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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 CORE STRATEGIES FUND
Annual Report to Shareholders o October 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM CORE STRATEGIES FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
================================================================================
ABOUT INFORMATION THROUGHOUT THIS REPORT:
<Table>
o Unless otherwise stated, information o The fund may participate in the o Industry classifications used in this
presented is as of 10/31/03 and is initial public offering (IPO) market in report are generally according to the
based on total net assets. some market cycles. Because of the Global Industry Classification Standard,
fund's small asset base, any investment which was developed by and is the
o AIM Core Strategies Fund's performance the fund may make in IPOs may exclusive property and a service mark of
figures are historical, and they reflect significantly affect the fund's total Morgan Stanley Capital International
fund expenses, the reinvestment of return. As the fund's assets grow, the Inc. and Standard & Poor's.
distributions, and changes in net asset impact of IPO investments will decline,
value. which may reduce the effect of IPO o A direct investment cannot be made in
investments on the fund's total return. an index. Unless otherwise indicated,
o When sales charges are included in index results include reinvested
performance figures, Class A share o The fund's investment return and dividends, and they do not reflect sales
performance reflects the maximum 5.50% principal value will fluctuate, so an charges. Performance of an index of
sales charge, and Class B and Class C investor's shares, when redeemed, may be funds reflects fund expenses;
share performance reflects the worth more or less than their original performance of a market index does not.
applicable contingent deferred sales cost.
charge (CDSC) for the period involved. A description of the policies and
The CDSC on Class B shares declines from o The unmanaged Standard & Poor's procedures that the fund uses to
5% beginning at the time of purchase to Composite Index of 500 Stocks (the S&P determine how to vote proxies relating
0% at the beginning of the seventh year. 500(R)) is an index of common stocks to portfolio securities is available
The CDSC on Class C shares is 1% for the frequently used as a general measure of without charge, upon request, by calling
first year after purchase. The U.S. stock market performance. 800-959-4246, or on the AIM Web site,
performance of the fund's share classes AIMinvestments.com.
will differ due to different sales o The unmanaged Lipper Large-Cap Core
charge structures and class expenses. Fund Index represents an average of the
performance of the 30 largest
o Had the advisor and distributor not large-capitalization core equity funds
waived fees and/or reimbursed expenses, tracked by Lipper, Inc., an independent
returns would have been lower. mutual fund performance monitor.
</Table>
<Table>
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE This report may be distributed only to shareholders
or to persons who have received a current prospectus of
===================================================== the fund.
</Table>
AIMinvestments.com
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER IN new policies and strengthened existing ones--to
THE AIM FAMILY OF FUNDS discourage harmful short-term trading. These steps
--Registered Trademark--: include:
[PHOTO OF As you may be aware, there has o Strengthening daily monitoring of trading
ROBERT H. been a great deal of media activities.
GRAHAM] coverage recently about the
mutual fund industry and o Imposing redemption fees on additional
ROBERT H. GRAHAM allegations of improper funds we believe may be vulnerable to
activities by certain harmful short-term trading activity.
[PHOTO OF individuals and companies. As
MARK H. part of these widespread o Implementing an enhanced exchange policy
WILLIAMSON] investigations, INVESCO Funds (effective on or about March 1, 2004)
Group (IFG), the former designed to limit exchanges between
MARK H. WILLIAMSON adviser to certain INVESCO funds.
Funds, was recently named as a
defendant in separate civil enforcement actions by o Employing an enhanced fair value pricing
the U.S. Securities and Exchange Commission (SEC), policy on certain foreign securities as
the Office of the New York Attorney General and well as certain illiquid securities.
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
derivative actions also were filed in the wake them taken together, eliminate the possibility of
of the regulators' actions. short-term trading strategies that may be
detrimental to a fund. Moreover, each of these
Investors are understandably concerned tools involves judgments that are inherently
and frustrated about these reports, and we would subjective. We have always sought and continue to
like to take this opportunity to assure you that, seek to make these judgments to the best of our
based on an investigation conducted by an outside abilities and in a manner that we believe is
firm, IFG and its parent company, AMVESCAP PLC, consistent with the best interests of our fund
believe that these civil actions are without shareholders. And we remain committed to being as
merit. IFG is contesting the charges. vigilant as possible in the future to identify and
address any harmful market timing investors who
We encourage you to continue to monitor have the potential to harm our long-term fund
this situation, particularly as IFG has the shareholders.
opportunity to address the allegations that have
been made. Current information will be posted on We sincerely hope these developments and
our Web site at AIMinvestments.com. We will the media coverage surrounding them do not result
continue to communicate to you on our Web site in you or other shareholders losing confidence in
about our finding, and the actions we are taking AIM or INVESCO Funds. Amidst this storm of
to protect and promote the interests of our controversy in the mutual fund industry, we
shareholders. The independent trustees of the believe we can find encouragement in the
funds are receiving regular reports from their recovering economy and rising equity markets. As
independent counsel and outside counsel hired by we write this letter, for instance, the S&P 500
AMVESCAP PLC, the parent of AIM and IFG, to --Registered Trademark-- Index is up approximately
perform an ongoing investigation of market timing. 23% year-to-date. Although past performance is
no guarantee of future results, there appear to
A COMPLEX ISSUE be indicators that the economy and stock markets
are showing signs of welcomed improvement. We
Market timing is an investment technique not encourage you to read the enclosed discussion of your
defined in any regulation that involves frequent fund's performance during this past reporting period.
short-term trading of mutual fund shares,
sometimes with a goal to exploit inefficiencies in OUR UNWAVERING COMMITMENT
the way mutual funds price their shares. We
recognize that fund management companies have At AIM Investments, we have never wavered in our
tried to deal with this complex issue in various commitment to helping you build solutions for your
ways and believe that industry-wide guidance is in financial goals. Our company was founded on a core
order. To that end, we welcome SEC Chairman principle of integrity, and we have always worked
William Donaldson's pledge to adopt new rules hard to earn the trust of our shareholders. We are
designed to curb market timing abuses. committed to doing all we can to maintain your
Comprehensive rulemaking is necessary and is the trust and confidence.
best way to establish new industry
responsibilities designed to protect shareholders. Thank you for your continued
We support practical rule changes and structural participation in AIM Investments. Please call your
modifications that are fair, enforceable and, most financial advisor or one of our Client Service
importantly, beneficial for investors. representatives at 800-959-4246 if you have any
further questions or concerns about your AIM
AIM Investments has policies in place Investments account.
designed to identify, prevent and eliminate
harmful trading or other activities deemed to be Sincerely,
detrimental to the funds. We have also recently
taken additional steps--implemented /s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Chairman and President President and CEO
The AIM Family of Funds AIM Investments
--Registered Trademark--
December 18, 2003
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MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
revenues and earnings. We also seek to
mitigate risk by applying our own
fundamental research and insights as
MARKET CONDITIONS IMPROVE IN FUND'S SECOND YEAR well as a proprietary quantitative model
that incorporates numerous earnings
This report covers the fiscal year ended For most of the fiscal year, the growth and valuation factors. We choose
October 31, 2003. Class A shares of AIM Federal Reserve Board (the Fed) kept the each stock individually, and we also
Core Strategies Fund returned 15.95% at short-term federal funds rate at 1.25%. examine the portfolio as a whole to
net asset value for the year. This can On June 25, 2003, it lowered that rate ensure that in building the composite we
be compared to the 16.86% return of the to 1.00%, its lowest level since 1958. have not introduced a risk factor such
Lipper Large-Cap Core Fund Index, an The Fed said it favored a more expansive as over-exposure to one sector.
index of funds with a similar investment monetary policy because the economy had
style investing primarily in stocks of not yet exhibited sustainable growth. By ========================================
the same market capitalization. October, the Fed reported that the pace WE ARE PLEASED TO BE
of economic expansion had picked up,
MARKET CONDITIONS consumer spending had generally ABLE TO REPORT POSITIVE,
strengthened, and residential real
Gross domestic product (GDP) growth estate was strong. However, commercial DOUBLE-DIGIT RETURNS FOR
improved over the reporting period. The real estate was sluggish, and labor
annualized GDP growth for both the last markets remained weak. THE FISCAL YEAR.
