfolio
financially strong companies that pay consumer discretionary, financials, FERGUSON] manager of AIM Diversified
dividends are likely to outperform over health care, and industrials stocks Dividend Fund. He joined
the long term with less volatility. relative to the S&P 500. AIM in 2000 and brings over
Consistent with our philosophy, we have 30 years of investment experience to his
constructed a portfolio of stocks with The fund's top contributors to position. Mr. Ferguson currently serves
characteristics that could support performance included stocks in the as a member of the Board of Governors of
consistent or increasing dividends in the financials and industrials sectors. the Investment Counsel Association of
future. Importantly, your fund has Examples included FleetBoston Financial America. He holds a B.B.A. in finance
representation in all sectors of the S&P and United Technologies. The announcement from Texas Christian University, a
500 as our goal is to offer a core equity in late October that Bank of America certificate in international law from
fund that can serve as a centerpiece for would acquire FleetBoston Financial at a City of London College, and a J.D. from
investors' investment allocation. significant price premium propelled the The University of Texas Law School.
stock upward. United Technologies enjoyed
While fund performance slightly a strong year due to significant [PHOTO OF MEGGAN M. WALSH
trailed that of the S&P 500 during the improvement in its earnings. MEGGAN M. Ms. Walsh, Chartered
fiscal year, we are relatively pleased WALSH] Financial Analyst, is the
with our performance given the fact that IN CLOSING lead portfolio manager of
the fund was significantly underweight AIM Diversified Dividend
the information technology sector--the At the close of the fiscal year, the fund Fund. She has been in the investment
strongest performing sector in the S&P was positioned in line with its mandate, industry since 1987 and she joined AIM in
500 for the fiscal year. This fact should it had exposure to all S&P 500 sectors, 1991. Ms. Walsh received a B.S. in
not be surprising given that the fund and every equity holding was dividend finance from the University of Maryland
invests primarily in dividend-paying paying. As a result of our positioning, and an M.B.A. from Loyola University.
stocks. Information technology has the the fund benefited as many companies
smallest percentage of dividend-paying increased their dividends following Assisted by the Balanced Team.
stocks among S&P 500 sectors, while also changes in the tax treatment of
containing some companies with negligible dividends. In calendar year 2003, the
free cash flow and low returns on dividend rates of many of the fund's
capital. holdings have increased.
As of the close of the fiscal year, See important fund and index
the fund was underweight information disclosures inside front cover.
technology, consumer staples, energy,
materials, telecommunications
</Table>
[GRAPHIC]
For More Information Visit
AIMinvestments.com
<Table>
====================================================================================================================
FUND VS. INDEXES PORTFOLIO COMPOSITION BY MARKET*
Total returns 10/31/02-10/31/03, CAPITALIZATION
excluding sales charges Based on total investments TOTAL NUMBER OF HOLDINGS* 103
Class A Shares 18.39% [PIE CHART] TOTAL NET ASSETS $49.8 MILLION
Class B Shares 17.67 SMALL-CAP 8.0%
Class C Shares 17.55 MID-CAP 30.0%
S&P 500 Index LARGE-CAP 62.0%
(Broad Market Index) 20.79
Source: Lipper, Inc.
Russell 1000 Index
(Style Specific Index) 22.32
Lipper Large-Cap Core Fund Index
(Peer Group Index) 16.86
Source: Lipper, Inc.
====================================================================================================================
</Table>
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
12/31/01-10/31/03
[MOUNTAIN CHART]
<Table>
<Caption>
DATE AIM DIVERSIFIED AIM DIVERSIFIED AIM DIVERSIFIED LIPPER LARGE-CAP RUSSELL S&P
DIVIDEND FUND DIVIDEND FUND DIVIDEND FUND CORE FUND 1000 500
CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX INDEX INDEX
12/31/01 9450 10000 10000 10000 10000 10000
1/31/02 9545 10100 10100 9842 9873 9854
2/28/02 9479 10020 10020 9677 9676 9664
3/31/02 9857 10420 10410 10007 10074 10028
4/30/02 9583 10120 10120 9483 9497 9420
5/31/02 9573 10110 10109 9414 9413 9351
6/30/02 9082 9580 9580 8764 8718 8685
7/31/02 8355 8820 8809 8113 8073 8008
8/31/02 8440 8890 8890 8180 8115 8061
9/30/02 7798 8220 8210 7385 7244 7185
10/31/02 8223 8650 8650 7959 7846 7817
11/30/02 8601 9049 9040 8314 8305 8277
12/31/02 8232 8659 8650 7877 7835 7791
1/31/03 7920 8319 8321 7670 7645 7587
2/28/03 7769 8159 8151 7568 7527 7473
3/31/03 7854 8239 8240 7632 7604 7545
4/30/03 8393 8809 8801 8194 8218 8167
5/31/03 8903 9340 9331 8591 8687 8597
6/30/03 8968 9403 9395 8676 8801 8706
7/31/03 9082 9513 9505 8813 8977 8860
8/31/03 9272 9703 9695 8983 9159 9032
9/30/03 9233 9658 9649 8867 9065 8937
10/31/03 9735 9778 10168 9301 9597 9442
Source: Lipper, Inc.
</Table>
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
indexes does not reflect the effects of taxes.
<Table>
===============================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS In addition to returns as of the close of AVERAGE ANNUAL TOTAL RETURNS
As of 10/31/03, including sales charges the fiscal year, industry regulations As of 9/30/03, including sales charges
require us to provide average annual
CLASS A SHARES total returns (including sales charges) CLASS A SHARES
Inception (12/31/01) -1.45% for periods ended 9/30/03, the most Inception (12/31/01) -4.47%
1 Year 11.83 recent calendar quarter-end. 1 Year 11.89
CLASS B SHARES Past performance cannot guarantee CLASS B SHARES
Inception (12/31/01) -1.22% comparable future results. DUE TO Inception (12/31/01) -4.23%
1 Year 12.67 SIGNIFICANT MARKET VOLATILITY, RESULTS OF 1 Year 12.49
AN INVESTMENT MADE TODAY MAY DIFFER
CLASS C SHARES SUBSTANTIALLY FROM THE HISTORICAL CLASS C SHARES
Inception (12/31/01) 0.91% PERFORMANCE SHOWN. CALL YOUR FINANCIAL Inception (12/31/01) -2.03%
1 Year 16.55 ADVISOR FOR MORE CURRENT PERFORMANCE. 1 Year 16.51
===============================================================================================================================
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-92.35%
ADVERTISING-1.44%
Omnicom Group Inc. 9,000 $ 718,200
=======================================================================
AEROSPACE & DEFENSE-1.31%
United Technologies Corp. 7,700 652,113
=======================================================================
APPAREL RETAIL-1.28%
Limited Brands 36,300 638,880
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.60%
V. F. Corp. 18,800 798,060
=======================================================================
APPLICATION SOFTWARE-0.54%
SAP A.G.-ADR (Germany) 7,300 266,742
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.46%
Federated Investors, Inc.-Class B 8,300 229,495
=======================================================================
AUTO PARTS & EQUIPMENT-0.65%
Johnson Controls, Inc. 3,000 322,590
=======================================================================
BREWERS-0.48%
Anheuser-Busch Cos., Inc. 4,900 241,374
=======================================================================
BUILDING PRODUCTS-1.31%
Masco Corp. 23,700 651,750
=======================================================================
COMMUNICATIONS EQUIPMENT-0.60%
Motorola, Inc. 22,100 299,013
=======================================================================
COMPUTER HARDWARE-1.80%
Diebold, Inc. 11,200 639,072
- -----------------------------------------------------------------------
International Business Machines Corp. 2,900 259,492
=======================================================================
898,564
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.55%
Deere & Co. 4,500 272,790
=======================================================================
CONSTRUCTION MATERIALS-1.45%
Lafarge North America Inc. 10,400 375,440
- -----------------------------------------------------------------------
Vulcan Materials Co. 7,800 345,618
=======================================================================
721,058
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.87%
Automatic Data Processing, Inc. 14,700 554,778
- -----------------------------------------------------------------------
First Data Corp. 10,500 374,850
=======================================================================
929,628
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
DISTRIBUTORS-0.90%
Genuine Parts Co. 14,100 $ 448,662
=======================================================================
DIVERSIFIED BANKS-5.20%
Bank of America Corp. 4,400 333,212
- -----------------------------------------------------------------------
Comerica Inc. 7,800 401,544
- -----------------------------------------------------------------------
FleetBoston Financial Corp. 17,800 718,942
- -----------------------------------------------------------------------
U.S. Bancorp 19,100 519,902
- -----------------------------------------------------------------------
Wachovia Corp. 13,400 614,658
=======================================================================
2,588,258
=======================================================================
DIVERSIFIED CHEMICALS-1.96%
Dow Chemical Co. (The) 10,000 376,900
- -----------------------------------------------------------------------
PPG Industries, Inc. 10,400 599,560
=======================================================================
976,460
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.37%
H&R Block, Inc. 12,300 579,207
- -----------------------------------------------------------------------
Viad Corp. 24,000 599,520
=======================================================================
1,178,727
=======================================================================
ELECTRIC UTILITIES-4.93%
Entergy Corp. 6,800 366,520
- -----------------------------------------------------------------------
Exelon Corp. 5,500 348,975
- -----------------------------------------------------------------------
FirstEnergy Corp. 13,000 447,070
- -----------------------------------------------------------------------
Pinnacle West Capital Corp. 10,000 365,600
- -----------------------------------------------------------------------
Public Service Enterprise Group Inc. 8,700 355,569
- -----------------------------------------------------------------------
Wisconsin Energy Corp. 17,400 569,850
=======================================================================
2,453,584
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.00%
Cooper Industries, Ltd.-Class A (Bermuda) 5,700 301,530
- -----------------------------------------------------------------------
Emerson Electric Co. 12,200 692,350
=======================================================================
993,880
=======================================================================
FOOTWEAR-0.94%
NIKE, Inc.-Class B 7,300 466,470
=======================================================================
HEALTH CARE EQUIPMENT-2.08%
Bard (C.R.), Inc. 7,500 600,375
- -----------------------------------------------------------------------
Becton, Dickinson & Co. 11,900 435,064
=======================================================================
1,035,439
=======================================================================
HEALTH CARE SERVICES-0.90%
IMS Health Inc. 19,000 447,070
=======================================================================
HOME IMPROVEMENT RETAIL-0.88%
Home Depot, Inc. (The) 11,800 437,426
=======================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-1.01%
Carnival Corp. (Panama) 14,400 $ 502,704
=======================================================================
HOUSEHOLD APPLIANCES-0.85%
Snap-on Inc. 14,400 422,496
=======================================================================
HOUSEHOLD PRODUCTS-1.12%
Kimberly-Clark Corp. 6,300 332,703
- -----------------------------------------------------------------------
Procter & Gamble Co. (The) 2,300 226,067
=======================================================================
558,770
=======================================================================
INDUSTRIAL MACHINERY-4.90%
Dover Corp. 15,900 620,418
- -----------------------------------------------------------------------
Eaton Corp. 7,500 751,800
- -----------------------------------------------------------------------
Illinois Tool Works Inc. 6,300 463,365
- -----------------------------------------------------------------------
Pentair, Inc. 14,800 606,800
=======================================================================
2,442,383
=======================================================================
INTEGRATED OIL & GAS-6.44%
BP PLC-ADR (United Kingdom) 6,200 262,756
- -----------------------------------------------------------------------
ChevronTexaco Corp. 4,000 297,200
- -----------------------------------------------------------------------
ConocoPhillips 11,200 640,080
- -----------------------------------------------------------------------
Eni S.p.A. (Italy) 25,500 403,523
- -----------------------------------------------------------------------
Exxon Mobil Corp. 20,700 757,206
- -----------------------------------------------------------------------
Occidental Petroleum Corp. 16,500 581,790
- -----------------------------------------------------------------------
Total S.A. (France) 1,700 263,304
=======================================================================
3,205,859
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.28%
SBC Communications Inc. 26,500 635,470
=======================================================================
INVESTMENT BANKING & BROKERAGE-2.55%
Lehman Brothers Holdings Inc. 5,800 417,600
- -----------------------------------------------------------------------
Merrill Lynch & Co., Inc. 4,700 278,240
- -----------------------------------------------------------------------
Morgan Stanley 10,500 576,135
=======================================================================
1,271,975
=======================================================================
LIFE & HEALTH INSURANCE-1.03%
Prudential Financial, Inc. 13,300 513,912
=======================================================================
MULTI-LINE INSURANCE-0.69%
Hartford Financial Services Group, Inc. (The) 6,300 345,870
=======================================================================
OFFICE SERVICES & SUPPLIES-1.40%
Pitney Bowes, Inc. 17,000 698,700
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.82%
Citigroup Inc. 13,400 635,160
- -----------------------------------------------------------------------
Principal Financial Group, Inc. 8,700 272,745
=======================================================================
907,905
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
PACKAGED FOODS & MEATS-3.04%
General Mills, Inc. 6,300 $ 282,555
- -----------------------------------------------------------------------
Kellogg Co. 19,100 632,783
- -----------------------------------------------------------------------
Sara Lee Corp. 30,100 599,893
=======================================================================
1,515,231
=======================================================================
PAPER PACKAGING-1.23%
Sonoco Products Co. 28,700 610,449
=======================================================================
PAPER PRODUCTS-0.80%
MeadWestvaco Corp. 15,300 396,576
=======================================================================
PERSONAL PRODUCTS-0.91%
Avon Products, Inc. 6,700 455,332
=======================================================================
PHARMACEUTICALS-8.75%
Abbott Laboratories 14,400 613,728
- -----------------------------------------------------------------------
Bristol-Myers Squibb Co. 37,300 946,301
- -----------------------------------------------------------------------
Johnson & Johnson 12,400 624,092
- -----------------------------------------------------------------------
Lilly (Eli) & Co. 8,800 586,256
- -----------------------------------------------------------------------
Merck & Co. Inc. 13,500 597,375
- -----------------------------------------------------------------------
Pfizer Inc. 23,200 733,120
- -----------------------------------------------------------------------
Wyeth 5,800 256,012
=======================================================================
4,356,884
=======================================================================
PROPERTY & CASUALTY INSURANCE-4.11%
ACE Ltd. (Cayman Islands) 13,300 478,800
- -----------------------------------------------------------------------
Chubb Corp. (The) 5,700 380,817
- -----------------------------------------------------------------------
MBIA Inc. 7,200 429,192
- -----------------------------------------------------------------------
SAFECO Corp. 13,500 495,450
- -----------------------------------------------------------------------
St. Paul Cos., Inc. (The) 6,900 263,097
=======================================================================
2,047,356
=======================================================================
PUBLISHING-1.14%
McGraw-Hill Cos., Inc. (The) 8,500 569,075
=======================================================================
REAL ESTATE-0.75%
Developers Diversified Realty Corp. 13,000 375,700
=======================================================================
REGIONAL BANKS-1.64%
Cullen/Frost Bankers, Inc. 12,900 500,004
- -----------------------------------------------------------------------
KeyCorp 11,300 319,225
=======================================================================
819,229
=======================================================================
RESTAURANTS-1.31%
Outback Steakhouse, Inc. 15,500 651,000
=======================================================================
SEMICONDUCTORS-1.09%
Intel Corp. 16,400 542,020
=======================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
SOFT DRINKS-1.72%
Coca-Cola Co. (The) 5,900 $ 273,760
- -----------------------------------------------------------------------
PepsiCo, Inc. 12,200 583,404
=======================================================================
857,164
=======================================================================
SYSTEMS SOFTWARE-1.25%
Microsoft Corp. 23,800 622,370
=======================================================================
THRIFTS & MORTGAGE FINANCE-2.49%
Fannie Mae 11,100 795,759
- -----------------------------------------------------------------------
MGIC Investment Corp. 8,700 446,397
=======================================================================
1,242,156
=======================================================================
TOBACCO-1.53%
Altria Group, Inc. 16,400 762,600
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $41,095,808) 45,995,419
=======================================================================
<Caption>
PRINCIPAL
AMOUNT
BONDS & NOTES-2.00%
AEROSPACE & DEFENSE-0.17%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06 $ 75,000 86,305
=======================================================================
BROADCASTING & CABLE TV-0.22%
TCI Communications, Inc., Medium Term Notes,
8.35%, 02/15/05 100,000 107,152
=======================================================================
CONSUMER FINANCE-0.22%
Household Finance Corp., Sr. Unsec. Global
Notes, 8.00%, 05/09/05 100,000 109,067
=======================================================================
ELECTRIC UTILITIES-0.35%
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05 160,000 175,547
=======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-0.33%
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds,
8.25%, 06/15/05 $ 50,000 $ 54,676
- -----------------------------------------------------------------------
SBC Communications Capital Corp.-Series D,
Medium Term Notes, 7.11%, 08/14/06 100,000 111,751
=======================================================================
166,427
=======================================================================
INVESTMENT BANKING & BROKERAGE-0.23%
Bear Stearns Cos. Inc. (The), Sr. Unsec.