quarter of 2002 and the first quarter of ========================================
2003 was 1.4%. For second-quarter 2003, The job market was comparatively
it was 3.3%, annualized. On November 25, weak throughout the period, with the On October 31, 2003, the fund was
2003, after the close of the reporting U.S. unemployment rate measuring 6.0% invested in all 10 sectors of the S&P
period, the preliminary estimate for for the last two months of 2002, 500 Index. Our largest sector weightings
third-quarter GDP growth was announced reaching a high for the reporting period were in financials, information
as 8.2%, annualized. of 6.4% in June, and declining in August technology, and health care. Both
and October to end the period at 6.0%. financials and information technology
The S&P 500 Index, frequently cited were strong contributors to the fund's
as a measure of the performance of the YOUR FUND return. Stocks in the consumer
U.S. stock market in general, returned discretionary sector also made a
20.79% for the year ended October 31, We endeavor to choose the stocks of positive contribution. Health care
2003. All sectors of the S&P 500 companies which we believe have sound stocks detracted from the fund's
recorded gains for the year. financial health and the potential for performance; this year, the sector was
above-average growth in among the weakest-performing sectors in
the S&P 500. The
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PORTFOLIO COMPOSITION BY MARKET CAPITALIZATION
Based On Total Equity Holdings
[PIE CHART]
Mid-Cap Stocks 13%
Small-Cap Stocks 8%
Large-Cap Stocks 79%
<Table>
=========================================================================================
FUND VS. INDEXES TOTAL NUMBER OF HOLDINGS 135
Total returns 10/31/02-10/31/03,
excluding sales charges TOTAL NET ASSETS $0.93 million
Class A Shares 15.95%
Class B Shares 15.95
Class C Shares 15.95
S&P 500 Index (Broad Market
and Style-Specific Index) 20.79
Lipper Large-Cap Core Fund
Index (Peer Group Index) 16.86
Source: Lipper, Inc.
=========================================================================================
</Table>
2
<Table>
stocks in the fund's portfolio in the insurance groups. Though a market Duy Nguyen
utilities, materials, and consumer leader, its profits have not met [PHOTO OF Duy Nguyen, Chartered
staples sectors underperformed their analysts' expectations, and its share DUY NGUYEN] Financial Analyst,
counterparts in their respective sectors price has suffered. PBG is the world's is the portfolio
in the S&P 500. largest manufacturer and distributor of manager of AIM Core
Pepsi-Cola beverages, accounting for Strategies Fund.
We focus on market leaders. This about 40% of PepsiCo's global beverage
emphasis gives the fund a long-term sales. In March 2003, PBG reduced its Mr. Nguyen joined AIM in May 2000.
investment perspective, which sometimes first-quarter earnings forecast because Prior to joining AIM, he served as
results in long holding periods. Seven of poor weather on the East Coast, assistant vice president and
of the top-10 holdings that were listed generally sluggish soft drink sales, and quantitative equity analyst for Van
in the fund's annual report dated rising energy costs. S&P analysts then Kampen American Capital, as well as vice
October 31, 2002, were still among the downgraded the stock's ranking, president and director of quantitative
top-10 holdings at fiscal-year-end 2003. resulting in a one-day price drop of services of FactSet Research Systems,
18%. We have reduced the fund's holdings Inc. Mr. Nguyen earned a B.B.A. at The
Technology-sector companies Cisco in AIG, and the fund no longer owns University of Texas.
and Intel were two important shares in PBG.
contributors to the fund's return this Assisted by the Mid/Large Cap Core Team.
year. Both Cisco and Intel far exceeded IN CLOSING
the returns of the technology sector.
Cisco, the dominant provider of We are encouraged by the most recent
equipment that powers the Internet and earnings reports and some of the
connects networks, posted an 89% economic news of late. We are pleased to
increase in one-year net income growth be able to report positive, double-digit
as of its fiscal year-end in July 2003. returns for the fiscal year. We believe
Intel, the world's largest maker of that market volatility will continue to
semiconductors, reported earnings of be a factor and that complete recovery
$1.7 billion, or 25 cents per share for may be slow. However, we also believe
the quarter ended September 30, 2003. that the inclusion of a
This compared to $686 million, or 10 sector-diversified, actively managed
cents per share, for the same quarter of fund investing in market-leading
the previous year. companies can be an important part of an
investor's portfolio.
Fund holdings that lagged the market
during the period included American
International Group (AIG) and Pepsi See important fund and index
Bottling Group (PBG). AIG is one of the disclosures inside front cover.
world's largest
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[GRAPHIC]
For More Information Visit
AIMinvestments.com
<Table>
==================================================================================================================
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
1. Intel Corp. 3.3% 1. Pharmaceuticals 7.9%
2. Citigroup Inc. 3.1 2. Diversified Banks 5.6
3. General Electric Co. 3.0 3. Systems Software 5.1
4. Microsoft Corp. 3.0 4. Semiconductors 4.3
5. Johnson & Johnson 2.6 5. Consumer Finance 3.8
6. Exxon Mobil Corp. 2.6 6. Computer Hardware 3.8
7. Wal-Mart Stores, Inc. 2.6 7. Industrial Conglomerates 3.7
8. Dell Inc. 2.5 8. Other Diversified Financial Services 3.1
9. Pfizer Inc. 2.2 9. Integrated Oil & Gas 3.1
10. Cisco Systems, Inc. 2.1 10. Thrifts & Mortgage Finance 2.8
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any
particular security.
==================================================================================================================
</Table>
3
FUND PERFORMANCE
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
12/31/01-10/31/03
<Table>
<Caption>
DATE AIM CORE AIM CORE AIM CORE
STRATEGIES FUND STRATEGIES FUND STRATEGIES FUND S&P 500
CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX
12/31/2001 $9450 $10000 $10000 $10000
1/31/02 9299 9840 9840 9854
2/28/02 9091 9620 9620 9664
3/31/02 9411 9959 9959 10028
4/30/02 8948 9469 9469 9420
5/31/02 8882 9399 9399 9351
6/30/02 8306 8789 8789 8685
7/31/02 7767 8220 8220 8008
8/31/02 7786 8239 8239 8061
9/30/02 7059 7470 7470 7185
10/31/02 7550 7990 7990 7817
11/30/02 7787 8240 8240 8277
12/31/02 7379 7808 7808 7791
1/31/03 7215 7635 7635 7587
2/28/03 7109 7522 7522 7473
3/31/03 7185 7604 7604 7545
4/30/03 7647 8093 8093 8167
5/31/03 8032 8500 8500 8597
6/30/03 8090 8561 8561 8706
7/31/03 8196 8673 8673 8860
8/31/03 8330 8815 8815 9032
9/30/03 8282 8764 8764 8937
10/31/03 $8756 $ 8900 $ 9264 $ 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 on sale of fund shares. Performance of the
index does not reflect the effects of taxes.
<Table>
===============================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS Past performance cannot guarantee AVERAGE ANNUAL TOTAL RETURNS
As of 10/31/03, including sales charges comparable future results. DUE TO As of 9/30/03, including sales charges
SIGNIFICANT MARKET VOLATILITY, RESULTS
CLASS A SHARES OF AN INVESTMENT MADE TODAY MAY DIFFER CLASS A SHARES
Inception (12/31/01) -6.99% SUBSTANTIALLY FROM THE HISTORICAL Inception (12/31/01) -10.21 %
1 Year 9.51 PERFORMANCE SHOWN. CALL YOUR FINANCIAL 1 Year 10.95
ADVISOR FOR MORE CURRENT PERFORMANCE.
CLASS B SHARES CLASS B SHARES
Inception (12/31/01) -6.16 In addition to fund returns as of the Inception (12/31/01) -9.36
1 Year 10.95 close of the fiscal year, industry 1 Year 12.34
regulations require us to provide
CLASS C SHARES average annual total returns (including CLASS C SHARES
Inception (12/31/01) -4.08 sales charges) for periods ended Inception (12/31/01) -7.26
1 Year 14.95 9/30/03, the most recent calendar 1 Year 16.34
quarter-end, which were as follows.
===============================================================================================================================
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.80%
AEROSPACE & DEFENSE-2.47%
General Dynamics Corp. 60 $ 5,022
- ----------------------------------------------------------------
Rockwell Collins, Inc. 220 6,039
- ----------------------------------------------------------------
United Technologies Corp. 140 11,857
================================================================
22,918
================================================================
APPAREL RETAIL-0.60%
Foot Locker, Inc. 150 2,685
- ----------------------------------------------------------------
Gap, Inc. (The) 150 2,862
================================================================
5,547
================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.88%
Carter's, Inc.(a) 200 5,600
- ----------------------------------------------------------------
Liz Claiborne, Inc. 70 2,582
================================================================
8,182
================================================================
APPLICATION SOFTWARE-0.45%
Amdocs Ltd. (United Kingdom)(a) 120 2,575
- ----------------------------------------------------------------
Reynolds & Reynolds Co. (The)-Class A 60 1,630
================================================================
4,205
================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.29%
National Financial Partners Corp.(a) 100 2,710
================================================================
AUTO PARTS & EQUIPMENT-1.39%
Autoliv, Inc. 180 5,962
- ----------------------------------------------------------------
Lear Corp.(a) 30 1,743
- ----------------------------------------------------------------
LKQ Corp.(a) 300 5,190
================================================================
12,895
================================================================
BIOTECHNOLOGY-1.60%
Amgen Inc.(a) 150 9,264
- ----------------------------------------------------------------
Gilead Sciences, Inc.(a) 20 1,092
- ----------------------------------------------------------------
Invitrogen Corp.(a) 70 4,451
================================================================
14,807
================================================================
BUILDING PRODUCTS-0.83%
Masco Corp. 280 7,700
================================================================
CASINOS & GAMING-0.29%
GTECH Holdings Corp. 60 2,681
================================================================
COMMUNICATIONS EQUIPMENT-2.49%
Cisco Systems, Inc.(a) 940 19,721
- ----------------------------------------------------------------
QLogic Corp.(a) 60 3,363
================================================================
23,084
================================================================
</Table>
<Table>
- ----------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
COMPUTER & ELECTRONICS RETAIL-0.82%
Best Buy Co., Inc. 100 $ 5,831
- ----------------------------------------------------------------
RadioShack Corp. 60 1,799
================================================================
7,630
================================================================
COMPUTER HARDWARE-3.77%
Dell Inc.(a) 640 23,117
- ----------------------------------------------------------------
Hewlett-Packard Co. 290 6,470
- ----------------------------------------------------------------
International Business Machines Corp. 60 5,369
================================================================
34,956
================================================================
CONSUMER FINANCE-3.82%
American Express Co. 300 14,079
- ----------------------------------------------------------------
Capital One Financial Corp. 110 6,688
- ----------------------------------------------------------------
First Marblehead Corp. (The)(a) 200 4,430
- ----------------------------------------------------------------
MBNA Corp. 410 10,147
================================================================
35,344
================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.50%
Alliance Data Systems Corp.(a) 60 1,667
- ----------------------------------------------------------------
Ceridian Corp.(a) 130 2,730
- ----------------------------------------------------------------
First Data Corp. 180 6,426
- ----------------------------------------------------------------
SunGard Data Systems Inc.(a) 110 3,085
================================================================
13,908
================================================================
DEPARTMENT STORES-0.36%
Federated Department Stores, Inc. 70 3,328
================================================================
DIVERSIFIED BANKS-5.61%
Bank of America Corp. 210 15,903
- ----------------------------------------------------------------
Bank One Corp. 50 2,122
- ----------------------------------------------------------------
U.S. Bancorp 460 12,521
- ----------------------------------------------------------------
Wachovia Corp. 270 12,385
- ----------------------------------------------------------------
Wells Fargo & Co. 160 9,011
================================================================
51,942
================================================================
DIVERSIFIED CAPITAL MARKETS-0.78%
J.P. Morgan Chase & Co. 200 7,180
================================================================
DIVERSIFIED CHEMICALS-0.68%
Engelhard Corp. 220 6,288
================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.31%
Apollo Group, Inc.-Class A(a) 50 3,176
- ----------------------------------------------------------------
Cendant Corp.(a) 300 6,129
- ----------------------------------------------------------------
Deluxe Corp. 110 4,441
- ----------------------------------------------------------------
Equifax Inc. 200 4,888
- ----------------------------------------------------------------
University of Phoenix Online(a) 40 2,750
================================================================
21,384
================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------
ELECTRIC UTILITIES-0.88%
Entergy Corp. 50 $ 2,695
- ----------------------------------------------------------------
Exelon Corp. 60 3,807
- ----------------------------------------------------------------
Southern Co. (The) 55 1,639
================================================================
8,141
================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.82%
Amphenol Corp.-Class A(a) 40 2,350
- ----------------------------------------------------------------
Thermo Electron Corp.(a) 240 5,275
================================================================
7,625
================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.43%
Monsanto Co. 160 4,008
================================================================
FOOD DISTRIBUTORS-0.47%
Sysco Corp. 130 4,376
================================================================
FOOD RETAIL-1.18%
Kroger Co. (The)(a) 280 4,897
- ----------------------------------------------------------------
SUPERVALU INC 240 6,053
================================================================
10,950
================================================================
FOOTWEAR-1.05%
NIKE, Inc.-Class B 110 7,029
- ----------------------------------------------------------------
Reebok International Ltd. 70 2,726
================================================================
9,755
================================================================
GENERAL MERCHANDISE STORES-0.78%
Dollar General Corp. 180 4,045
- ----------------------------------------------------------------
Target Corp. 80 3,179
================================================================
7,224
================================================================
HEALTH CARE DISTRIBUTORS-0.19%
Cardinal Health, Inc. 30 1,780
================================================================
HEALTH CARE EQUIPMENT-1.45%
Apogent Technologies Inc.(a) 210 4,609
- ----------------------------------------------------------------
Becton, Dickinson & Co. 110 4,022
- ----------------------------------------------------------------
Guidant Corp. 30 1,530
- ----------------------------------------------------------------
Stryker Corp. 40 3,244
================================================================
13,405
================================================================
HEALTH CARE SERVICES-0.23%
IMS Health Inc. 90 2,118
================================================================
HEALTH CARE SUPPLIES-0.56%
Bausch & Lomb Inc. 50 2,408
- ----------------------------------------------------------------
Fisher Scientific International Inc.(a) 70 2,817
================================================================
5,225
================================================================
HOME ENTERTAINMENT SOFTWARE-0.21%
Electronic Arts Inc.(a) 20 1,981
================================================================
</Table>
<Table>
- ----------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
HOME IMPROVEMENT RETAIL-2.06%
Home Depot, Inc. (The) 340 $ 12,604
- ----------------------------------------------------------------
Lowe's Cos., Inc. 110 6,482
================================================================
19,086
================================================================
HOMEBUILDING-0.54%
M.D.C. Holdings, Inc. 30 2,020
- ----------------------------------------------------------------
Toll Brothers, Inc.(a) 80 2,947
================================================================
4,967
================================================================
HOUSEHOLD PRODUCTS-2.72%
Clorox Co. (The) 120 5,436
- ----------------------------------------------------------------
Colgate-Palmolive Co. 150 7,978
- ----------------------------------------------------------------
Procter & Gamble Co. (The) 120 11,795
================================================================
25,209
================================================================
HYPERMARKETS & SUPER CENTERS-2.55%
Wal-Mart Stores, Inc. 400 23,580
================================================================
INDUSTRIAL CONGLOMERATES-3.73%
3M Co. 50 3,943
- ----------------------------------------------------------------
General Electric Co. 960 27,850
- ----------------------------------------------------------------
Tyco International Ltd. (Bermuda) 130 2,714
================================================================
34,507
================================================================
INDUSTRIAL MACHINERY-0.86%
Donaldson Co., Inc. 40 2,289
- ----------------------------------------------------------------
Graco Inc. 150 5,715
================================================================
8,004
================================================================
INSURANCE BROKERS-0.14%
Marsh & McLennan Cos., Inc. 30 1,282
================================================================
INTEGRATED OIL & GAS-3.05%
Exxon Mobil Corp. 650 23,777
- ----------------------------------------------------------------
Royal Dutch Petroleum Co.-New York Shares
(Netherlands) 100 4,438
================================================================
28,215
================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.28%
BellSouth Corp. 245 6,446
- ----------------------------------------------------------------
SBC Communications Inc. 330 7,913
- ----------------------------------------------------------------
Verizon Communications Inc. 200 6,720
================================================================
21,079
================================================================
INTERNET RETAIL-0.18%
eBay Inc. 30 1,678
================================================================
INTERNET SOFTWARE & SERVICES-0.28%
Yahoo! Inc.(a) 60 2,622
================================================================
INVESTMENT BANKING & BROKERAGE-2.62%
Bear Stearns Cos. Inc. (The) 40 3,050
- ----------------------------------------------------------------
Lehman Brothers Holdings Inc. 40 2,880
- ----------------------------------------------------------------
Merrill Lynch & Co., Inc. 170 10,064
- ----------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-(CONTINUED)
Morgan Stanley 150 $ 8,231
================================================================
24,225
================================================================
IT CONSULTING & OTHER SERVICES-0.50%
DigitalNet Holdings, Inc.(a) 200 4,622
================================================================
LIFE & HEALTH INSURANCE-0.42%
Prudential Financial, Inc. 100 3,864
================================================================
MANAGED HEALTH CARE-2.23%
Anthem, Inc.(a) 120 8,212
- ----------------------------------------------------------------
UnitedHealth Group Inc. 140 7,123
- ----------------------------------------------------------------
WellPoint Health Networks Inc.(a) 60 5,334
================================================================
20,669
================================================================
MOTORCYCLE MANUFACTURERS-0.56%
Harley-Davidson, Inc. 110 5,215
================================================================
MOVIES & ENTERTAINMENT-0.78%
Viacom Inc.-Class B 180 7,177