Notes, 7.00%, 03/01/07 100,000 111,848
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.28%
Anadarko Petroleum Corp. (Canada), Unsec.
Yankee Deb., 7.38%, 05/15/06 125,000 139,348
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.20%
General Electric Capital Corp.-Series A,
Medium Term Global Notes, 2.85%, 01/30/06 100,000 101,057
=======================================================================
Total Bonds & Notes (Cost $990,190) 996,751
=======================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-6.49%
STIC Liquid Assets Portfolio(a) 1,615,482 1,615,482
- -----------------------------------------------------------------------
STIC Prime Portfolio(a) 1,615,482 1,615,482
=======================================================================
Total Money Market Funds (Cost
$3,230,964) 3,230,964
=======================================================================
TOTAL INVESTMENTS-100.84% (Cost $45,316,962) 50,223,134
=======================================================================
OTHER ASSETS LESS LIABILITIES-(0.84%) (418,309)
=======================================================================
NET ASSETS-100.00% $49,804,825
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Deb. - Debentures
Gtd. - Guaranteed
Sr. - Senior
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
Notes to Schedule of Investments:
(a) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$42,085,998) $46,992,170
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $3,230,964) 3,230,964
- -----------------------------------------------------------
Receivables for:
Investments sold 32,920
- -----------------------------------------------------------
Fund shares sold 403,841
- -----------------------------------------------------------
Dividends and interest 82,361
- -----------------------------------------------------------
Amount due from advisor 25,338
- -----------------------------------------------------------
Investment for deferred compensation plan 5,385
- -----------------------------------------------------------
Other assets 27,154
===========================================================
Total assets 50,800,133
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 869,331
- -----------------------------------------------------------
Fund shares reacquired 36,189
- -----------------------------------------------------------
Deferred compensation plan 5,385
- -----------------------------------------------------------
Accrued distribution fees 28,296
- -----------------------------------------------------------
Accrued trustees' fees 591
- -----------------------------------------------------------
Accrued transfer agent fees 14,335
- -----------------------------------------------------------
Accrued operating expenses 41,181
===========================================================
Total liabilities 995,308
===========================================================
Net assets applicable to shares outstanding $49,804,825
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $45,572,412
- -----------------------------------------------------------
Undistributed net investment income (loss) (3,386)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (670,387)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 4,906,186
===========================================================
$49,804,825
___________________________________________________________
===========================================================
NET ASSETS:
Class A $22,374,504
___________________________________________________________
===========================================================
Class B $21,582,034
___________________________________________________________
===========================================================
Class C $ 5,848,287
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 2,180,187
___________________________________________________________
===========================================================
Class B 2,121,810
___________________________________________________________
===========================================================
Class C 575,748
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.26
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $10.26 divided by
94.50%) $ 10.86
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 10.17
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 10.16
___________________________________________________________
===========================================================
</Table>
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 $3,963) $ 571,931
- ------------------------------------------------------------------------
Dividends from affiliated money market funds 30,052
- ------------------------------------------------------------------------
Interest 20,050
========================================================================
Total investment income 622,033
========================================================================
EXPENSES:
Advisory fees 215,768
- ------------------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------------------
Custodian fees 20,888
- ------------------------------------------------------------------------
Distribution fees:
Class A 45,341
- ------------------------------------------------------------------------
Class B 128,716
- ------------------------------------------------------------------------
Class C 29,430
- ------------------------------------------------------------------------
Transfer agent fees 98,940
- ------------------------------------------------------------------------
Trustees' fees 8,802
- ------------------------------------------------------------------------
Registration and filing fees 46,087
- ------------------------------------------------------------------------
Other 68,290
========================================================================
Total expenses 712,262
========================================================================
Less: Fees waived and expense offset arrangements (175,536)
========================================================================
Net expenses 536,726
========================================================================
Net investment income 85,307
========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (471,997)
- ------------------------------------------------------------------------
Foreign currencies 694
- ------------------------------------------------------------------------
Option contracts written 7,791
========================================================================
(463,512)
========================================================================
Change in net unrealized appreciation of:
Investment securities 6,127,064
- ------------------------------------------------------------------------
Foreign currencies 14
========================================================================
6,127,078
========================================================================
Net gain from investment securities, foreign currencies and
option contracts 5,663,566
========================================================================
Net increase in net assets resulting from operations $5,748,873
________________________________________________________________________
========================================================================
</Table>
See Notes to Financial Statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the year ended October 31, 2003 and the period December 31, 2001 (date
operations commenced) through October 31, 2002
<Table>
<Caption>
2003 2002
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 85,307 $ (40,975)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts (463,512) (206,181)
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, and foreign currencies 6,127,078 (1,220,892)
========================================================================================
Net increase (decrease) in net assets resulting from
operations 5,748,873 (1,468,048)
========================================================================================
Distributions to shareholders from net investment income:
Class A (67,755) --
- ----------------------------------------------------------------------------------------
Class B (14,134) --
- ----------------------------------------------------------------------------------------
Class C (3,436) --
========================================================================================
Decrease in net assets resulting from distributions (85,325) --
========================================================================================
Share transactions-net:
Class A 11,899,583 8,520,795
- ----------------------------------------------------------------------------------------
Class B 12,028,596 7,728,359
- ----------------------------------------------------------------------------------------
Class C 4,163,744 1,268,248
========================================================================================
Net increase in net assets resulting from share
transactions 28,091,923 17,517,402
========================================================================================
Net increase in net assets 33,755,471 16,049,354
========================================================================================
NET ASSETS:
Beginning of year 16,049,354 --
========================================================================================
End of year (including undistributed net investment income
(loss) of $(3,386) and $(2,049) for 2003 and 2002,
respectively) $49,804,825 $16,049,354
________________________________________________________________________________________
========================================================================================
</Table>
See Notes to Financial Statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Diversified Dividend Fund (the "Fund"), formerly AIM Large Cap Core Equity
Fund, (the "Fund") is a series portfolio of AIM Equity Funds (the "Trust"). The
Trust is a Delaware statutory trust registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end series management
investment company consisting of fifteen separate portfolios, each having an
unlimited number of shares of beneficial interest. The Fund currently offers
multiple classes of shares. Matters affecting each portfolio or class will be
voted on exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's primary investment objective is growth of capital with a
secondary objective of current income. Each company listed in the Schedule of
Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued 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 are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gain, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
F-7
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 0.75% of the first $1
billion of the Fund's average daily net assets, plus 0.70% of the Fund's next $1
billion of average daily net assets, plus 0.625% of the Fund's average daily net
assets in excess of $2 billion. AIM has contractually agreed to waive fees
and/or reimburse expenses for Class A, Class B and Class C shares to the extent
necessary to limit the total fund operating expenses of Class A to 1.50%. AIM
has voluntarily agreed to waive fees and/or reimburse expenses (excluding
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 expense offset arrangements, if any) for Class A, Class B and
Class C shares to the extent necessary to limit the total fund operating
expenses to 1.00%, 1.65% and 1.65%, respectively. 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. For the year ended
October 31, 2003, AIM waived fees of $175,090.
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
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended October 31, 2003, AISI retained $55,029 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,
F-8
Class B and Class C shares paid $45,341, $128,716 and $29,430, 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 $36,213 in front-end sales
commissions from the sale of Class A shares and $1, $0 and $592 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 $436 and reductions in custodian
fees of $10 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $446.
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 $2,202
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--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ----------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ----------------------------------------------------------
Beginning of year -- $ --
- ----------------------------------------------------------
Written 152 16,170
- ----------------------------------------------------------
Closed (122) (11,235)
- ----------------------------------------------------------
Exercised (30) (4,935)
==========================================================
End of year -- $ --
__________________________________________________________
==========================================================
</Table>
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the year ended October 31, 2003
and the period December 31, 2002 (date operations commenced) through October 31,
2002 was as follows:
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------
Distributions paid from ordinary income $85,325 $ --
____________________________________________________________
============================================================
</Table>
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 $ 2,512
- -----------------------------------------------------------
Unrealized appreciation -- investments 4,647,216
- -----------------------------------------------------------
Temporary book/tax differences (5,898)
- -----------------------------------------------------------
Capital loss carryforward (411,417)
- -----------------------------------------------------------
Shares of beneficial interest 45,572,412
===========================================================
Total net assets $49,804,825
___________________________________________________________
===========================================================
</Table>
F-9
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
tax-basis unrealized appreciation on investments amount includes appreciation on
foreign currencies of $14.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the deferral of trustee compensation.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
October 31, 2010 $154,832
- ----------------------------------------------------------
October 31, 2011 256,585
==========================================================
Total capital loss carryforward $411,417
__________________________________________________________
==========================================================
</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 $47,211,158 and $19,032,484, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of investment
securities $4,991,861
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (344,659)
===========================================================
Net unrealized appreciation of investment
securities $4,647,202
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $45,575,932.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of stock issuance costs
and foreign currencies transactions on October 31, 2003, undistributed net
investment income (loss) was decreased by $1,319 undistributed net realized
gains (losses) decreased by $694 and shares of beneficial interest increased by
$2,013. This reclassification had no effect on the net assets of the Fund.
NOTE 10--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with 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
- ------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,036,155 $18,695,942 1,167,599 $10,833,949
- ------------------------------------------------------------------------------------------------------------------
Class B 1,811,612 16,607,284 976,016 9,080,411
- ------------------------------------------------------------------------------------------------------------------
Class C 599,285 5,518,092 158,298 1,525,564
==================================================================================================================
Issued as reinvestment of dividends:
Class A 6,293 61,880 -- --
- ------------------------------------------------------------------------------------------------------------------
Class B 1,275 12,449 -- --
- ------------------------------------------------------------------------------------------------------------------
Class C 324 3,166 -- --
==================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 71,889 675,552 2,855 25,596
- ------------------------------------------------------------------------------------------------------------------
Class B (72,485) (675,552) (2,981) (25,596)
==================================================================================================================
Reacquired:
Class A (834,757) (7,533,791) (269,847) (2,338,750)
- ------------------------------------------------------------------------------------------------------------------
Class B (439,212) (3,915,585) (152,415) (1,326,456)
- ------------------------------------------------------------------------------------------------------------------
Class C (152,851) (1,357,514) (29,308) (257,316)
==================================================================================================================
3,027,528 $28,091,923 1,850,217 $17,517,402
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
F-10
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.70 $ 10.00
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06(a) (0.03)(a)
- -------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.54 (1.27)
=================================================================================================
Total from investment operations 1.60 (1.30)
=================================================================================================
Less dividends from net investment income (0.04) --
=================================================================================================
Net asset value, end of period $ 10.26 $ 8.70
_________________________________________________________________________________________________
=================================================================================================
Total return(b) 18.39% (13.00)%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $22,375 $ 7,834
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.51%(c) 1.75%(d)
- -------------------------------------------------------------------------------------------------
Without fee waivers 2.12%(c) 4.26%(d)
=================================================================================================
Ratio of net investment income (loss) to average net assets 0.65%(c) (0.34)%(d)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(e) 72% 42%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, 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 $12,954,421.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-11
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.65 $ 10.00
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00(a) (0.08)(a)
- ------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.53 (1.27)
================================================================================================
Total from investment operations 1.53 (1.35)
================================================================================================
Less dividends from net investment income (0.01) --
================================================================================================
Net asset value, end of period $ 10.17 $ 8.65
________________________________________________________________________________________________
================================================================================================
Total return(b) 17.67% (13.50)%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $21,582 $ 7,100
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.16%(c) 2.40%(d)
- ------------------------------------------------------------------------------------------------
Without fee waivers 2.77%(c) 4.91%(d)
================================================================================================
Ratio of net investment income (loss) to average net assets 0.00%(c) (0.99)%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(e) 72% 42%
________________________________________________________________________________________________
================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, 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 $12,871,589.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C
-----------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.65 $ 10.00
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00(a) (0.08)(a)
- -------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.52 (1.27)
=================================================================================================
Total from investment operations 1.52 (1.35)
=================================================================================================
Less dividends from net investment income (0.01) --
=================================================================================================
Net asset value, end of period $10.16 $ 8.65
_________________________________________________________________________________________________
=================================================================================================
Total return(b) 17.55% (13.50)%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,848 $ 1,116
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.16%(c) 2.40%(d)
- -------------------------------------------------------------------------------------------------
Without fee waivers 2.77%(c) 4.91%(d)
=================================================================================================
Ratio of net investment income (loss) to average net assets 0.00%(c) (0.99)%(d)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(e) 72% 42%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, 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 $2,943,032.