================================================================
MULTI-LINE INSURANCE-1.05%
American International Group, Inc. 160 9,733
================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-3.12%
Citigroup Inc. 610 28,914
================================================================
PERSONAL PRODUCTS-0.73%
Avon Products, Inc. 100 6,796
================================================================
PHARMACEUTICALS-7.92%
Abbott Laboratories 300 12,786
- ----------------------------------------------------------------
Bristol-Myers Squibb Co. 70 1,776
- ----------------------------------------------------------------
Johnson & Johnson 480 24,158
- ----------------------------------------------------------------
King Pharmaceuticals, Inc.(a) 120 1,608
- ----------------------------------------------------------------
Merck & Co. Inc. 200 8,850
- ----------------------------------------------------------------
Pfizer Inc. 640 20,224
- ----------------------------------------------------------------
Wyeth 90 3,973
================================================================
73,375
================================================================
PROPERTY & CASUALTY INSURANCE-0.40%
Progressive Corp. (The) 50 3,690
================================================================
REGIONAL BANKS-1.33%
National City Corp. 280 9,145
- ----------------------------------------------------------------
PNC Financial Services Group 60 3,214
================================================================
12,359
================================================================
RESTAURANTS-1.38%
CBRL Group, Inc. 50 1,938
- ----------------------------------------------------------------
McDonald's Corp. 160 4,002
- ----------------------------------------------------------------
</Table>
<Table>
- ----------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
RESTAURANTS-(CONTINUED)
Yum! Brands, Inc.(a) 200 $ 6,828
================================================================
12,768
================================================================
SEMICONDUCTORS-4.28%
AMIS Holdings, Inc.(a) 200 4,030
- ----------------------------------------------------------------
Intel Corp. 910 30,076
- ----------------------------------------------------------------
Linear Technology Corp. 130 5,539
================================================================
39,645
================================================================
SOFT DRINKS-2.30%
Coca-Cola Co. (The) 160 7,424
- ----------------------------------------------------------------
PepsiCo, Inc. 290 13,868
================================================================
21,292
================================================================
SPECIALTY CHEMICALS-0.19%
Cytec Industries Inc.(a) 50 1,746
================================================================
SPECIALTY STORES-1.19%
AutoNation, Inc.(a) 330 6,171
- ----------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 70 2,957
- ----------------------------------------------------------------
Staples, Inc.(a) 70 1,877
================================================================
11,005
================================================================
SYSTEMS SOFTWARE-5.14%
Adobe Systems Inc. 100 4,384
- ----------------------------------------------------------------
Microsoft Corp. 1,060 27,719
- ----------------------------------------------------------------
Oracle Corp.(a) 750 8,970
- ----------------------------------------------------------------
VERITAS Software Corp.(a) 180 6,507
================================================================
47,580
================================================================
THRIFTS & MORTGAGE FINANCE-2.79%
Countrywide Financial Corp. 50 5,256
- ----------------------------------------------------------------
Fannie Mae 95 6,811
- ----------------------------------------------------------------
IndyMac Bancorp, Inc. 80 2,352
- ----------------------------------------------------------------
Washington Mutual, Inc. 260 11,375
================================================================
25,794
================================================================
TOBACCO-1.00%
Altria Group, Inc. 200 9,300
================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.29%
AT&T Wireless Services Inc.(a) 370 2,683
================================================================
Total Common Stocks & Other Equity
Interests (Cost $862,413) 905,958
================================================================
TOTAL INVESTMENTS-97.80% (Cost $862,413) 905,958
================================================================
OTHER ASSETS LESS LIABILITIES-2.20% 20,405
================================================================
NET ASSETS-100.00% $926,363
________________________________________________________________
================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
See Notes to Financial Statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2003
<Table>
ASSETS:
Investments, at market value (cost $862,413) $905,958
- ----------------------------------------------------------
Cash 27,500
- ----------------------------------------------------------
Receivables for:
Dividends 1,208
- ----------------------------------------------------------
Amount due from advisor 14,249
- ----------------------------------------------------------
Investment for deferred compensation plan 5,332
==========================================================
Total assets 954,247
__________________________________________________________
==========================================================
LIABILITIES:
Payables for:
Investments purchased 3,200
- ----------------------------------------------------------
Deferred compensation plan 5,332
- ----------------------------------------------------------
Accrued trustees' fees 569
- ----------------------------------------------------------
Accrued transfer agent fees 10
- ----------------------------------------------------------
Accrued operating expenses 18,773
==========================================================
Total liabilities 27,884
==========================================================
Net assets applicable to shares outstanding $926,363
__________________________________________________________
==========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $998,865
- ----------------------------------------------------------
Undistributed net investment income (loss) (4,522)
- ----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and option contracts (111,525)
- ----------------------------------------------------------
Unrealized appreciation of investment securities
and option contracts 43,545
==========================================================
$926,363
__________________________________________________________
==========================================================
NET ASSETS:
Class A $370,543
__________________________________________________________
==========================================================
Class B $277,910
__________________________________________________________
==========================================================
Class C $277,910
__________________________________________________________
==========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 40,723
__________________________________________________________
==========================================================
Class B 30,542
__________________________________________________________
==========================================================
Class C 30,542
__________________________________________________________
==========================================================
Class A:
Net asset value per share $ 9.10
- ----------------------------------------------------------
Offering price per share:
(Net asset value of $9.10 divided by 94.50%) $ 9.63
__________________________________________________________
==========================================================
Class B:
Net asset value and offering price per share $ 9.10
__________________________________________________________
==========================================================
Class C:
Net asset value and offering price per share $ 9.10
__________________________________________________________
==========================================================
</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 $17) $ 12,197
======================================================================
EXPENSES:
Advisory fees 6,219
- ----------------------------------------------------------------------
Administrative services fees 50,000
- ----------------------------------------------------------------------
Custodian fees 4,661
- ----------------------------------------------------------------------
Distribution fees:
Class A 1,160
- ----------------------------------------------------------------------
Class B 2,488
- ----------------------------------------------------------------------
Class C 2,488
- ----------------------------------------------------------------------
Transfer agent fees 112
- ----------------------------------------------------------------------
Trustees' fees 8,659
- ----------------------------------------------------------------------
Professional fees 23,951
- ----------------------------------------------------------------------
Other 2,466
======================================================================
Total expenses 102,204
======================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (87,700)
======================================================================
Net expenses 14,504
======================================================================
Net investment income (loss) (2,307)
======================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (12,501)
- ----------------------------------------------------------------------
Option contracts written 1,450
======================================================================
(11,051)
======================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 140,573
- ----------------------------------------------------------------------
Option contracts written (78)
======================================================================
140,495
======================================================================
Net gain from investment securities and option contracts 129,444
======================================================================
Net increase in net assets resulting from operations $127,137
______________________________________________________________________
======================================================================
</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) to October 31, 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,307) $ (3,380)
- ------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
option contracts (11,051) (100,474)
- ------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and option contracts 140,495 (96,950)
====================================================================================
Net increase (decrease) in net assets resulting from
operations 127,137 (200,804)
====================================================================================
Distributions to shareholders from net investment income:
Class A (5,600) --
- ------------------------------------------------------------------------------------
Class B (4,200) --
- ------------------------------------------------------------------------------------
Class C (4,200) --
====================================================================================
Decrease in net assets resulting from distributions (14,000) --
====================================================================================
Share transactions-net:
Class A 5,600 400,010
- ------------------------------------------------------------------------------------
Class B 4,200 300,010
- ------------------------------------------------------------------------------------
Class C 4,200 300,010
====================================================================================
Net increase in net assets resulting from share
transactions 14,000 1,000,030
====================================================================================
Net increase in net assets 127,137 799,226
====================================================================================
NET ASSETS:
Beginning of year 799,226 --
====================================================================================
End of year (including undistributed net investment income
(loss) of $(4,522) and $11,693 for 2003 and 2002,
respectively) $926,363 $ 799,226
____________________________________________________________________________________
====================================================================================
</Table>
See Notes to Financial Statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Core Strategies Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently consists of multiple classes of shares. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. The Fund is currently
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 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").
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.
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. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to
F-7
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 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 shares to 1.75%. 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 $6,219 and reimbursed
fees of $75,063.
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 AIM Fund Services,
Inc., a fee for providing transfer agency and shareholder services to the Fund.
During the year ended October 31, 2003, AISI retained $63 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.
Waivers 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 fees of $1,160, $2,488
and $2,488, 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 $9 and reductions in custodian
fees of $273 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $282.
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
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 year ended October 31, 2003, the Fund did not borrow or lend under the
interfund lending facility or borrow under the uncommitted unsecured revolving
line of credit facility.
Additionally the Fund is permitted to carry a negative or overdrawn balance
in its account with the custodian bank. To compensate the custodian bank for
such overdrafts, the overdrawn Fund may either (i) leave funds in the account so
the custodian can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank. In either case, the custodian bank will
be compensated an amount equal to the Federal Funds rate plus 100 basis points.
F-8
NOTE 6--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ---------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ---------------------------------------------------------
Beginning of year 10 $ 405
- ---------------------------------------------------------
Written 34 1,638
- ---------------------------------------------------------
Closed (12) (574)
- ---------------------------------------------------------
Exercised (4) (246)
- ---------------------------------------------------------
Expired (28) (1,223)
- ---------------------------------------------------------
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, 2001 (date operations commenced) through October 31,
2002 was as follows:
<Table>
<Caption>
2003 2002
- -----------------------------------------------------------
Distributions paid from ordinary income $14,000 --
___________________________________________________________
===========================================================
</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 $ 1,317
- ----------------------------------------------------------
Unrealized appreciation -- investments 43,545
- ----------------------------------------------------------
Temporary book/tax differences (5,839)
- ----------------------------------------------------------
Capital loss carryforward (111,525)
- ----------------------------------------------------------
Shares of beneficial interest 998,865
==========================================================
Total net assets $ 926,363
__________________________________________________________
==========================================================
</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 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 $100,474
- ----------------------------------------------------------
October 31, 2011 11,051
==========================================================
Total capital loss carryforward $111,525
__________________________________________________________
==========================================================
</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 $651,530 and $651,758, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ----------------------------------------------------------
Aggregate unrealized appreciation of investment
securities $ 92,822
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (49,277)
==========================================================
Net unrealized appreciation of investment
securities $ 43,545
__________________________________________________________
==========================================================
Investments have the same cost for tax and financial
statement purposes.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of stock issuance costs
and nondeductible excise tax paid by the fund, on October 31, 2003,
undistributed net investment income was increased by $92 and shares of
beneficial interest decreased by $92. This reclassification had no effect on the
net assets of the Fund.
F-9
NOTE 10--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
- --------------------------------------------------------------------------------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
OCTOBER 31, 2003 OCTOBER 31, 2002
----------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
Sold:
Class A* -- $ -- 40,001 $ 400,010
- --------------------------------------------------------------------------------------------------------
Class B* -- -- 30,001 300,010
- --------------------------------------------------------------------------------------------------------
Class C* -- -- 30,001 300,010
========================================================================================================
Issued as reinvestment of dividends:
Class A* 722 5,600 -- --
- --------------------------------------------------------------------------------------------------------
Class B* 541 4,200 -- --
- --------------------------------------------------------------------------------------------------------
Class C* 541 4,200 -- --
========================================================================================================
1,804 $14,000 100,003 $1,000,030
________________________________________________________________________________________________________
========================================================================================================
</Table>
* Currently, the Fund is not open to investors and consequently all shares are
owned by AIM.
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period indicated.
<Table>
<Caption>
CLASS A
------------------------------------------
DECEMBER 31, 2001 (DATE
YEAR ENDED OPERATIONS COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.99 $ 10.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.03)
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.27 (1.98)
========================================================================================================
Total from investment operations 1.25 (2.01)
========================================================================================================
Less dividends from net investment income (0.14) --
========================================================================================================
Net asset value, end of period $ 9.10 $ 7.99
________________________________________________________________________________________________________
========================================================================================================
Total return(a) 15.95% (20.10)%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 371 $ 320
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.78%(b) 1.82%(c)
- --------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 11.94%(b) 13.71%(c)
========================================================================================================
Ratio of net investment income (loss) to average net assets (0.28)%(b) (0.45)%(c)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(d) 81% 42%
________________________________________________________________________________________________________
========================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(b) Ratios are based on average daily net assets of $331,666.
(c) Annualized.
(d) Not annualized for periods less than one year.
F-10
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------
DECEMBER 31, 2001 (DATE
YEAR ENDED OPERATIONS COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.99 $ 10.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.03)
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.27 (1.98)
========================================================================================================
Total from investment operations 1.25 (2.01)
========================================================================================================
Less dividends from net investment income (0.14) --
========================================================================================================
Net asset value, end of period $ 9.10 $ 7.99
________________________________________________________________________________________________________
========================================================================================================
Total return(a) 15.95% (20.10)%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 278 $ 240
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.78%(b) 1.82%(c)
- --------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 12.59%(b) 14.36%(c)
========================================================================================================
Ratio of net investment income (loss) to average net assets (0.28)%(b) (0.45)%(c)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(d) 81% 42%
________________________________________________________________________________________________________
========================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(b) Ratios are based on average daily net assets of $248,752.
(c) Annualized.
(d) Not annualized for periods less than one year.
F-11
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------
DECEMBER 31, 2001 (DATE
YEAR ENDED OPERATIONS COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2003 2002
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.99 $ 10.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.03)
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.27 (1.98)
========================================================================================================
Total from investment operations 1.25 (2.01)
========================================================================================================
Less dividends from net investment income (0.14) --
========================================================================================================
Net asset value, end of period $ 9.10 $ 7.99
________________________________________________________________________________________________________
========================================================================================================
Total return(a) 15.95% (20.10)%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 278 $ 240
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.78%(b) 1.82%(c)
- --------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 12.59%(b) 14.36%(c)
========================================================================================================
Ratio of net investment income (loss) to average net assets (0.28)%(b) (0.45)%(c)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(d) 81% 42%
________________________________________________________________________________________________________
========================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(b) Ratios are based on average daily net assets of $248,752.