(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 Diversified Dividend Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Diversified Dividend Fund (a portfolio of AIM Equity Funds), including the
schedule of investments, as of October 31, 2003, and the related statement of
operations for the year then ended, and the statements of changes in net assets
and financial highlights for each of the two years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
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
Diversified Dividend Fund as of October 31, 2003, the results of its operations
for the year then ended, and the statements of changes in its net assets and
financial highlights for each of the two years in the period then ended, in
conformity with accounting principles generally accepted in the United States.
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>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2003, 100.00% is eligible for the dividends received deduction for
corporations.
For its tax year ended October 31, 2003, the Fund designates 100.00%, or the
maximum amount allowable, of its dividend distributions as qualified dividend
income. The actual amount for the calendar year will be designated in the Fund's
year end tax statement.
<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 DDI-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 Large Cap Basic Value 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 BASIC VALUE FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL WITH
A SECONDARY OBJECTIVE OF CURRENT INCOME.
================================================================================
ABOUT INFORMATION THROUGHOUT THIS REPORT:
<Table>
o Unless otherwise stated, information o Industry classifications used in this CLASS B SHARES
presented is as of 10/31/03 and is based report are generally according to the Inception (8/1/00) -1.08%
on total net assets. Global Industry Classification Standard, 1 Year 21.29
which was developed by and is the
o AIM Large Cap Basic Value Fund's exclusive property and a service mark of CLASS C SHARES
performance figures are historical, and Morgan Stanley Capital International Inc. Inception (8/1/00) -0.12%
they reflect fund expenses, the and Standard & Poor's. 1 Year 25.29
reinvestment of distributions, and
changes in net asset value. o The fund's investment return and CLASS R SHARES*
principal value will fluctuate, so an Inception 2.94%
o When sales charges are included in investor's shares, when redeemed, may be 1 Year 26.85
performance figures, Class A share worth more or less than their original
performance reflects the maximum 5.50% cost. INVESTOR CLASS SHARES**
sales charge, and Class B and Class C Inception 3.09%
share performance reflects the applicable o The unmanaged Lipper Large-Cap Value 1 Year 27.08
contingent deferred sales charge (CDSC) Fund Index represents an average of the
for the period involved. The CDSC on performance of the 30 largest *The returns shown for these periods are
Class B shares declines from 5% beginning large-capitalization value funds tracked the blended returns of the historical
at the time of purchase to 0% at the by Lipper, Inc., an independent mutual performance of the fund's Class R shares
beginning of the seventh year. The CDSC fund performance monitor. since their inception and the restated
on Class C shares is 1% for the first historical performance of the fund's
year after purchase. The performance of o The unmanaged Russell 1000--Registered Class A shares (for the periods prior to
the fund's share classes will differ due Trademark-- Index represents the inception of the Class R shares) at net
to different sales charge structures and performance of the stocks of large- asset value, adjusted to reflect the
class expenses. capitalization companies. higher Rule 12b-1 fees applicable to the
Class R shares. The inception date of
o Effective 9/30/03, Class B shares are o The unmanaged Russell 1000--Registered Class A shares is 6/30/99. The inception
not available as an investment for Trademark-- Value Index is a subset of date of the fund's Class R shares is
retirement plans maintained pursuant to the unmanaged Russell 1000 Index, which 6/3/02.
Section 401 of the Internal Revenue represents the performance of the stocks
Code, including 401(k) plans, money of large-capitalization companies; the **The returns for these periods are the
purchase pension plans and profit sharing Value subset measures the performance of blended returns of the historical
plans. Plans that have existing accounts Russell 1000 companies with lower performance of Investor Class shares
invested in Class B shares will continue price/book ratios and lower forecasted since their inception and the restated
to be allowed to make additional growth values. historical performance of the fund's
purchases. Class A shares (for periods prior to
o The unmanaged Standard & Poor's inception of the Investor Class shares)
o Investor Class shares are closed to Composite Index of 500 Stocks (the S&P at net asset value, adjusted to reflect
most investors. For more information on 500--Registered Trademark--) is an the higher Rule 12b-1 fees applicable to
who may continue to invest in the index of common stocks frequently used Class A shares. Investor Class shares
Investor Class shares, please see the as a general measure of U.S. stock would have different returns because,
appropriate prospectus. Investor Class market performance. although the shares are invested in the
shares are sold at net asset value, that same portfolio of securities, the
is, without a sales charge. o Bloomberg, Inc. is a well-known Investor Class has a different expense
independent financial research and structure. The inception date of the
o Class R shares are available only to reporting firm. fund's Class A shares is 6/30/99. The
certain retirement plans. Please see the inception date of the fund's Investor
prospectus for more information. They are o A direct investment cannot be made in Class shares is 9/30/03. Calculation of
sold at net asset value, that is, without an index. Unless otherwise indicated, returns as of 9/30/03 is the restated
up-front sales charges. index results include reinvested historical performance of the fund's
dividends, and they do not reflect sales Class A shares as described.
o The fund may participate in the initial charges. Performance of an index of funds
public offering (IPO) market in some reflects fund expenses; performance of a A DESCRIPTION OF THE POLICIES AND
market cycles. A significant portion of market index does not. PROCEDURES THAT THE FUND USES TO
the fund's returns during certain periods DETERMINE HOW TO VOTE PROXIES RELATING
was attributable to its investments in o In addition to returns as of the close TO PORTFOLIO SECURITIES IS AVAILABLE
IPOs. These investments have a magnified of the fiscal year, industry regulations WITHOUT CHARGE, UPON REQUEST, BY CALLING
impact when the fund's asset base is require us to provide average annual 800-959-4246, OR ON THE AIM WEB SITE,
relatively small. As the fund's assets total returns (including sales charges) AIMINVESTMENTS.COM.
grow, the impact of IPO investments will for periods ended 9/30/03, the most
decline, which may reduce the effect of recent calendar quarter-end.
IPO investments on the fund's total
return. For additional information AVERAGE ANNUAL TOTAL RETURNS
regarding the impact of IPO investments As of 9/30/03, including sales charges
on the fund's performance, please see the
fund's prospectus. CLASS A SHARES
Inception (6/30/99) 1.73%
1 Year 20.13
</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 activity.
allegations of improper activities by
ROBERT H. GRAHAM certain individuals and companies. As o Implementing an enhanced exchange policy (effective on or
part of these widespread investigations, about March 1, 2004) designed to limit exchanges between
INVESCO Funds Group (IFG), the former funds.
[PHOTO OF adviser to certain INVESCO Funds, was
MARK H. recently named as a defendant in separate o Employing an enhanced fair value pricing policy on certain
WILLIAMSON] civil enforcement actions by the U.S. foreign securities as well as certain illiquid securities.
Securities and Exchange Commission (SEC),
MARK H. WILLIAMSON the Office of the New York Attorney None of these tools alone, nor all of them taken together,
General and the State of Colorado over an eliminate the possibility of short-term trading strategies
issue known as "market timing." A number of private class or that may be detrimental to a fund. Moreover, each of these
derivative actions also were filed in the wake of the tools involves judgments that are inherently subjective. We
regulators' actions. have always sought and continue to seek to make these
judgments to the best of our abilities and in a manner that
Investors are understandably concerned and frustrated we believe is consistent with the best interests of our fund
about these reports, and we would like to take this shareholders. And we remain committed to being as vigilant as
opportunity to assure you that, based on an investigation possible in the future to identify and address any harmful
conducted by an outside firm, IFG and its parent company, market timing investors who have the potential to harm our
AMVESCAP PLC, believe that these civil actions are without long-term fund shareholders.
merit. IFG is contesting the charges.
We sincerely hope these developments and the media
We encourage you to continue to monitor this situation, coverage surrounding them do not result in you or other
particularly as IFG has the opportunity to address the shareholders losing confidence in AIM or INVESCO Funds.
allegations that have been made. Current information will be Amidst this storm of controversy in the mutual fund industry,
posted on our Web site at AIMinvestments.com. We will we believe we can find encouragement in the recovering
continue to communicate to you on our Web site about our economy and rising equity markets. As we write this letter,
finding, and the actions we are taking to protect and promote for instance, the S&P 500(R) Index is up approximately 23%
the interests of our shareholders. The independent trustees year-to-date. Although past performance is no guarantee of
of the funds are receiving regular reports from their future results, there appear to be indicators that the
independent counsel and outside counsel hired by AMVESCAP economy and stock markets are showing signs of welcomed
PLC, the parent of AIM and IFG, to perform an ongoing improvement. We encourage you to read the enclosed discussion
investigation of market timing. of your fund's performance during this past reporting period.
A COMPLEX ISSUE OUR UNWAVERING COMMITMENT
Market timing is an investment technique not defined in any At AIM Investments, we have never wavered in our commitment
regulation that involves frequent short-term trading of to helping you build solutions for your financial goals. Our
mutual fund shares, sometimes with a goal to exploit company was founded on a core principle of integrity, and we
inefficiencies in the way mutual funds price their shares. We have always worked hard to earn the trust of our
recognize that fund management companies have tried to deal shareholders. We are committed to doing all we can to
with this complex issue in various ways and believe that maintain your trust and confidence.
industry-wide guidance is in order. To that end, we welcome
SEC Chairman William Donaldson's pledge to adopt new rules Thank you for your continued participation in AIM
designed to curb market timing abuses. Comprehensive Investments. Please call your financial advisor or one of our
rulemaking is necessary and is the best way to establish new Client Service representatives at 800-959-4246 if you have
industry responsibilities designed to protect shareholders. any further questions or concerns about your AIM Investments
We support practical rule changes and structural account.
modifications that are fair, enforceable and, most
importantly, beneficial for investors. Sincerely,
AIM Investments has policies in place designed to /s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
identify, prevent and eliminate harmful trading or other Robert H. Graham Mark H. Williamson
activities deemed to be detrimental to the funds. We have Chairman and President President and CEO
also recently taken additional steps--implemented The AIM Family of Funds AIM Investments
--Registered Trademark--
December 18, 2003
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
sectors while telecommunication services,
consumer staples and health care were the
AIM LARGE CAP BASIC VALUE FUND weakest-performing sectors.
OUTPERFORMS BENCHMARKS
Small- and mid-cap stocks generally
AIM Large Cap Basic Value Fund finished generally considered the broadest outperformed large-cap stocks for the
the fiscal year ended October 31, 2003, measure of economic activity, expanded fiscal year. While the performance of
with total returns at net asset value of at an annualized rate of 3.3% in the large-cap growth and large-cap value
23.80% for Class A shares. (Returns for second quarter and 8.2% in the third stocks was similar, mid- and small-cap
other share classes are shown in the quarter of 2003. As of the close of growth stocks generally outperformed
table below.) These results exceeded the the fiscal year, 405 companies in the their value counterparts by wider
22.32% return of the Russell 1000 Index, S&P 500 had reported third-quarter margins.
which represents large-cap stocks. The earnings. According to Bloomberg, a
fund also outperformed the broad U.S. total of 65.4% of those companies ======================================
stock market as represented by the S&P reported earnings that exceeded WE CONTINUE TO FOLLOW
500 Index, which returned 20.79% for the expectations, compared to 60.2% for
same period. the third quarter of 2002. The job A LONG-TERM STRATEGY
market remained weak, however, as the
MARKET CONDITIONS NATION'S unemployment rate stood at OF BUYING
6.0% at the close of the reporting
Amid a backdrop of generally improving period. QUALITY COMPANIES SELLING AT A
economic conditions, the S&P 500,
frequently cited as a measure of the For most of the fiscal year, the SUBSTANTIAL DISCOUNT
performance of the U.S. stock market in Federal Reserve (the Fed) kept the
general, rose in November 2002, then fell short-term federal funds rate at TO THEIR INTRINSIC VALUE.
over the next three months, dropping to 1.25%. On June 25, 2003, it lowered ======================================
its lowest level for the fiscal year on that rate to 1.00%, its lowest level
March 11, 2003. The index then rallied, since 1958. At the time, the Fed said YOUR FUND
posting a gain of 32.67% from its low on it favored a more expansive monetary
March 11 through the end of the fiscal policy because the economy had not yet For the fiscal year as a whole, all
year. exhibited sustainable growth. sectors of the S&P 500 contributed
positively to fund performance except
During this rally, the United States All sectors of the S&P 500 recorded utilities, in which the fund's
and its allies took military action gains for the fiscal year. Information specific stocks posted a modest loss
against Iraq and ousted the regime of technology, materials and utilities in the period. The largest positive
Saddam Hussein. The nation's gross were the top-performing contributions
domestic product,
</Table>
<Table>
====================================================================================================================================
FUND VS. INDEXES TOTAL NUMBER OF HOLDINGS** 45 TOP 10 EQUITY HOLDINGS**
Total returns 10/31/02-10/31/03, TOTAL NET ASSETS $229.3 MILLION
excluding sales charges 1. Tyco International Ltd. (Bermuda) 3.9%
Class A Shares 23.80% 2. Citigroup Inc. 3.9
*The one-year return shown for Investor
Class B Shares 22.93 Class shares is the blended return of 3. Waste Management, Inc. 3.4
Investor Class shares since their
Class C Shares 22.93 inception and the restated one-year 4. Fannie Mae 3.3
performance of the fund's Class A shares
Class R Shares 23.48 at net asset value, adjusted to reflect 5. Computer Associates 3.1
the higher Rule 12b-1 fees applicable to International, Inc.
Investor Class Shares* 23.80 Class A shares. Investor Class shares
would have different returns because, 6. Omnicom Group Inc. 3.1
Russell 1000 Index 22.32 although the shares are invested in the
(Former Broad Market Index) same portfolio of securities, the 7. J.P. Morgan Chase & Co. 3.1
Investor Class has a different expense
S&P 500 Index 20.79 structure. The inception date of the 8. Cendant Corp. 2.9
(Current Broad Market Index) fund's Class A shares is 6/30/99. The
inception date of the fund's Investor 9. Interpublic Group of 2.9
Russell 1000 Value Index 22.87 Class shares is 9/30/03. Cos., Inc. (The)
(Style-Specific Index) Source: Lipper, Inc.