(c) Annualized.
(d) Not annualized for periods less than one year.
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--Registered Trademark-- which includes the INVESCO
Funds (the "Funds") has been named as a defendant in any of these proceedings.
The SEC proceeding alleges that INVESCO failed to disclose in the INVESCO
Funds' prospectuses and to the INVESCO Funds' independent directors that INVESCO
had entered into certain arrangements permitting market timing of the INVESCO
Funds. The SEC is seeking injunctions, including permanent injunctions from
serving as an investment advisor, officer or director of an investment company;
an accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG proceeding is also based on the circumstances described above. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief.
The Colorado proceeding is also based on the circumstances described above.
The State of Colorado is seeking injunctions; restitution, disgorgement and
other equitable relief; civil monetary penalties; and other relief.
If INVESCO is unsuccessful in its defense of these proceedings, it could be
barred from serving as an investment advisor for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Similarly, if Mr. Cunningham is unsuccessful in his
defense of these proceedings, he could be barred from serving as an officer or
director of any registered investment company. Such results could also affect
the ability of AIM, or any other investment advisor directly or indirectly owned
by AMVESCAP, from serving as an investment advisor to any registered investment
company, including your Fund. Your Fund has been informed by AIM that, if either
of these results occurs, AIM will seek exemptive relief from the SEC to permit
it to continue to serve as your Fund's investment advisor. There can be no
assurance that such exemptive relief will be granted.
F-12
NOTE 12--SUBSEQUENT EVENTS (CONTINUED)
AIM has received inquiries from the SEC, NASD, Inc., 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.
F-13
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Core Strategies Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM Core
Strategies Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 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
Core Strategies Fund as of October 31, 2003, the results of its operations for
the year then ended, and the changes in its net assets and financial highlights
for each of the two years in the period then ended, in conformity with
accounting principles generally accepted in the United States.
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) 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 Group Inc. None
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 Director and Chairman,
Trustee and Executive Vice Management Group Inc. (financial services holding company); INVESCO Bond Funds,
President Director, Chairman and President, A I M Advisors, Inc. Inc., INVESCO
(registered investment advisor); Director, A I M Capital Combination Stock &
Management, Inc. (registered investment advisor) and A I M Bond Funds, Inc.,
Distributors, Inc. (registered broker dealer); Director and INVESCO Counselor
Chairman, AIM Investment Services, Inc. (registered transfer Series Funds, Inc.,
agent); and Fund Management Company (registered broker INVESCO International
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM Funds, Inc., INVESCO
Division (parent of AIM and a global investment management Manager Series Funds,
firm) Inc., INVESCO Money
Formerly: Director, Chairman, President and Chief Executive Market Funds, Inc.,
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors, INVESCO Sector Funds,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed Inc., INVESCO Stock
Products; Chairman and Chief Executive Officer of Funds, Inc., INVESCO
NationsBanc Advisors, Inc.; and Chairman of NationsBanc Treasurer's Series
Investments, Inc. Funds, Inc. and
INVESCO Variable
Investment Funds, 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 & Bunch Ltd., None
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 ACE Limited (insurance
Trustee consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- ------------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business Cortland Trust, Inc.
Trustee corporations, including the Boss Group Ltd. (private (Chairman) (registered
investment and management) and Magellan Insurance Company investment company);
Formerly: Director, President and Chief Executive Officer, Annuity and Life Re
Volvo Group North America, Inc.; Senior Vice President, AB (Holdings), Ltd.
Volvo; and director of various affiliated Volvo Group (insurance company)
companies
- ------------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and None
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. Administaff
Trustee (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/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP Cortland Trust, Inc.
Trustee (registered investment
company)
- ------------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego, General Chemical
Trustee California) Group, Inc.,
Formerly: Associate Justice of the California Court of Wheelabrator
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 USA None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
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 Operations Hines None
Trustee 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 General N/A
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 N/A
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 N/A
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, N/A
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 N/A
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. 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, 64.77% is eligible for the dividends received deduction for
corporations.
For its tax year ended October 31, 2003, the Fund designated 1.86%, or the
maximum allowable, of its dividend distributions as qualified dividend income.
The actual amounts 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
AIM Libra Fund TAX-FREE
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund SECTOR EQUITY AIM High Income Municipal Fund
AIM Mid Cap Growth Fund AIM Municipal Bond Fund
AIM Opportunities I Fund AIM Global Health Care Fund AIM Tax-Exempt Cash Fund
AIM Opportunities II Fund AIM Real Estate Fund AIM Tax-Free Intermediate 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 CSTR-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 U.S. GROWTH FUND
Annual Report to Shareholders o October 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM U.S. GROWTH FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
================================================================================
ABOUT INFORMATION THROUGHOUT THIS REPORT:
<Table>
o Unless otherwise stated, information o The prices of foreign securities may o The unmanaged Standard & Poor's
presented is as of 10/31/03 and is based be affected by factors not present with Composite Index of 500 Stocks (the S&P
on total net assets. securities traded in the U.S. markets, 500--Registered Trademark--) is an index
including currency exchange rates, of common stocks frequently used as a
o AIM U.S. Growth Fund's performance political and economic conditions, less general measure of U.S. stock market
figures are historical, and they reflect stringent regulation and higher performance.
fund expenses, the reinvestment of volatility. As a result, many foreign
distributions, and changes in net asset securities may be less liquid and more o Bloomberg, Inc. is a well-known
value. volatile than U.S. securities. independent financial research and
reporting firm.
o Had the advisor and distributor not o The fund may participate in the
waived fees and/or reimbursed expenses, initial public offering (IPO) market in o Hoover's is a provider of proprietary
returns would have been lower. some market cycles. Because of the business information about corporations.
fund's small asset base, any investment
o When sales charges are included in the fund may make in IPOs may o A direct investment cannot be made in
performance figures, Class A share significantly affect the fund's total an index. Unless otherwise indicated,
performance reflects the maximum 5.50% return. As the fund's assets grow, the index results include reinvested
sales charge, and Class B and Class C impact of IPO investments will decline, dividends, and they do not reflect sales
share performance reflects the which may reduce the effect of IPO charges or fund expenses.
applicable contingent deferred sales investments on the fund's total return.
charge (CDSC) for the period involved. A description of the policies and
The CDSC on Class B shares declines from o Investing in small and mid-size procedures that the fund uses to
5% beginning at the time of purchase to companies may involve risks not determine how to vote proxies relating to
0% at the beginning of the seventh year. associated with investing in more portfolio securities is available without
The CDSC on Class C shares is 1% for the established companies. Also, small charge, upon request, by calling
first year after purchase. The companies may have business risk, 800-959-4246, or on the AIM Web site,
performance of the fund's share classes significant stock price fluctuations and AIMinvestments.com.
will differ due to different sales illiquidity.
charge structures and class expenses.
o The fund's investment return and
o Effective 9/30/03, Class B shares are principal value will fluctuate, so an
not available as an investment for investor's shares, when redeemed, may be
retirement plans maintained pursuant to worth more or less than their original
Section 401 of the Internal Revenue cost.
Code, including 401(k) plans, money
purchase pension plans and profit o Industry classifications used in this
sharing plans. Plans that have existing report are generally according to the
accounts invested in Class B shares will Global Industry Classification Standard,
continue to be allowed to make which was developed by and is the
additional purchases. exclusive property and a service mark of
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 on
INVESCO Funds Group (IFG), the former or about March 1, 2004) designed to limit exchanges
[PHOTO OF adviser to certain INVESCO Funds, was between funds.
MARK H. recently named as a defendant in
WILLIAMSON] separate civil enforcement actions by o Employing an enhanced fair value pricing policy on
the U.S. Securities and Exchange certain foreign securities as well as certain illiquid
MARK H. WILLIAMSON Commission (SEC), the Office of the New securities.
York Attorney General and the State of
Colorado over an issue known as "market timing." A number of None of these tools alone, nor all of them taken
private class or derivative actions also were filed in the together, eliminate the possibility of short-term trading
wake of the regulators' actions. strategies that may be detrimental to a fund. Moreover, each
of these tools involves judgments that are inherently
Investors are understandably concerned and frustrated subjective. We have always sought and continue to seek to
about these reports, and we would like to take this make these judgments to the best of our abilities and in a
opportunity to assure you that, based on an investigation manner that we believe is consistent with the best interests
conducted by an outside firm, IFG and its parent company, of our fund shareholders. And we remain committed to being
AMVESCAP PLC, believe that these civil actions are without as vigilant as possible in the future to identify and
merit. IFG is contesting the charges. address any harmful market timing investors who have the
potential to harm our long-term fund shareholders.
We encourage you to continue to monitor this situation,
particularly as IFG has the opportunity to address the We sincerely hope these developments and the media
allegations that have been made. Current information will be coverage surrounding them do not result in you or other
posted on our Web site at AIMinvestments.com. We will shareholders losing confidence in AIM or INVESCO Funds.
continue to communicate to you on our Web site about our Amidst this storm of controversy in the mutual fund
finding, and the actions we are taking to protect and industry, we believe we can find encouragement in the
promote the interests of our shareholders. The independent recovering economy and rising equity markets. As we write
trustees of the funds are receiving regular reports from this letter, for instance, the S&P 500--Registered
their independent counsel and outside counsel hired by Trademark-- Index is up approximately 23% year-to-date.
AMVESCAP PLC, the parent of AIM and IFG, to perform an Although past performance is no guarantee of future results,
ongoing investigation of market timing. there appear to be indicators that the economy and stock
markets are showing signs of welcomed improvement. We
A COMPLEX ISSUE encourage you to read the enclosed discussion of your fund's
performance during this past reporting period.
Market timing is an investment technique not defined in any
regulation that involves frequent short-term trading of OUR UNWAVERING COMMITMENT
mutual fund shares, sometimes with a goal to exploit
inefficiencies in the way mutual funds price their shares. At AIM Investments, we have never wavered in our commitment
We recognize that fund management companies have tried to to helping you build solutions for your financial goals. Our
deal with this complex issue in various ways and believe company was founded on a core principle of integrity, and we
that industry-wide guidance is in order. To that end, we have always worked hard to earn the trust of our
welcome SEC Chairman William Donaldson's pledge to adopt new shareholders. We are committed to doing all we can to
rules designed to curb market timing abuses. Comprehensive maintain your trust and confidence.
rulemaking is necessary and is the best way to establish new
industry responsibilities designed to protect shareholders. Thank you for your continued participation in AIM
We support practical rule changes and structural Investments. Please call your financial advisor or one of
modifications that are fair, enforceable and, most our Client Service representatives at 800-959-4246 if you
importantly, beneficial for investors. have any further questions or concerns about your AIM
Investments account.
AIM Investments has policies in place designed to
identify, prevent and eliminate harmful trading or other Sincerely,
activities deemed to be detrimental to the funds. We have
also recently taken additional steps--implemented /s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Chairman and President President and CEO
The AIM Family of Funds AIM Investments
--Registered Trademark--
December 18, 2003
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
AIM U.S. GROWTH FUND'S FIRST YEAR yet exhibited sustainable growth.
PRODUCES DOUBLE-DIGIT RETURNS
All sectors of the S&P 500 recorded
AIM U.S. Growth Fund commenced level for the fiscal year on March 11, gains for the fiscal year. Information
operations August 30, 2002, in the 2003. The index then rallied, posting a technology, materials and utilities were
depths of a bear market that had already gain of 32.67% through the end of the the top-performing sectors while
lasted more than two years. For the fiscal year. telecommunication services, consumer
fiscal year ended October 31, 2003, the staples and health care were the
fund produced total returns of 12.92% During this rally, the United States weakest-performing sectors.
for Class A, Class B and Class C shares and its allies took military action
at net asset value. The S&P 500 Index against Iraq and ousted the regime of Small- and mid-cap stocks generally
returned 20.79% for the same period. Saddam Hussein. The nation's gross outperformed large-cap stocks for the
During that time, the market was more domestic product, generally considered fiscal year. While the performance of
favorable to cyclical stocks that were the broadest measure of economic large-cap growth and large-cap value
more leveraged and had higher volatility activity, expanded at an annualized rate stocks was similar, mid- and small-cap
than those that make up the majority of of 3.3% in the second quarter and 8.2% growth stocks, on average, outperformed
the fund's holdings, which are more in the third quarter of 2003. According their value counterparts by wider
noncyclical and are less leveraged and to Bloomberg, as of the close of the margins.
less volatile. Compared with the index, fiscal year, 405 companies in the S&P
the fund was underweight certain areas 500 had reported third-quarter earnings. YOUR FUND
of the technology, financial and A total of 65.4% of those companies
industrial sectors that did well during reported earnings that exceeded The fund invests primarily in core
the period. expectations, compared to 60.2% for the growth stocks--equity securities of U.S.
third quarter of 2002. The job market companies that we believe have
MARKET CONDITIONS remained weak, however, as the nation's experienced above-average growth in
unemployment rate stood at 6.0% at the earnings, have exhibited long-term
Amid a backdrop of generally improving close of the reporting period. earnings consistency, and have what we
economic conditions, the S&P 500 Index, believe to be excellent prospects for
frequently cited as a measure of the For most of the fiscal year, the sustainable future earnings growth.
performance of the U.S. stock market in Federal Reserve (the Fed) kept the Investment candidates must have strong
general, rose in November 2002, then short-term federal funds rate at 1.25%. management teams and healthy balance
fell over the next three months, On June 25, 2003, it lowered that rate sheets, and must be considered leaders
dropping to its lowest to 1.00%, its lowest level since 1958. in their respective industries.
At the time, the Fed said it favored a
more expansive monetary policy because We invest in equities without regard to
the economy had not
</Table>
<Table>
==================================================================================================================================
FUND VS. INDEX TOP 10 EQUITY HOLDINGS* TOP 10 SECTORS*
Total returns 10/31/02-10/31/03,
excluding sales charges 1. Pfizer Inc. 4.1% 1. Financials 20.5%
Class A Shares 12.92% 2. Microsoft Corp. 3.7 2. Health Care 17.4
Class B Shares 12.92 3. Exxon Mobil Corp. 2.8 3. Information Technology 15.0
Class C Shares 12.92 4. Altria Group, Inc. 2.8 4. Consumer Staples 12.6
S&P 500 Index 20.79 5. Johnson & Johnson 2.7 5. Consumer Discretionary 11.3
Source: Lipper, Inc. 6. AFLAC Inc. 2.7 6. Industrials 8.2
7. American International Group, 7. Energy 4.6
TOTAL NUMBER OF HOLDINGS* 69 Inc. 2.6
TOTAL NET ASSETS $1.1 million 8. Other 3.7
8. Affiliated Computer Services,
Inc. Class A 2.6 9. Telecommunication Services 3.7
9. Wal-Mart Stores, Inc. 2.5 10. Utilities 1.5
10. Dell Inc. 2.5
*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>
market capitalization, and as of October to fund performance was General KENNETH A. ZSCHAPPEL
31, 2003, 79% of holdings were Electric, which makes not only the [PHOTO OF Mr. Zschappel is lead
large-cap, 21% were mid-cap, and we had familiar lighting, kitchen and laundry KENNETH A. portfolio manager of AIM
no holdings in the small-cap category. appliances, but other products ranging ZSCHAPPEL] U.S. Growth Fund. He
The fund is diversified, with exposure from aircraft engines to medical imaging joined AIM in 1990. Mr.
across all market sectors. The fund equipment. Zschappel received a B.A. in political
keeps 80% of its assets in U.S. science from Baylor University.
securities, but may invest up to 20% of The fund also experienced negative
its assets in foreign securities. performance from some holdings, CHRISTIAN A. COSTANZO
including highly respected companies [PHOTO OF Mr. Costanzo is portfolio
During the year ended October 31, such as diversified health care product CHRISTIAN A. manager of AIM U.S.