10.Merrill Lynch & Co., Inc. 2.7
Lipper Large-Cap Value Fund Index 20.57
(Peer Group Index)
====================================================================================================================================
</Table>
2
<Table>
to fund results came from the financial, areas. We also added to our investments BRET W. STANLEY
industrial, consumer discretionary and in consumer staples. New opportunities [PHOTO OF Mr. Stanley, Chartered
information technology sectors. were funded in large part by reductions BRET W. Financial Analyst, is
in the utility and energy sectors. STANLEY] lead portfolio
Among specific holdings that made manager of AIM Large
notable positive contributions to the IN CLOSING Cap Basic Value Fund. He began his
fund for the fiscal year was The Gap investment career in 1988 and joined AIM
Inc., which retails casual clothing For nearly two years, we have maintained in 1998. He received a B.B.A. in finance
through its Banana Republic, Gap and Old that many of the best valuation from The University of Texas at Austin and
Navy stores. Additional positive opportunities have been in economically an M.S. in finance from the University of
contributions were made by hotel sensitive companies--those whose Houston.
franchisor Cendant, which owns Ramada and performance correlates most strongly to
the Avis car rental agencies as well as the overall level of economic activity. R. CANON COLEMAN II
Century 21 and Coldwell Banker real On this basis, we have sought to develop [PHOTO OF Mr. Coleman, Chartered
estate brokerages. Software giant a well-diversified fund that would R. CANON Financial Analyst, is
Computer Associates and financial generally benefit from an economic COLEMAN III] co-manager of AIM
services firm JP Morgan Chase made recovery, and during the economic Large Cap Basic Value
further positive contributions, as did improvement of recent months, this Fund. After working as a CPA with
manufacturing conglomerate Tyco. The strategy has been rewarded with positive Deloitte & Touche, he joined AMVESCAP in
biggest detractors to fund performance results. 1999. He holds a B.S. and M.S. in
were mortgage finance company Freddie accounting from the University of Florida
Mac, which has been plagued by accounting We continued to follow a long-term and an M.B.A. from The Wharton School at
restatements and increased regulatory strategy of buying quality companies the University of Pennsylvania.
scrutiny, and Duke Energy, where we selling at a substantial discount to
believe weakness in unregulated their intrinsic value. While stock prices MATTHEW W. SEINSHEIMER
businesses has created substantial may experience periods of high [PHOTO OF Mr. Seinsheimer,
headwinds to the company's core energy volatility, we believe that the inherent MATTHEW W. Chartered Financial
franchise; so we sold both positions. value of a business is much more stable SEINSHEIMER] Analyst, is co-manager
over time, so we continued to take of AIM Large Cap Basic
During the year, several changes were advantage of market volatility to invest Value Fund. He began his investment
made to fund holdings. We significantly in good companies that we believed were career in 1992, joined AIM in 1998 and
increased our holdings in the health care significantly undervalued on an absolute assumed his current responsibilities in
sector due to the many opportunities that basis. 2000. Mr. Seinsheimer received a B.B.A.
were presented over the period, most from Southern Methodist University and an
notably in the hospital management and See important fund and index M.B.A. from The University of Texas at
health care distribution disclosures inside front cover. Austin.
MICHAEL J. SIMON
[PHOTO OF Mr. Simon, Chartered
MICHAEL J. Financial Analyst, is
SIMON] co-manager of AIM
Large Cap Basic Value
Fund. Mr. Simon started his investment
career in 1989 and joined AIM in 2001. He
received a B.B.A. in finance from Texas
Christian University and an M.B.A. from
the University of Chicago.
Assisted by Basic Value Team
[GRAPHIC] For More Information Visit
AIMinvestments.com
</Table>
<Table>
===================================================================================================================================
TOP 10 INDUSTRIES** PORTFOLIO COMPOSITION BY SECTOR
1. Advertising 6.0% Financials 25.6%
2. Industrial Conglomerates 5.6 Industrials 19.5%
3. Investment Banking & Brokerage 5.3 Consumer Discretionary 18.1%
4. Pharmaceuticals 4.2 Health Care 13.3%
5. Health Care Distributors 4.1 Information Technology 8.1%
6. Food Retail 4.0 Cash & Other 15.4%
7. Oil & Gas Equipment & Services 3.9
**Excludes money market fund holdings.
8. Other Diversified Financial
Services 3.9 The fund's holdings are subject to
change, and there is no assurance that
9. Consumer Electronics 3.8 the fund will continue to hold any
particular security.
10. Data Processing & 3.5
Outsourced Services
===================================================================================================================================
</Table>
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
6/30/99-10/31/03
[MOUNTAIN CHART]
<Table>
<Caption>
Date AIM Large Cap Lipper Large-Cap Russell Russell S&P
Basic Value Fund Value Fund 1000 1000 Value 500
Class A Shares Index Index Index Index
6/30/1999 $ 9450 $ 10000 $ 10000 $ 10000 $ 10000
7/31/1999 9100 9716 9695 9707 9689
8/31/1999 8874 9539 9604 9347 9641
9/30/1999 8458 9186 9340 9020 9377
10/31/1999 8883 9629 9968 9540 9970
11/30/1999 9242 9662 10224 9465 10173
12/31/1999 9697 9960 10840 9511 10771
1/31/2000 9424 9539 10396 9200 10230
2/29/2000 9269 9138 10368 8517 10037
3/31/2000 10331 9974 11313 9556 11018
4/30/2000 10292 9863 10936 9445 10687
5/31/2000 10555 9871 10653 9544 10468
6/30/2000 10233 9762 10925 9108 10725
7/31/2000 10457 9718 10743 9222 10558
8/31/2000 11091 10280 11539 9735 11213
9/30/2000 11266 10118 11003 9824 10621
10/31/2000 11744 10199 10870 10066 10576
11/30/2000 11335 9761 9876 9692 9743
12/31/2000 11805 10154 9996 10178 9791
1/31/2001 12138 10239 10325 10217 10138
2/28/2001 11962 9745 9362 9933 9214
3/31/2001 11560 9367 8740 9582 8631
4/30/2001 12178 9897 9442 10052 9301
5/31/2001 12541 10057 9506 10277 9363
6/30/2001 12502 9783 9291 10050 9136
7/31/2001 12492 9717 9164 10028 9046
8/31/2001 11953 9262 8606 9627 8480
9/30/2001 10670 8539 7876 8949 7795
10/31/2001 10728 8594 8040 8872 7944
11/30/2001 11610 9146 8659 9388 8553
12/31/2001 11953 9284 8751 9609 8628
1/31/2002 11717 9112 8640 9535 8502
2/28/2002 11492 9062 8468 9550 8338
3/31/2002 12207 9462 8816 10002 8652
4/30/2002 11786 9059 8311 9659 8128
5/31/2002 11727 9071 8238 9707 8068
6/30/2002 10611 8438 7630 9150 7493
7/31/2002 9699 7709 7065 8299 6909
8/31/2002 9826 7761 7102 8362 6955
9/30/2002 8464 6864 6339 7432 6200
10/31/2002 9013 7368 6866 7983 6745
11/30/2002 9737 7830 7268 8486 7141
12/31/2002 9179 7457 6856 8117 6722
1/31/2003 8905 7279 6690 7921 6546
2/28/2003 8592 7097 6587 7710 6448
3/31/2003 8562 7093 6655 7722 6510
4/30/2003 9385 7692 7192 8402 7046
5/31/2003 10208 8165 7602 8944 7417
6/30/2003 10316 8258 7702 9056 7512
7/31/2003 10552 8373 7856 9191 7644
8/31/2003 10915 8515 8015 9334 7793
9/30/2003 10757 8419 7933 9243 7711
10/31/2003 $ 11160 $ 8884 $ 8398 $ 9809 $ 8147
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 indexes does not reflect the effects of taxes.
Since the last reporting period, the fund has elected to use the S&P 500
Index as its broad-based market index since the S&P 500 Index is such a widely
recognized gauge of U.S. stock market performance.
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 Value 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 Value Fund Index, which may or may not include AIM
Large Cap Basic Value Fund, is included for comparison to a peer group.
<Table>
====================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS INVESTOR CLASS SHARES** shares would have different returns
As of 10/31/03, including sales charges Inception 3.91% because, although the shares are invested
1 Year 23.80 in the same portfolio of securities, the
CLASS A SHARES Investor Class has a different expense
Inception (6/30/99) 2.56% *The returns shown for these periods are structure. The inception date of the
1 Year 16.94 the blended returns of the historical fund's Class A shares is 6/30/99. The
performance of the fund's Class R shares inception date of the fund's Investor
CLASS B SHARES since their inception and the restated Class shares is 9/30/03.
Inception (8/1/00) 0.07% historical performance of the fund's
1 Year 17.93 Class A shares (for the periods prior to Past performance cannot guarantee
inception of the Class R shares) at net comparable future results. DUE TO
CLASS C SHARES asset value, adjusted to reflect the SIGNIFICANT MARKET VOLATILITY, RESULTS OF
Inception (8/1/00) 0.98% higher Rule 12b-1 fees applicable to the AN INVESTMENT MADE TODAY MAY DIFFER
1 Year 21.93 Class R shares. The inception date of SUBSTANTIALLY FROM THE HISTORICAL
Class A shares is 6/30/99. The inception PERFORMANCE SHOWN. CALL YOUR FINANCIAL
CLASS R SHARES* date of the fund's Class R shares is ADVISOR FOR MORE CURRENT PERFORMANCE.
Inception 3.74% 6/3/02.
1 Year 23.48
**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 periods prior to
inception of the Investor Class shares)
at net asset value and reflect the higher
Rule 12b-1 fees applicable to Class A
shares. Investor Class
====================================================================================================================================
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.01%
ADVERTISING-5.97%
Interpublic Group of Cos., Inc. (The)(a) 440,500 $ 6,554,640
- -----------------------------------------------------------------------
Omnicom Group Inc. 89,300 7,126,140
=======================================================================
13,680,780
=======================================================================
AEROSPACE & DEFENSE-1.88%
Honeywell International Inc. 140,600 4,303,766
=======================================================================
ALUMINUM-0.69%
Alcoa Inc. 50,000 1,578,500
=======================================================================
APPAREL RETAIL-1.83%
Gap, Inc. (The) 220,200 4,201,416
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.24%
Bank of New York Co., Inc. (The) 165,000 5,146,350
=======================================================================
BUILDING PRODUCTS-2.12%
Masco Corp. 176,800 4,862,000
=======================================================================
COMMUNICATIONS EQUIPMENT-1.48%
Motorola, Inc. 251,500 3,402,795
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.33%
Deere & Co. 50,200 3,043,124
=======================================================================
CONSUMER ELECTRONICS-3.80%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 143,270 3,845,367
- -----------------------------------------------------------------------
Sony Corp.-ADR (Japan) 138,000 4,857,600
=======================================================================
8,702,967
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.53%
Ceridian Corp.(a) 217,300 4,563,300
- -----------------------------------------------------------------------
First Data Corp. 99,200 3,541,440
=======================================================================
8,104,740
=======================================================================
DEPARTMENT STORES-1.50%
May Department Stores Co. (The) 123,000 3,439,080
=======================================================================
DIVERSIFIED BANKS-2.61%
Bank One Corp. 141,000 5,985,450
=======================================================================
DIVERSIFIED CAPITAL MARKETS-3.10%
J.P. Morgan Chase & Co. 198,000 7,108,200
=======================================================================
DIVERSIFIED CHEMICALS-0.66%
Dow Chemical Co. (The) 40,000 1,507,600
=======================================================================
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------------
MARKET
SHARES VALUE
DIVERSIFIED COMMERCIAL SERVICES-2.91%
Cendant Corp.(a) 327,000 $ 6,680,610
=======================================================================
ENVIRONMENTAL SERVICES-3.35%
Waste Management, Inc. 296,750 7,691,760
=======================================================================
FOOD RETAIL-3.96%
Kroger Co. (The)(a) 301,100 5,266,239
- -----------------------------------------------------------------------
Safeway Inc.(a) 181,000 3,819,100
=======================================================================
9,085,339
=======================================================================
GENERAL MERCHANDISE STORES-2.34%
Target Corp. 135,100 5,368,874
=======================================================================
HEALTH CARE DISTRIBUTORS-4.10%
Cardinal Health, Inc. 81,000 4,806,540
- -----------------------------------------------------------------------
McKesson Corp. 152,000 4,601,040
=======================================================================
9,407,580
=======================================================================
HEALTH CARE EQUIPMENT-1.43%
Baxter International Inc. 123,000 3,269,340
=======================================================================
HEALTH CARE FACILITIES-2.10%
HCA Inc. 125,600 4,804,200
=======================================================================
INDUSTRIAL CONGLOMERATES-5.62%
General Electric Co. 135,000 3,916,350
- -----------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 429,400 8,965,872
=======================================================================
12,882,222
=======================================================================
INDUSTRIAL MACHINERY-2.26%
Illinois Tool Works Inc. 70,600 5,192,630
=======================================================================
INSURANCE BROKERS-1.43%
Aon Corp. 150,000 3,285,000
=======================================================================
INVESTMENT BANKING & BROKERAGE-5.25%
Merrill Lynch & Co., Inc. 105,000 6,216,000
- -----------------------------------------------------------------------
Morgan Stanley 106,000 5,816,220
=======================================================================
12,032,220
=======================================================================
MANAGED HEALTH CARE-1.48%
Aetna Inc. 59,000 3,387,190
=======================================================================
MOVIES & ENTERTAINMENT-2.62%
Walt Disney Co. (The) 265,800 6,017,712
=======================================================================
MULTI-LINE INSURANCE-1.48%
Hartford Financial Services Group, Inc. (The) 62,000 3,403,800
=======================================================================
OIL & GAS DRILLING-1.38%
Transocean Inc. (Cayman Islands)(a) 164,277 3,152,476
=======================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-3.91%
Halliburton Co. 143,000 $ 3,414,840
- -----------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 118,200 5,551,854
=======================================================================
8,966,694
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-3.87%
Citigroup Inc. 187,293 8,877,688
=======================================================================
PACKAGED FOODS & MEATS-1.88%
Kraft Foods Inc.-Class A 148,000 4,306,800
=======================================================================
PHARMACEUTICALS-4.15%
Aventis S.A. (France) 94,000 4,960,135
- -----------------------------------------------------------------------
Wyeth 103,200 4,555,248
=======================================================================
9,515,383
=======================================================================
PROPERTY & CASUALTY INSURANCE-2.36%
ACE Ltd. (Cayman Islands) 150,300 5,410,800
=======================================================================
SYSTEMS SOFTWARE-3.11%
Computer Associates International, Inc. 303,500 7,138,320
=======================================================================
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------------
MARKET
SHARES VALUE
THRIFTS & MORTGAGE FINANCE-3.28%
Fannie Mae 105,000 $ 7,527,450
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $209,262,685) 222,470,856
=======================================================================
MONEY MARKET FUNDS-1.67%
STIC Liquid Assets Portfolio(b) 1,921,637 1,921,637
- -----------------------------------------------------------------------
STIC Prime Portfolio(b) 1,921,637 1,921,637
=======================================================================
Total Money Market Funds (Cost
$3,843,274) 3,843,274
=======================================================================
TOTAL INVESTMENTS-98.68% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $213,105,959) 226,314,130
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.42%
STIC Liquid Assets Portfolio(b)(c) 3,248,000 3,248,000
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $3,248,000) 3,248,000
=======================================================================
TOTAL INVESTMENTS-100.10% (Cost $216,353,959) 229,562,130
=======================================================================
OTHER ASSETS LESS LIABILITIES-(0.10%) (232,057)
=======================================================================
NET ASSETS-100.00% $229,330,073
_______________________________________________________________________
=======================================================================
</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
$209,262,685)* $222,470,856
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $7,091,274) 7,091,274
- -----------------------------------------------------------
Receivables for:
Investments sold 3,202,279
- -----------------------------------------------------------
Fund shares sold 654,638
- -----------------------------------------------------------
Dividends 235,431
- -----------------------------------------------------------
Investment for deferred compensation plan 20,538
- -----------------------------------------------------------
Other assets 39,561
===========================================================
Total assets 233,714,577
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 340,829
- -----------------------------------------------------------
Fund shares reacquired 471,895
- -----------------------------------------------------------
Deferred compensation plan 20,538
- -----------------------------------------------------------
Collateral upon return of securities loaned 3,248,000
- -----------------------------------------------------------
Accrued distribution fees 137,978
- -----------------------------------------------------------
Accrued trustees' fees 4,277
- -----------------------------------------------------------
Accrued transfer agent fees 89,015
- -----------------------------------------------------------
Accrued operating expenses 71,972
===========================================================
Total liabilities 4,384,504
===========================================================
Net assets applicable to shares outstanding $229,330,073
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $242,916,748
- -----------------------------------------------------------
Undistributed net investment income (loss) (25,218)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (26,769,628)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 13,208,171
===========================================================
$229,330,073
___________________________________________________________
===========================================================
NET ASSETS:
Class A $121,980,357
___________________________________________________________
===========================================================
Class B $ 80,017,850
___________________________________________________________
===========================================================
Class C $ 26,566,037
___________________________________________________________
===========================================================
Class R $ 587,509
___________________________________________________________
===========================================================
Investor Class $ 178,320
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 10,708,360
___________________________________________________________
===========================================================
Class B 7,174,868
___________________________________________________________
===========================================================
Class C 2,382,697
___________________________________________________________
===========================================================
Class R 51,713
___________________________________________________________
===========================================================
Investor Class 15,657
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.39
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.39 divided by
94.50%) $ 12.05
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 11.15
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 11.15
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 11.36
___________________________________________________________
===========================================================
Investor Class:
Net asset value and offering price per
share $ 11.39
___________________________________________________________
===========================================================
</Table>
* At October 31, 2003, securities with an aggregate market value of $3,020,640
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 $9,059) $ 2,729,204
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 110,758
- -------------------------------------------------------------------------
Interest 61
- -------------------------------------------------------------------------
Securities lending 195
=========================================================================
Total investment income 2,840,218
=========================================================================
EXPENSES:
Advisory fees 1,211,828
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 42,276
- -------------------------------------------------------------------------
Distribution fees:
Class A 378,423
- -------------------------------------------------------------------------
Class B 696,925
- -------------------------------------------------------------------------
Class C 239,648
- -------------------------------------------------------------------------
Class R 934
- -------------------------------------------------------------------------
Investor Class 16
- -------------------------------------------------------------------------
Transfer agent fees 659,290
- -------------------------------------------------------------------------
Trustees' fees 12,092
- -------------------------------------------------------------------------
Other 193,965
=========================================================================
Total expenses 3,485,397
=========================================================================
Less: Fees waived and expense offset arrangements (5,224)
=========================================================================
Net expenses 3,480,173
=========================================================================
Net investment income (loss) (639,955)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (9,803,985)
- -------------------------------------------------------------------------
Foreign currencies 10,161
=========================================================================
(9,793,824)
=========================================================================
Change in net unrealized appreciation of investment
securities 51,420,584
- -------------------------------------------------------------------------
Net gain from investment securities and foreign currencies 41,626,760
=========================================================================
Net increase in net assets resulting from operations $40,986,805
_________________________________________________________________________
=========================================================================
</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) $ (639,955) $ (400,729)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (9,793,824) (13,193,071)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 51,420,584 (26,617,408)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 40,986,805 (40,211,208)
==========================================================================================
Share transactions-net:
Class A 5,382,960 47,013,800
- ------------------------------------------------------------------------------------------
Class B 2,113,303 19,109,813
- ------------------------------------------------------------------------------------------
Class C (14,173) 6,186,422
- ------------------------------------------------------------------------------------------
Class R 537,385 10,003
- ------------------------------------------------------------------------------------------
Investor Class 177,572 --
==========================================================================================
Net increase in net assets resulting from share
transactions 8,197,047 72,320,038
==========================================================================================
Net increase in net assets 49,183,852 32,108,830
==========================================================================================
NET ASSETS:
Beginning of year 180,146,221 148,037,391
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(25,218) and $(18,649) for 2003 and 2002,
respectively) $229,330,073 $180,146,221
__________________________________________________________________________________________
==========================================================================================
</Table>
See Notes to Financial Statements.
F-5
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Large Cap Basic Value Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers multiple classes of shares. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund.
The Fund's primary investment objective is long-term growth of capital with
a secondary objective of current income. Each company listed in the Schedule of
Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued 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.
F-6
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities 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.
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 0.60% of the first $1
billion of the Fund's average daily net assets, plus 0.575% over $1 billion up
to and including $2 billion of the Fund's average daily net assets and 0.55% of
the Fund's average daily net assets over $2 billion. AIM has voluntarily agreed
to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds in which the Fund has invested
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the Fund). For the year ended October 31,
2003, AIM waived fees of $1,844.
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
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended October 31, 2003, AISI retained $333,919 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 the 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
$378,423, $696,925, $239,648, $934 and $16, 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 $57,471 in front-end sales
commissions from the sale of Class A shares and $436, $0, $4,755 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 $3,169 and reductions in
custodian fees of $211 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $3,380.
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 $2,422
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
F-7
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 $3,020,640 were
on loan to brokers. The loans were secured by cash collateral of $3,248,000,
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 $195 for
securities lending.
F-8
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 October 31, 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 11,028,647
- -----------------------------------------------------------
Temporary book/tax differences (25,218)
- -----------------------------------------------------------
Capital loss carryforward (24,590,104)
- -----------------------------------------------------------
Shares of beneficial interest 242,916,748
===========================================================
Total net assets $229,330,073
___________________________________________________________
===========================================================
</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 $ 2,651,488
- ----------------------------------------------------------
October 31, 2010 $13,408,092
- ----------------------------------------------------------
October 31, 2011 $ 8,530,524
==========================================================
Total capital loss carryforward $24,590,104
__________________________________________________________
==========================================================
</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 $95,824,492 and $78,360,698, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $20,865,000
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (9,836,353)
===========================================================
Net unrealized appreciation of investment
securities $11,028,647
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $218,533,483.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions, on October 31, 2003, undistributed net
investment income was increased by $633,386, undistributed net realized gains
decreased by $10,161 and shares of beneficial interest decreased by $623,225.
This reclassification had no effect on the net assets of the Fund.
F-9
NOTE 10--SHARE INFORMATION
The Fund currently consists of 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 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 5,695,229 $ 56,588,456 12,345,842 $130,431,434
- ----------------------------------------------------------------------------------------------------------------------
Class B 2,611,379 25,467,901 4,427,046 47,877,276
- ----------------------------------------------------------------------------------------------------------------------
Class C 936,198 9,069,047 1,524,511 16,806,696
- ----------------------------------------------------------------------------------------------------------------------
Class R* 59,714 632,113 862 10,003
- ----------------------------------------------------------------------------------------------------------------------
Investor Class** 30,507 346,714 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 315,247 3,158,288 69,318 788,677
- ----------------------------------------------------------------------------------------------------------------------
Class B (321,047) (3,158,288) (71,494) (788,677)
======================================================================================================================
Reacquired:
Class A (5,558,986) (54,363,784) (8,433,346) (84,206,311)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,170,734) (20,196,310) (2,706,026) (27,978,786)
- ----------------------------------------------------------------------------------------------------------------------
Class C (955,066) (9,083,220) (1,028,142) (10,620,274)
- ----------------------------------------------------------------------------------------------------------------------
Class R* (8,863) (94,728) -- --
- ----------------------------------------------------------------------------------------------------------------------
Investor Class** (14,850) (169,142) -- --
======================================================================================================================
618,728 $ 8,197,047 6,128,571 $ 72,320,038
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
** Investor Class Shares commenced sales on September 30, 2003.
F-10
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------
JUNE 30, 1999
(DATE
OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
---------------------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.20 $ 10.94 $ 12.05 $ 9.40 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)(a) 0.01(a) 0.02(a) 0.07(a) 0.03
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.19 (1.75) (1.07) 2.88 (0.63)
=============================================================================================================================
Total from investment operations 2.19 (1.74) (1.05) 2.95 (0.60)
=============================================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.04) (0.18) --
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.02) (0.12) --
=============================================================================================================================
Total distributions -- -- (0.06) (0.30) --
=============================================================================================================================
Net asset value, end of period $ 11.39 $ 9.20 $ 10.94 $12.05 $ 9.40
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 23.80% (15.90)% (8.74)% 32.21% (6.00)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $121,980 $94,387 $68,676 $5,888 $1,153
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.42%(c) 1.38% 1.27% 1.25% 1.25%(d)
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.42%(c) 1.38% 1.36% 8.21% 10.02%(d)
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.01)%(c) 0.11% 0.17% 0.62% 0.87%(d)
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate(e) 41% 37% 18% 57% 10%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $108,120,752.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-11
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------------------------------------
AUGUST 1, 2000
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------------------------- OCTOBER 31,
2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.07 $ 10.86 $ 12.02 $10.85
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.06)(a) (0.06)(a) 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.15 (1.73) (1.05) 1.17
=================================================================================================================================
Total from investment operations 2.08 (1.79) (1.11) 1.17
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.02) --
=================================================================================================================================
Total distributions -- -- (0.05) --
=================================================================================================================================
Net asset value, end of period $ 11.15 $ 9.07 $ 10.86 $12.02
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 22.93% (16.48)% (9.25)% 10.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $80,018 $63,977 $58,681 $2,815
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.07%(c) 2.02% 1.95% 1.93%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.07%(c) 2.02% 2.04% 8.89%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.66)%(c) (0.53)% (0.51)% (0.06)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 41% 37% 18% 57%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, 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 $69,692,469.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-12
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------------------
AUGUST 1, 2000
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------------------------- OCTOBER 31,
2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.07 $ 10.85 $ 12.02 $10.85
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.06)(a) (0.06)(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.15 (1.72) (1.06) 1.17
=================================================================================================================================
Total from investment operations 2.08 (1.78) (1.12) 1.17
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.02) --
=================================================================================================================================
Total distributions -- -- (0.05) --
=================================================================================================================================
Net asset value, end of period $ 11.15 $ 9.07 $ 10.85 $12.02
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 22.93% (16.41)% (9.33)% 10.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $26,566 $21,775 $20,680 $1,248
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.07%(c) 2.02% 1.95% 1.93%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.07%(c) 2.02% 2.04% 8.89%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.66)%(c) (0.53)% (0.51)% (0.06)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 41% 37% 18% 57%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, 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 $23,964,822.
(d) Annualized.
(e) 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 2000
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.20 $ 11.60
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) 0.00(a)
- ---------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.18 (2.40)
=============================================================================================
Total from investment operations 2.16 (2.40)
=============================================================================================
Net asset value, end of period $11.36 $ 9.20
_____________________________________________________________________________________________
=============================================================================================
Total return(b) 23.48% (20.69)%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 588 $ 8
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets: 1.57%(c) 1.54%(d)
=============================================================================================
Ratio of net investment income (loss) to average net assets (0.16)%(c) (0.05)%(d)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(e) 41% 37%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $186,789.
(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 $10.98
- ----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00(a)
- ----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.41
==================================================================================
Total from investment operations 0.41
==================================================================================
Net asset value, end of period $11.39
__________________________________________________________________________________
==================================================================================
Total return(b) 3.73%
__________________________________________________________________________________
==================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 178
__________________________________________________________________________________
==================================================================================
Ratio of expenses to average net assets: 1.25%(c)
==================================================================================
Ratio of net investment income to average net assets 0.16%
__________________________________________________________________________________
==================================================================================
Portfolio turnover rate(d) 41%
__________________________________________________________________________________
==================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $76,145.
(d) Not annualized for periods less than one year.
NOTE 12--SUBSEQUENT EVENTS
On November 3, 2003, INVESCO Value Equity 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 7,818,290 shares of the Fund for
4,958,149 shares of INVESCO Value Equity Fund outstanding as of the open of
business on November 3, 2003. INVESCO Value Equity Fund's net assets at that
date of $89,014,605 including $14,973,392 of unrealized appreciation, were
combined with those of the Fund. The aggregate net assets of the Fund
immediately before the acquisition were $229,149,218. Included in net assets of
the acquired fund is undistributed net investment income (loss) of $(33,100) and
undistributed net realized gain (loss) of $(6,269,110) for INVESCO Value Equity
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--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
F-14
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-15
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Large Cap Basic Value Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Large Cap Basic Value Fund (a portfolio 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 Basic Value 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
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 LCBV-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 MID 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 MID CAP GROWTH 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 Lipper Mid-Cap Growth
presented is as of 10/31/03 and is based certain retirement plans. Please see the Fund Index represents an average of the
on total net assets. prospectus for more information. They performance of the 30 largest
are sold at net asset value, that is, large-capitalization core equity funds
o AIM Mid Cap Growth Fund's performance without up-front sales charges. tracked by Lipper, Inc., an independent
figures are historical, and they reflect mutual fund performance monitor.
fund expenses, the reinvestment of o The fund's investment return and
distributions, and changes in net asset principal value will fluctuate, so an o The unmanaged Standard & Poor's
value. investor's shares, when redeemed, may be Composite Index of 500 Stocks (the S&P
worth more or less than their original 500--Registered Trademark--) is an index
o When sales charges are included in cost. of common stocks frequently used as a
performance figures, Class A share general measure of U.S. stock market
performance reflects the maximum 5.50% o The fund may participate in the performance.
sales charge, and Class B and Class C initial public offering (IPO) market in
share performance reflects the some market cycles. Because of the o The unmanaged Standard & Poor's MidCap
applicable contingent deferred sales fund's small asset base, any investment 400 Index (the S&P 400) represents the
charge (CDSC) for the period involved. the fund may make in IPOs may performance of mid-capitalization
The CDSC on Class B shares declines from significantly affect the fund's total stocks.
5% beginning at the time of purchase to return. As the fund's assets grow, the
0% at the beginning of the seventh year. impact of IPO investments will decline, o A direct investment cannot be made in
The CDSC on Class C shares is 1% for the which may reduce the effect of IPO an index. Unless otherwise indicated,
first year after purchase. The investments on the fund's total return. index results include reinvested
performance of the fund's share classes dividends, and they do not reflect sales
will differ due to different sales o Investing in small and mid-size charges or fund expenses. Performance of
charge structures and class expenses. companies may involve risks not an index of funds reflects fund
associated with investing in more expenses; performance of a market index
o Effective 9/30/03, Class B shares are established companies. Also, small does not.
not available as an investment for companies may have business risk,
retirement plans maintained pursuant to significant stock price fluctuations and
Section 401 of the Internal Revenue illiquidity. A description of the policies and
Code, including 401(k) plans, money procedures that the fund uses to
purchase pension plans and profit o Industry classifications used in this determine how to vote proxies relating
sharing plans. Plans that have existing report are generally according to the to portfolio securities is available
accounts invested in Class B shares will Global Industry Classification Standard, without charge, upon request, by calling
continue to be allowed to make which was developed by and is the 800-959-4246, or on the AIM Web site,
additional purchases. exclusive property and a service mark of AIMinvestments.com.
Morgan Stanley Capital International
Inc. and Standard & Poor's.
</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.
[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
INVESCO Funds Group (IFG), the former on 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>
economic expansion had increased and
consumer spending was generally
FUND DELIVERS POSITIVE RETURN stronger, although the job market
remained weak.
This report covers the fiscal year ended next three months, dropping to its
October 31, 2003. During this period, lowest level for the fiscal year on All sectors of the S&P 500 recorded
your fund recorded positive returns. At March 11, 2003. The index then rallied, gains for the fiscal year. Information
net asset value, Class A shares produced posting a gain of 32.67% from its low on technology, materials and utilities were
a total return of 36.18%, outperforming March 11 through the end of the the top-performing sectors while
its benchmarks. By comparison, the reporting period. telecommunication services, consumer
Lipper Mid-Cap Growth Fund Index and the staples and health care were the
S&P Midcap 400 Index returned 31.60% and During this rally, the United States weakest-performing sectors.
30.61%, respectively, over the same and its allies took military action
period. Stock selection, particularly in against Iraq and ousted the regime of Small- and mid-cap stocks generally
the energy, information technology and Saddam Hussein. The nation's gross outperformed large-cap stocks. While the
financial services sectors, helped the domestic product, generally considered performance of large-cap growth and
fund outperform the Lipper Mid-Cap the broadest measure of economic large-cap value stocks was similar, mid-
Growth Index. The portfolio's focus on activity, expanded at an annualized rate and small-cap growth stocks generally
growth stocks, which generally of 3.3% in the second quarter and 8.2% outperformed their value counterparts by
outperformed value stocks, enabled the in the third quarter of 2003. The job wider margins.
fund to post a higher return than the market remained weak, however, as the
S&P 400, which includes both growth and nation's unemployment rate stood at 6.0% ========================================
value stocks. at the close of the reporting period.
SMALL- AND MID-CAP
For most of the fiscal year, the
Federal Reserve (the Fed) kept the STOCKS GENERALLY
MARKET CONDITIONS short-term federal funds rate at 1.25%.
On June 25, 2003, it lowered that rate OUTPERFORMED
Amid a backdrop of generally improving to 1.00%, its lowest level since 1958.
economic conditions, the S&P 500, At the time, the Fed said it favored a LARGE-CAP STOCKS.
frequently cited as a measure of the more expansive monetary policy because
performance of the U.S. stock market in the economy had not yet exhibited ========================================
general, returned 20.79% for the year sustainable growth. By October, the Fed
ended October 31, 2003. The index rose reported that YOUR FUND
in November 2002, then declined over the
At close of the fiscal year, the
portfolio's three largest sector
weightings were in information
technology and health care and consumer
</Table>
<Table>
==============================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES *
1. UTStarcom, Inc. 2.1% 1. Specialty Stores 4.7%
2. Anthem, Inc. 1.8 2. Thrifts & Mortgage Finance 4.6
3. AGCO Corp. 1.5 3. Biotechnology 4.3
4. Express Scripts, Inc. 1.3 4. Semiconductors 4.1
5. Marvell Technology Group Ltd. (Bermuda) 1.2 5. Pharmaceuticals 4.0
6. PeopleSoft, Inc. 1.2 6. Application Software 3.7
7. Patterson-UTI Energy, Inc. 1.2 7. Communication Equipment 3.7
8. Fiserv, Inc. 1.1 8. Oil & Gas Equipment & Services 3.7
9. Amkor Technology, Inc. 1.1 9. Managed Health Care 3.6
10. Community Health Systems Inc. 1.1 10. Oil & Gas Drilling 3.2
*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>
discretionary. These also were the electronics retailer. In October, KARL FARMER
sectors that contributed the most to UTStarcom reported its 15th consecutive [PHOTO OF Mr. Farmer is a Chartered
fund performance while those that quarter of record earnings. The previous KARL Financial Analyst. Prior
contributed the least were materials, month, Best Buy reported a 75% increase FARMER] to joining AIM in July of
consumer staples and telecommunications in earnings for the second quarter of 1998, Mr. Farmer spent
services. The portfolio was overweight its 2003 fiscal year in comparison with six years as a pension actuary with
in health care compared to the S&P 500, the same period in 2002. William M. Mercer, Inc., focusing on
so its contribution to fund performance retirement plans and other benefit
was greater. Although materials was one Detracting from performance was AMN programs. He earned a B.S. in economics
of the better-performing sectors, the Healthcare Service, which places nurses, from Texas A&M University, graduating
portfolio had little exposure to this technicians and therapists in hospitals magna cum laude. He subsequently earned
sector, so its impact on performance was and clinics on a temporary basis. The his M.B.A. in finance from The Wharton
minimal. company reported a decline in revenue School at the University of
for the first nine months of 2003 as a Pennsylvania.
In response to improving economic decrease in hospital patients reduced
conditions, we increased the number of the need for temporary staffing. The JAY K. RUSHIN
holdings in the portfolio, concentrating fund no longer owns this stock. [PHOTO OF Mr. Rushin is a Chartered
on more economically sensitive stocks. JAY K. Financial Analyst. He
These stocks tend to perform better in IN CLOSING RUSHIN] began his investment
an improving economic environment. career in 1994 when he
However, core-growth holdings, the We continue to work diligently to meet joined AIM as a portfolio administrator.
stocks of companies with long-term the fund's investment objective of In 1996, he left AIM to work as an
records of attractive earnings, growth of capital. Regardless of market associate equity analyst at Prudential
continued to be well represented in the trends, we will adhere to the fund's Securities. He returned to AIM as an
portfolio. We also increased the fund's strategy as outlined in its prospectus. equity analyst on AIM's small-cap funds
holdings in financial services stocks, We will continue to focus on the stocks in 1998 and was promoted to senior
which we believed could benefit from of companies that we believe have analyst in 2000. He assumed his current
improving securities markets. Financial favorable growth prospects. duties as portfolio manager in 2001. A
stocks were generally positive native of Gaithersburg, MD, Mr. Rushin
contributors to fund performance for the See important fund and index holds a B.A. in English from Florida
reporting period. disclosures inside front cover. State University.
Stocks that enhanced performance Assisted by Mid-Cap Growth team
included UTStarcom, a producer of
telecommunications equipment, and Best
Buy, a consumer
</Table>
[GRAPHIC]
For More Information Visit
AIMinvestments.com
<Table>
========================================================================================
FUND VS. INDEXES TOTAL NUMBER OF HOLDINGS* 149
Total returns 10/31/02-10/31/03,
excluding sales charges TOTAL NET ASSETS $218.9 MILLION
Class A Shares 36.18%
Class B Shares 35.41
Class C Shares 35.41
Class R Shares 35.93
S&P MIDCAP 400 INDEX 30.61
========================================================================================
</Table>
3
FUND PERFORMANCE
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
11/1/99-10/31/03*
<Table>
<Caption>
DATE AIM MID CAP AIM MID CAP AIM MID CAP S&P MIDCAP
GROWTH FUND GROWTH FUND GROWTH FUND 400
CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX
11/1/1999 $ 9450 $ 10000 $ 10000 $ 10000
11/30/1999 10660 11270 11270 10525
12/31/1999 12984 13700 13700 11150
1/31/2000 12805 13509 13509 10836
2/29/2000 15895 16760 16760 11595
3/31/2000 16623 17519 17519 12565
4/30/2000 14515 15289 15299 12126
5/31/2000 13382 14079 14089 11975
6/30/2000 14724 15479 15490 12151
7/31/2000 14176 14898 14899 12343
8/31/2000 15821 16609 16619 13721
9/30/2000 14922 15669 15668 13627
10/31/2000 13589 14249 14258 13165
11/30/2000 10953 11479 11488 12171
12/31/2000 11672 12239 12238 13102
1/31/2001 12116 12689 12688 13394
2/28/2001 10141 10620 10619 12630
3/31/2001 9225 9650 9649 11691
4/30/2001 10500 10980 10990 12980
5/31/2001 10236 10700 10699 13283
6/30/2001 10604 11080 11079 13229
7/31/2001 10094 10540 10540 13032
8/31/2001 9026 9420 9419 12606
9/30/2001 7325 7640 7639 11038
10/31/2001 8109 8449 8449 11526
11/30/2001 8903 9269 9268 12384
12/31/2001 9196 9569 9569 13023
1/31/2002 8865 9219 9218 12956
2/28/2002 8175 8499 8499 12972
3/31/2002 8828 9169 9168 13899
4/30/2002 8619 8949 8948 13834
5/31/2002 8478 8798 8798 13600
6/30/2002 7608 7898 7898 12605
7/31/2002 6729 6978 6978 11383
8/31/2002 6531 6768 6768 11441
9/30/2002 5878 6089 6088 10520
10/31/2002 6191 6408 6408 10975
11/30/2002 6625 6858 6858 11610
12/31/2002 6266 6478 6478 11133
1/31/2003 6247 6458 6458 10808
2/28/2003 6124 6318 6318 10551
3/31/2003 6209 6408 6417 10639
4/30/2003 6606 6807 6817 11412
5/31/2003 7126 7347 7357 12358
6/30/2003 7296 7517 7527 12515 *Index performance
7/31/2003 7693 7917 7927 12959 from 10/31/99
8/31/2003 8109 8347 8347 13547
9/30/2003 7826 8057 8057 13340
10/31/2003 $ 8431 $ 8420 $ 8680 $ 14348 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.
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 returns as of the close AVERAGE ANNUAL TOTAL RETURNS
As of 10/31/03, including sales charges of the fiscal year, industry regulations As of 9/30/03, including sales charges
require us to provide average annual
CLASS A SHARES total returns as of 9/30/03, the most CLASS A SHARES
Inception (11/1/99) -4.18% recent calendar quarter-end. Inception (11/1/99) -6.07%
1 Year 28.72 1 Year 25.84
*The returns shown for these periods are
CLASS B SHARES the blended returns of the historical CLASS B SHARES
Inception (11/1/99) -4.21% performance of the fund's Class R shares Inception (11/1/99) -6.09%
1 Year 30.41 since their inception and the restated 1 Year 27.35
historical performance of the fund's
CLASS C SHARES Class A shares (for the periods prior to CLASS C SHARES
Inception (11/1/99) -3.48% inception of the Class R shares) at net Inception (11/1/99) -5.36%
1 Year 34.41 asset value, adjusted to reflect the 1 Year 31.35
higher Rule 12b-1 fees applicable to the
CLASS R SHARES* Class R shares. The inception date of CLASS R SHARES*
Inception -2.99% Class A shares is 11/1/99. The inception Inception -4.86%
1 Year 35.93 date of the fund's Class R shares is 1 Year 32.80
6/3/02. Calculation of blended returns
as of 10/31/03 is from 11/1/99.
Calculation of blended returns as of
9/30/03 is from 11/1/99.
=================================================================================================================================
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-95.68%
ADVERTISING-1.88%
Lamar Advertising Co.(a) 75,000 $ 2,272,500
- --------------------------------------------------------------------------
Omnicom Group Inc. 23,000 1,835,400
==========================================================================
4,107,900
==========================================================================
AEROSPACE & DEFENSE-0.85%
L-3 Communications Holdings, Inc.(a) 40,000 1,869,600
==========================================================================
AIRLINES-0.26%
Ryanair Holdings PLC-ADR (Ireland)(a) 11,000 566,500
==========================================================================
APPAREL RETAIL-1.30%
Foot Locker, Inc. 65,000 1,163,500
- --------------------------------------------------------------------------
TJX Cos., Inc. (The) 80,000 1,679,200
==========================================================================
2,842,700
==========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.39%
V. F. Corp. 20,000 849,000
==========================================================================
APPLICATION SOFTWARE-3.73%
Amdocs Ltd. (United Kingdom)(a) 65,000 1,394,900
- --------------------------------------------------------------------------
Citrix Systems, Inc.(a) 50,000 1,264,000
- --------------------------------------------------------------------------
Cognos, Inc. (Canada)(a) 32,000 1,103,040
- --------------------------------------------------------------------------
Intuit Inc.(a) 15,000 749,700
- --------------------------------------------------------------------------
Macromedia, Inc.(a) 55,000 1,051,050
- --------------------------------------------------------------------------
PeopleSoft, Inc.(a) 125,000 2,595,000
==========================================================================
8,157,690
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.81%
Investors Financial Services Corp. 50,000 1,766,500
==========================================================================
AUTO PARTS & EQUIPMENT-0.45%
Autoliv, Inc. 30,000 993,600
==========================================================================
BIOTECHNOLOGY-4.33%
Angiotech Pharmaceuticals, Inc. (Canada)(a) 31,000 1,417,630
- --------------------------------------------------------------------------
Celgene Corp.(a) 32,000 1,334,080
- --------------------------------------------------------------------------
Cephalon, Inc.(a) 40,000 1,878,400
- --------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 33,000 1,801,140
- --------------------------------------------------------------------------
ICOS Corp.(a) 14,000 654,080
- --------------------------------------------------------------------------
Invitrogen Corp.(a) 21,000 1,335,390
- --------------------------------------------------------------------------
MedImmune, Inc.(a) 40,000 1,066,400
==========================================================================
9,487,120
==========================================================================
BROADCASTING & CABLE TV-1.86%
Cox Radio, Inc.-Class A(a) 50,000 1,106,000
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Univision Communications Inc.-Class A(a) 30,000 $ 1,018,500
- --------------------------------------------------------------------------
Westwood One, Inc.(a) 65,000 1,945,450
==========================================================================
4,069,950
==========================================================================
BUILDING PRODUCTS-0.50%
Masco Corp. 40,000 1,100,000
==========================================================================
COMMUNICATIONS EQUIPMENT-3.71%
Avaya Inc.(a) 120,000 1,552,800
- --------------------------------------------------------------------------
NetScreen Technologies, Inc.(a) 30,000 798,600
- --------------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 27,000 1,191,240
- --------------------------------------------------------------------------
UTStarcom, Inc.(a) 145,000 4,567,500
==========================================================================
8,110,140
==========================================================================
COMPUTER & ELECTRONICS RETAIL-0.72%
Best Buy Co., Inc. 27,000 1,574,370
==========================================================================
COMPUTER STORAGE & PERIPHERALS-1.20%
SanDisk Corp.(a) 17,000 1,370,200
- --------------------------------------------------------------------------
Seagate Technology (Cayman Islands) 55,000 1,263,900
==========================================================================
2,634,100
==========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.48%
AGCO Corp.(a) 180,000 3,240,000
==========================================================================
CONSUMER FINANCE-1.13%
Capital One Financial Corp. 19,000 1,155,200
- --------------------------------------------------------------------------
First Marblehead Corp. (The)(a) 60,000 1,329,000
==========================================================================
2,484,200
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.02%
Affiliated Computer Services, Inc.-Class A(a) 46,000 2,250,780
- --------------------------------------------------------------------------
DST Systems, Inc.(a) 50,000 1,891,000
- --------------------------------------------------------------------------
Fiserv, Inc.(a) 70,000 2,472,400
==========================================================================
6,614,180
==========================================================================
DEPARTMENT STORES-0.95%
Kohl's Corp.(a) 37,000 2,074,590
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.81%
ARAMARK Corp.-Class B(a) 30,000 801,600
- --------------------------------------------------------------------------
University of Phoenix Online(a) 14,000 962,640
==========================================================================
1,764,240
==========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES-0.29%
Celestica Inc. (Canada)(a) 45,000 $ 639,000
==========================================================================
EMPLOYMENT SERVICES-0.51%
Manpower Inc. 24,000 1,113,600
==========================================================================
ENVIRONMENTAL SERVICES-0.63%
Waste Connections, Inc.(a) 40,000 1,387,200
==========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.41%
Monsanto Co. 36,000 901,800
==========================================================================
GENERAL MERCHANDISE STORES-0.26%
99 Cents Only Stores(a) 19,000 565,630
==========================================================================
HEALTH CARE DISTRIBUTORS-2.24%
AmerisourceBergen Corp. 35,000 1,986,950
- --------------------------------------------------------------------------
McKesson Corp. 65,000 1,967,550
- --------------------------------------------------------------------------
Omnicare, Inc. 25,000 958,500
==========================================================================
4,913,000
==========================================================================
HEALTH CARE EQUIPMENT-2.92%
Apogent Technologies Inc.(a) 50,000 1,097,500
- --------------------------------------------------------------------------
Biomet, Inc. 45,000 1,613,700
- --------------------------------------------------------------------------
Guidant Corp. 14,000 714,140
- --------------------------------------------------------------------------
STERIS Corp.(a) 75,000 1,561,500
- --------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 22,000 1,403,820
==========================================================================
6,390,660
==========================================================================
HEALTH CARE FACILITIES-1.75%
Community Health Systems Inc.(a) 100,000 2,402,000
- --------------------------------------------------------------------------
Health Management Associates, Inc.-Class A 30,000 664,500
- --------------------------------------------------------------------------
Triad Hospitals, Inc.(a) 25,000 768,250
==========================================================================
3,834,750
==========================================================================
HEALTH CARE SERVICES-2.03%
Caremark Rx, Inc.(a) 25,000 626,250
- --------------------------------------------------------------------------
Express Scripts, Inc.(a) 50,000 2,746,000
- --------------------------------------------------------------------------
Laboratory Corp. of America Holdings(a) 30,000 1,063,500
==========================================================================
4,435,750
==========================================================================
HEALTH CARE SUPPLIES-1.26%
Fisher Scientific International Inc.(a) 40,000 1,610,000
- --------------------------------------------------------------------------
Millipore Corp.(a) 26,000 1,140,100
==========================================================================
2,750,100
==========================================================================
HOME ENTERTAINMENT SOFTWARE-0.71%
Electronic Arts Inc.(a) 7,000 693,280
- --------------------------------------------------------------------------
Take-Two Interactive Software, Inc.(a) 22,000 870,100
==========================================================================
1,563,380
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-0.46%
Starwood Hotels & Resorts Worldwide, Inc. 30,000 $ 1,011,900
==========================================================================
HOUSEHOLD APPLIANCES-1.23%
Black & Decker Corp. (The) 35,000 1,673,350
- --------------------------------------------------------------------------
Maytag Corp. 40,000 1,016,000
==========================================================================
2,689,350
==========================================================================
INDUSTRIAL GASES-0.31%
Airgas, Inc. 35,000 670,250
==========================================================================
INDUSTRIAL MACHINERY-1.19%
Danaher Corp. 17,000 1,408,450
- --------------------------------------------------------------------------
SPX Corp.(a) 25,000 1,203,000
==========================================================================
2,611,450
==========================================================================
INSURANCE BROKERS-1.07%
Willis Group Holdings Ltd. (Bermuda) 70,000 2,331,000
==========================================================================
INTERNET SOFTWARE & SERVICES-1.17%
Netease.com Inc.-ADR (Cayman Islands)(a) 12,000 544,800
- --------------------------------------------------------------------------
Sohu.com Inc.(a) 17,000 586,500
- --------------------------------------------------------------------------
United Online, Inc.(a) 50,000 1,439,500
==========================================================================
2,570,800
==========================================================================
INVESTMENT BANKING & BROKERAGE-1.19%
Bear Stearns Cos. Inc. (The) 20,000 1,525,000
- --------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 15,000 1,080,000
==========================================================================
2,605,000
==========================================================================
IT CONSULTING & OTHER SERVICES-0.41%
Cognizant Technology Solutions Corp.(a) 20,000 907,800
==========================================================================
LEISURE PRODUCTS-1.50%
Hasbro, Inc. 40,000 872,000
- --------------------------------------------------------------------------
Leapfrog Enterprises, Inc.-Class A(a) 22,000 760,540
- --------------------------------------------------------------------------
Marvel Enterprises, Inc.(a) 56,000 1,649,200
==========================================================================
3,281,740
==========================================================================
MANAGED HEALTH CARE-3.58%
Aetna Inc. 15,000 861,150
- --------------------------------------------------------------------------
Anthem, Inc.(a) 58,000 3,968,940
- --------------------------------------------------------------------------
CIGNA Corp. 18,000 1,026,900
- --------------------------------------------------------------------------
First Health Group Corp.(a) 30,000 732,300
- --------------------------------------------------------------------------
WellPoint Health Networks Inc.(a) 14,000 1,244,600
==========================================================================
7,833,890
==========================================================================
MOVIES & ENTERTAINMENT-0.57%
Pixar, Inc.(a) 18,000 1,238,580
==========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
MULTI-LINE INSURANCE-0.93%
American Financial Group, Inc. 50,000 $ 1,113,500
- --------------------------------------------------------------------------
Unitrin, Inc. 25,000 925,000
==========================================================================
2,038,500
==========================================================================
OFFICE SERVICES & SUPPLIES-0.48%
Avery Dennison Corp. 20,000 1,051,600
==========================================================================
OIL & GAS DRILLING-3.17%
ENSCO International Inc. 80,000 2,108,000
- --------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 60,000 2,268,000
- --------------------------------------------------------------------------
Patterson-UTI Energy, Inc.(a) 90,000 2,573,100
==========================================================================
6,949,100
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-3.70%
Cooper Cameron Corp.(a) 50,000 2,141,000
- --------------------------------------------------------------------------
National-Oilwell, Inc.(a) 83,000 1,582,810
- --------------------------------------------------------------------------
Smith International, Inc.(a) 28,000 1,042,440
- --------------------------------------------------------------------------
Varco International, Inc.(a) 100,000 1,759,000
- --------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 45,000 1,563,750
==========================================================================
8,089,000
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.11%
Devon Energy Corp. 35,000 1,697,500
- --------------------------------------------------------------------------
Ultra Petroleum Corp. (Canada)(a) 40,000 732,000
==========================================================================
2,429,500
==========================================================================
PAPER PACKAGING-0.80%
Bemis Co., Inc. 15,000 693,600
- --------------------------------------------------------------------------
Sonoco Products Co. 50,000 1,063,500
==========================================================================
1,757,100
==========================================================================
PERSONAL PRODUCTS-0.27%
NBTY, Inc.(a) 22,000 599,500
==========================================================================
PHARMACEUTICALS-4.03%
American Pharmaceutical Partners, Inc.(a) 35,000 852,250
- --------------------------------------------------------------------------
Biovail Corp. (Canada)(a) 40,000 962,000
- --------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 35,000 1,750,350
- --------------------------------------------------------------------------
Medicines Co. (The)(a) 25,000 666,250
- --------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 25,000 1,583,750
- --------------------------------------------------------------------------
Pharmaceutical Resources, Inc.(a) 13,000 939,640
- --------------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom)(a) 90,000 2,061,000
==========================================================================
8,815,240
==========================================================================
PUBLISHING-0.53%
Getty Images, Inc.(a) 26,000 1,162,200
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
RAILROADS-0.46%
Norfolk Southern Corp. 50,000 $ 1,007,500
==========================================================================
REINSURANCE-1.68%
Everest Re Group, Ltd. (Bermuda) 20,000 1,659,000
- --------------------------------------------------------------------------
PartnerRe Ltd. (Bermuda) 37,000 2,007,990
==========================================================================
3,666,990
==========================================================================
RESTAURANTS-1.43%
Brinker International, Inc.(a) 75,000 2,387,250
- --------------------------------------------------------------------------
Darden Restaurants, Inc. 35,000 733,250
==========================================================================
3,120,500
==========================================================================
SEMICONDUCTOR EQUIPMENT-2.87%
Amkor Technology, Inc.(a) 130,000 2,450,500
- --------------------------------------------------------------------------
ASML Holding N.V.-New York Shares
(Netherlands)(a) 50,000 877,500
- --------------------------------------------------------------------------
Cabot Microelectronics Corp.(a) 25,000 1,425,000
- --------------------------------------------------------------------------
Novellus Systems, Inc.(a) 37,000 1,527,730
==========================================================================
6,280,730
==========================================================================
SEMICONDUCTORS-4.12%
AMIS Holdings, Inc.(a) 60,000 1,209,000
- --------------------------------------------------------------------------
Broadcom Corp.-Class A(a) 20,000 639,000
- --------------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 60,000 2,632,200
- --------------------------------------------------------------------------
Maxim Integrated Products, Inc. 20,000 994,200
- --------------------------------------------------------------------------
Microchip Technology Inc. 40,000 1,308,400
- --------------------------------------------------------------------------
National Semiconductor Corp.(a) 55,000 2,234,650
==========================================================================
9,017,450
==========================================================================
SOFT DRINKS-0.97%
Coca-Cola Enterprises Inc. 105,000 2,116,800
==========================================================================
SPECIALTY CHEMICALS-0.38%
International Flavors & Fragrances Inc. 25,000 827,500
==========================================================================
SPECIALTY STORES-4.69%
Advance Auto Parts, Inc.(a) 17,000 1,329,740
- --------------------------------------------------------------------------
Barnes & Noble, Inc.(a) 55,000 1,639,000
- --------------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 45,000 1,900,800
- --------------------------------------------------------------------------
CarMax, Inc.(a) 16,000 504,160
- --------------------------------------------------------------------------
Hollywood Entertainment Corp.(a) 80,000 1,216,000
- --------------------------------------------------------------------------
Office Depot, Inc.(a) 70,000 1,045,100
- --------------------------------------------------------------------------
Staples, Inc.(a) 45,000 1,206,900
- --------------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 40,000 1,413,200
==========================================================================
10,254,900
==========================================================================
STEEL-0.53%
Worthington Industries, Inc. 80,000 1,166,400
==========================================================================
SYSTEMS SOFTWARE-0.86%
Computer Associates International, Inc. 80,000 1,881,600
==========================================================================
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS-0.93%
CDW Corp. 23,000 $ 1,381,150
- --------------------------------------------------------------------------
Tech Data Corp.(a) 20,000 658,400
==========================================================================
2,039,550
==========================================================================
THRIFTS & MORTGAGE FINANCE-4.59%
Countrywide Financial Corp. 15,000 1,576,800
- --------------------------------------------------------------------------
Doral Financial Corp. (Puerto Rico) 30,000 1,515,000
- --------------------------------------------------------------------------
New York Community Bancorp, Inc. 40,000 1,448,000
- --------------------------------------------------------------------------
PMI Group, Inc. (The) 47,000 1,796,810
- --------------------------------------------------------------------------
Radian Group Inc. 35,000 1,851,500
- --------------------------------------------------------------------------
W Holding Co., Inc. (Puerto Rico) 80,000 1,863,200
==========================================================================
10,051,310
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.08%
America Movil S.A. de C.V.-ADR (Mexico) 90,000 2,142,000
- --------------------------------------------------------------------------
Nextel Communications, Inc.-Class A(a) 55,000 1,331,000
- --------------------------------------------------------------------------
NII Holdings Inc.-Class B(a) 14,000 1,079,260
==========================================================================
4,552,260
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $179,791,474) 209,428,240
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
MONEY MARKET FUNDS-5.52%
STIC Liquid Assets Portfolio(b) 6,039,656 $ 6,039,656
- --------------------------------------------------------------------------
STIC Prime Portfolio(b) 6,039,656 6,039,656
==========================================================================
Total Money Market Funds (Cost
$12,079,312) 12,079,312
==========================================================================
TOTAL INVESTMENTS-101.20% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $191,870,786) 221,507,552
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.73%
STIC Liquid Assets Portfolio(b)(c) 1,593,500 1,593,500
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $1,593,500) 1,593,500
==========================================================================
TOTAL INVESTMENTS-101.93% (Cost $193,464,286) 223,101,052
==========================================================================
OTHER ASSETS LESS LIABILITIES-(1.93%) (4,215,727)
==========================================================================
NET ASSETS-100.00% $218,885,325
__________________________________________________________________________
==========================================================================
</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
$179,791,474)* $ 209,428,240
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $13,672,812) 13,672,812
- ------------------------------------------------------------
Receivables for:
Investments sold 9,402,211
- ------------------------------------------------------------
Fund shares sold 309,270
- ------------------------------------------------------------
Dividends 22,911
- ------------------------------------------------------------
Investment for deferred compensation plan 19,504
- ------------------------------------------------------------
Other assets 40,165
============================================================
Total assets 232,895,113
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 11,831,789
- ------------------------------------------------------------
Fund shares reacquired 251,231
- ------------------------------------------------------------
Deferred compensation plan 19,504
- ------------------------------------------------------------
Collateral upon return of securities loaned 1,593,500
- ------------------------------------------------------------
Accrued distribution fees 121,224
- ------------------------------------------------------------
Accrued trustees' fees 4,618
- ------------------------------------------------------------
Accrued transfer agent fees 94,394
- ------------------------------------------------------------
Accrued operating expenses 93,528
============================================================
Total liabilities 14,009,788
============================================================
Net assets applicable to shares outstanding $ 218,885,325
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 337,569,760
- ------------------------------------------------------------
Undistributed net investment income (loss) (24,611)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (148,296,590)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 29,636,766
============================================================
$ 218,885,325
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 108,435,889
____________________________________________________________
============================================================
Class B $ 81,297,884
____________________________________________________________
============================================================
Class C $ 28,927,613
____________________________________________________________
============================================================
Class R $ 223,939
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 12,150,266
____________________________________________________________
============================================================
Class B 9,371,414
____________________________________________________________
============================================================
Class C 3,334,190
____________________________________________________________
============================================================
Class R 25,177
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 8.92
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $8.92 divided by
94.50%) $ 9.44
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 8.68
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 8.68
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 8.89
____________________________________________________________
============================================================
</Table>
* At October 31, 2003, securities with an aggregate market value of $1,553,045
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 $1,194) $ 625,148
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 161,100
- -------------------------------------------------------------------------
Securities lending 12,283
=========================================================================
Total investment income 798,531
=========================================================================
EXPENSES:
Advisory fees 1,343,201
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 54,362
- -------------------------------------------------------------------------
Distribution fees:
Class A 283,951
- -------------------------------------------------------------------------
Class B 660,267
- -------------------------------------------------------------------------
Class C 206,942
- -------------------------------------------------------------------------
Class R 252
- -------------------------------------------------------------------------
Transfer agent fees 947,519
- -------------------------------------------------------------------------
Trustees' fees 11,580
- -------------------------------------------------------------------------
Other 201,946
=========================================================================
Total expenses 3,760,020
=========================================================================
Less: Fees waived and expense offset arrangements (5,996)
=========================================================================
Net expenses 3,754,024
=========================================================================
Net investment income (loss) (2,955,493)
=========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from investment securities 14,307,340
- -------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 42,907,455
=========================================================================
Net gain from investment securities 57,214,795
=========================================================================
Net increase in net assets resulting from operations $54,259,302
_________________________________________________________________________
=========================================================================
</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) $ (2,955,493) $ (3,709,857)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 14,307,340 (51,459,202)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 42,907,455 6,176,897
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 54,259,302 (48,992,162)
==========================================================================================
Share transactions-net:
Class A 18,339,848 (8,529,105)
- ------------------------------------------------------------------------------------------
Class B 1,788,121 (2,639,544)
- ------------------------------------------------------------------------------------------
Class C 5,771,210 (1,653,044)
- ------------------------------------------------------------------------------------------
Class R 197,900 10,003
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions 26,097,079 (12,811,690)
==========================================================================================
Net increase (decrease) in net assets 80,356,381 (61,803,852)
==========================================================================================
NET ASSETS:
Beginning of year 138,528,944 200,332,796
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(24,611) and $(18,569) for 2003 and 2002,
respectively) $218,885,325 $138,528,944
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Mid Cap Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers multiple classes of shares. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States unless
otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued 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
F-7
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 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 0.80% of the first $1
billion of the Fund's average daily net assets plus 0.75% of the Fund's average
daily net assets over $1 billion. AIM has voluntarily agreed to waive fees
and/or reimburse expenses (excluding 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 expense offset
arrangements, if any) for Class A, Class B, Class C and Class R shares to the
extent necessary to limit the total fund operating expenses of Class A shares to
2.00%. Voluntary expense limitations 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 $2,625.
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
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended October 31, 2003, AISI retained $562,458 for
such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C and Class R shares of the Fund. The Trust has adopted
plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class
A, 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
$283,951, $660,267, $206,942 and $252, 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 $51,252 in front-end sales
commissions from the sale of Class A shares and $293, $115, $2,637 and $0 from
Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed
upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
F-8
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 $3,371 under an expense offset
arrangement which resulted in a reduction of the Fund's total expenses of
$3,371.
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 $2,377
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 $1,553,045 were
on loan to brokers. The loans were secured by cash collateral of $1,593,500
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 $12,283 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 $ 28,160,998
- ------------------------------------------------------------
Temporary book/tax differences (24,611)
- ------------------------------------------------------------
Capital loss carryforward (146,820,822)
- ------------------------------------------------------------
Shares of beneficial interest 337,569,760
============================================================
Total net assets $ 218,885,325
____________________________________________________________
============================================================
</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
F-9
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, 2008 $ 9,284,312
- ----------------------------------------------------------
October 31, 2009 86,724,292
- ----------------------------------------------------------
October 31, 2010 50,812,218
==========================================================
Total capital loss carryforward $146,820,822
__________________________________________________________
==========================================================
</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 $355,510,296 and $328,037,408, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $31,518,336
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (3,357,338)
===========================================================
Net unrealized appreciation of investment
securities $28,160,998
___________________________________________________________
===========================================================
Cost of investments for tax purposes is
$194,940,054.
</Table>
NOTE 9--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 (loss) was increased by
$2,949,451, undistributed net realized gains remained unchanged and shares of
beneficial interest decreased by $2,949,451. This reclassification had no effect
on net assets of the Fund.
NOTE 10--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares,
Class B shares, Class C shares and Class R shares. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with CDSC.
Class R 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 7,664,279 $ 58,252,871 8,063,853 $ 72,719,270
- ----------------------------------------------------------------------------------------------------------------------
Class B 3,281,689 24,068,217 3,669,099 31,692,709
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,644,878 12,124,964 1,168,577 10,169,033
- ----------------------------------------------------------------------------------------------------------------------
Class R* 25,518 209,495 1,146 10,003
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 189,563 1,431,485 74,934 635,418
- ----------------------------------------------------------------------------------------------------------------------
Class B (194,530) (1,431,485) (76,507) (635,418)
======================================================================================================================
Reacquired:
Class A (5,404,259) (41,344,508) (9,446,798) (81,883,793)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,879,424) (20,848,611) (4,122,284) (33,696,835)
- ----------------------------------------------------------------------------------------------------------------------
Class C (872,689) (6,353,754) (1,442,681) (11,822,077)
- ----------------------------------------------------------------------------------------------------------------------
Class R* (1,487) (11,595) -- --
======================================================================================================================
3,453,538 $ 26,097,079 (2,110,661) $(12,811,690)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
F-10
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------
NOVEMBER 1,
1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------------- OCTOBER 31,
2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.54 $ 8.58 $ 14.38 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11)(a) (0.13)(a) (0.11)(a) (0.12)(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.49 (1.91) (5.69) 4.50
===========================================================================================================================
Total from investment operations 2.38 (2.04) (5.80) 4.38
===========================================================================================================================
Net asset value, end of period $ 8.92 $ 6.54 $ 8.58 $ 14.38
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 36.39% (23.78)% (40.33)% 43.80%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $108,436 $63,463 $94,457 $114,913
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 1.90%(c) 1.83% 1.65% 1.63%(d)
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.42)%(c) (1.49)% (1.06)% (0.76)%(d)
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(e) 211% 185% 173% 183%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, 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 $81,128,932.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS B
------------------------------------------------------------
NOVEMBER 1,
1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------------ OCTOBER 31,
2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.40 $ 8.45 $ 14.25 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.18)(a) (0.18)(a) (0.22)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.43 (1.87) (5.62) 4.47
==========================================================================================================================
Total from investment operations 2.28 (2.05) (5.80) 4.25
==========================================================================================================================
Net asset value, end of period $ 8.68 $ 6.40 $ 8.45 $ 14.25
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 35.63% (24.26)% (40.70)% 42.50%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $81,298 $58,654 $81,905 $103,893
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets 2.55%(c) 2.48% 2.32% 2.32%(d)
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (2.07)%(c) (2.14)% (1.73)% (1.45)%(d)
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(e) 211% 185% 173% 183%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, 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 $66,026,718.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-11
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------
NOVEMBER 1,
1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------------ OCTOBER 31,
2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.40 $ 8.45 $ 14.26 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.18)(a) (0.18)(a) (0.22)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.43 (1.87) (5.63) 4.48
==========================================================================================================================
Total from investment operations 2.28 (2.05) (5.81) 4.26
==========================================================================================================================
Net asset value, end of period $ 8.68 $ 6.40 $ 8.45 $ 14.26
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 35.63% (24.26)% (40.74)% 42.60%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $28,928 $16,404 $23,971 $29,969
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets 2.55%(c) 2.48% 2.32% 2.32%(d)
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (2.07)%(c) (2.14)% (1.73)% (1.45)%(d)
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(e) 211% 185% 173% 183%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, 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 $20,694,220.
(d) Annualized.
(e) 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 $ 6.54 $ 8.73
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13)(a) (0.05)(a)
- ---------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.48 (2.14)
=============================================================================================
Total from investment operations 2.35 (2.19)
=============================================================================================
Net asset value, end of period $ 8.89 $ 6.54
_____________________________________________________________________________________________
=============================================================================================
Total return(b) 35.93% (25.09)%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 224 $ 7
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets 2.05%(c) 1.98%(d)
=============================================================================================
Ratio of net investment income (loss) to average net assets (1.57)%(c) (1.64)%(d)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(e) 211% 185%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $50,310.
(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 Mid Cap Growth Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM Mid
Cap Growth Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 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
Mid 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
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) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- --------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management None
Trustee, Chairman and Group Inc. (financial services holding
President company); and Director and Vice
Chairman, AMVESCAP PLC and Chairman of
AMVESCAP PLC -- AIM Division (parent of
AIM and a global investment management
firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); 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 Director and Chairman,
Trustee and Executive Vice Officer, A I M Management Group Inc. INVESCO Bond Funds,
President (financial services holding company); Inc., INVESCO
Director, Chairman and President, A I M Combination Stock &
Advisors, Inc. (registered investment Bond Funds, Inc.,
advisor); Director, A I M Capital INVESCO Counselor
Management, Inc. (registered investment Series Funds, Inc.,
advisor) and A I M Distributors, Inc. INVESCO International
(registered broker dealer); Director and Funds, Inc., INVESCO
Chairman, AIM Investment Services, Inc. Manager Series Funds,
(registered transfer agent); and Fund Inc., INVESCO Money
Management Company (registered broker Market Funds, Inc.,
dealer); and Chief Executive Officer, INVESCO Sector Funds,
AMVESCAP PLC -- AIM Division (parent of Inc., INVESCO Stock
AIM and a global investment management Funds, Inc., INVESCO
firm) Treasurer's Series
Formerly: Director, Chairman, President Funds, Inc. and
and Chief Executive Officer, INVESCO INVESCO Variable
Funds Group, Inc. and INVESCO Investment Funds, Inc.
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 None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- --------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
company)
- --------------------------------------------------------------------------------------------------------------------------
James T. Bunch(3) -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
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 ACE Limited (insurance
Trustee (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- --------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc.
Trustee private business corporations, including (Chairman) (registered
the Boss Group Ltd. (private investment investment company);
and management) and Magellan Insurance Annuity and Life Re
Company (Holdings), Ltd.
Formerly: Director, President and Chief (insurance company)
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 None
Trustee Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- --------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff
Trustee Century Group, Inc. (government affairs
company) and Texana Timber LP
- --------------------------------------------------------------------------------------------------------------------------
</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) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 2003 Chairman, Lawsuit Resolution Services (San General Chemical
Trustee Diego, California) Group, Inc.,
Formerly: Associate Justice of the California Wheelabrator
Court of Appeals Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the None
Trustee USA
- ----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and None
Trustee Operations Hines Interests Limited Partnership
(real estate development company)
- ----------------------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D.(3) -- 1942 2003 Retired None
Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(4) -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President General 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, N/A
Senior Vice President A I M Capital Management, Inc.; Director and
Executive Vice President, A I M Management Group
Inc.; Director and Senior Vice President, A I M
Advisors, Inc.; and Director, A I M
Distributors, Inc. and AMVESCAP PLC
Formerly: Chief Executive Officer and President,
A I M Capital Management Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Chief Research Officer -- N/A
Vice President Fixed Income, A I M Capital Management, Inc.;
and Vice President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1992 Vice President and Chief Compliance Officer, N/A
Vice President A I M Advisors, 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 N/A
Vice President President, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management,
Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Dana R. Sutton -- 1959 1988 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
</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
AIM Mid Cap Basic Value Fund SECTOR EQUITY AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund AIM Real Estate Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Advantage Health Sciences Fund
AIM Opportunities III Fund INVESCO Energy Fund
AIM Premier Equity Fund INVESCO Financial Services Fund
AIM Select Equity Fund INVESCO Gold & Precious Metals Fund
AIM Small Cap Equity Fund(2) INVESCO Health Sciences Fund
AIM Small Cap Growth Fund(3) INVESCO Leisure Fund
AIM Trimark Endeavor Fund INVESCO Multi-Sector Fund
AM Trimark Small Companies Fund INVESCO Technology Fund
AIM Weingarten Fund INVESCO Utilities 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 MCG-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.