2003, all sectors of the S&P 500 Index maker Johnson & Johnson, defense COSTANZO] Growth Fund. He joined
contributed positively to fund contractor Lockheed Martin, and AIM in 1995 and assumed
performance except telecommunications, telecommunications giant AT&T. We judged his current duties in 1997. Mr. Costanzo
which detracted by about half a percent. it best to sell our position in AT&T, holds a B.A. in biology and economics
The largest positive contributions to which has seen long-distance rates from the University of Virginia and an
fund results came from the information driven to all-time lows by competition, M.B.A. from The University of Texas at
technology, financials and consumer but considered the long-term prospects Austin.
discretionary sectors. for Johnson & Johnson and Lockheed
Martin to be sound enough to make them ROBERT LLOYD
Among specific holdings that made worth retaining in the portfolio. [PHOTO OF Mr. Lloyd, Chartered
notable positive contributions to the ROBERT Financial Analyst, is
fund for the fiscal year was financial IN CLOSING LLOYD] portfolio manager of AIM
services firm Citigroup, which surpassed U.S. Growth Fund. Mr.
Japan's Mizuho Financial in 2003 to We will continue to invest in a Lloyd joined AIM in 2000 and was
become the world's largest financial well-diversified portfolio of equities promoted to portfolio manager in 2001.
services firm, according to Hoover's. of companies we believe are well Mr. Lloyd received a B.B.A. from the
Additional positive contributions were positioned to provide sustainable future University of Notre Dame and an M.B.A.
made by Cisco Systems, a major supplier earnings growth, focusing on quality from the University of Chicago.
of routers, switches and other equipment companies that we believe have the
for linking computer systems together, potential for above-average growth. BRYAN A. UNTERHALTER
and CDW Corp., which markets tens of [PHOTO OF Mr. Unterhalter is
thousands of computer products, See important fund and index BRYAN A. portfolio manager of AIM
primarily through catalogs, telesales disclosures inside front cover. UNTERHALTER] U.S. Growth Fund. He
and its Web site. A further positive joined AIM in 1997 and
contributor was promoted to his present position in
2003. He holds a B.A. from The
University of Texas at Austin and an
M.B.A. from the University of St.
Thomas.
Assisted by Mid Cap Growth Team
</Table>
<Table>
=======================================
TOP 10 INDUSTRIES*
1. Pharmaceuticals 8.9% REDUCE YOUR PAPER MAIL WITH AIM'S EDELIVERY
2. Data Processing & Outsourced
Services 5.8 Sign up for eDelivery and you can have your fund reports, prospectuses and quarterly
account statements delivered electronically. To enroll, go to aiminvestments.com,
3. Restaurants 4.3 select "My Account," log in, click on the "Service Center" tab and select "Register
for eDelivery." You will no longer receive paper copies of these documents. Instead
4. Regional Banks 3.9 you'll receive a link to the documents via email. (You can cancel the service at the
Web site at any time.)
5. Systems Software 3.8
If you receive account statements, fund reports and prospectuses from your financial
6. Integrated Oil & Gas 3.7 advisor rather than from AIM, eDelivery is not accessible to you. Ask your financial
advisor if his or her firm offers electronic delivery.
7. Integrated Telecommunication
Services 3.7
8. Household Products 3.1 [GRAPHIC]
9. Tobacco 2.8
10. Industrial Conglomerates 2.8
=======================================
</Table>
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
8/30/02-10/31/03*
[MOUNTAIN CHART]
<Table>
<Caption>
DATE AIM U.S. AIM U.S. AIM U.S.
GROWTH FUND GROWTH FUND GROWTH FUND S&P 500
CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX
8/30/2002 $ 9450 $ 10000 $ 10000 $ 10000
9/30/02 8571 9070 9070 8914
10/31/02 9223 9760 9760 9698
11/30/02 9460 10010 10010 10268
12/31/02 8987 9510 9510 9665
1/31/03 8682 9187 9187 9413
2/28/03 8530 9026 9026 9271
3/31/03 8663 9167 9167 9361
4/30/03 9272 9812 9812 10132
5/31/03 9624 10185 10185 10665
6/30/03 9786 10356 10356 10801
7/31/03 9967 10547 10547 10992
8/31/03 10139 10729 10729 11206
9/30/03 10072 10658 10658 11087
10/31/03 $ 10416 $ 10621 $ 11021 $ 11714 Source: Lipper, Inc.
</Table>
Your fund's total return includes sales charges, expenses and management fees.
Results for Class B shares are calculated as if a hypothetical shareholder had
liquidated his entire investment in the fund at the close of the reporting
period and paid the applicable contingent deferred sales charges. 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.
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.
*Index returns from 8/31/02-10/31/03
<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 (including sales charges) CLASS A SHARES
Inception (8/30/02) 3.55% for periods ended 9/30/03, the most Inception (8/30/02) 0.68%
1 Year 6.68 recent calendar quarter-end. 1 Year 11.02
CLASS B SHARES CLASS B SHARES
Inception (8/30/02) 5.28 Inception (8/30/02) 2.37%
1 Year 7.92 1 Year 12.51
CLASS C SHARES CLASS C SHARES
Inception (8/30/02) 8.66 Inception (8/30/02) 6.05%
1 Year 11.92 1 Year 16.51
===================================================================================================================================
</Table>
4
AIM U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS
October 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS--96.27%
AEROSPACE & DEFENSE--1.98%
Lockheed Martin Corp. 240 $ 11,126
- --------------------------------------------------------------------------------
Northrop Grumman Corp. 120 10,728
================================================================================
21,854
================================================================================
AIR FREIGHT & LOGISTICS--1.10%
FedEx Corp. 160 12,122
================================================================================
AIRLINES--1.21%
Southwest Airlines Co. 690 13,386
================================================================================
APPAREL RETAIL--0.48%
TJX Cos., Inc. (The) 250 5,247
================================================================================
ASSET MANAGEMENT & CUSTODY BANKS--0.42%
Northern Trust Corp. 100 4,645
================================================================================
BIOTECHNOLOGY--0.95%
Amgen Inc.(a) 170 10,499
================================================================================
COMMUNICATIONS EQUIPMENT--0.58%
Cisco Systems, Inc.(a) 303 6,357
================================================================================
COMPUTER HARDWARE--2.46%
Dell Inc.(a) 750 27,090
================================================================================
CONSUMER FINANCE--1.75%
MBNA Corp. 780 19,305
================================================================================
DATA PROCESSING & OUTSOURCED SERVICES--5.82%
Affiliated Computer Services, Inc.-Class A(a) 580 28,379
- --------------------------------------------------------------------------------
Fiserv, Inc.(a) 465 16,424
- --------------------------------------------------------------------------------
Paychex, Inc. 210 8,173
- --------------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 400 11,220
================================================================================
64,196
================================================================================
DEPARTMENT STORES--1.12%
Kohl's Corp.(a) 221 12,391
================================================================================
DIVERSIFIED BANKS--2.03%
Bank of America Corp. 80 6,058
- --------------------------------------------------------------------------------
Wells Fargo & Co. 290 16,333
================================================================================
22,391
================================================================================
DIVERSIFIED CHEMICALS--0.88%
E. I. du Pont de Nemours & Co. 240 9,696
================================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------------
DRUG RETAIL--1.64%
Walgreen Co. 520 $ 18,106
================================================================================
ELECTRIC UTILITIES--1.50%
FPL Group, Inc. 260 16,572
================================================================================
GENERAL MERCHANDISE STORES--0.54%
Target Corp. 150 5,961
================================================================================
HEALTH CARE DISTRIBUTORS--1.75%
Cardinal Health, Inc. 325 19,285
================================================================================
HEALTH CARE EQUIPMENT--2.27%
Biomet, Inc. 380 13,627
- --------------------------------------------------------------------------------
Medtronic, Inc. 250 11,393
================================================================================
25,020
================================================================================
HEALTH CARE FACILITIES--0.56%
HCA Inc. 160 6,120
================================================================================
HEALTH CARE SERVICES--2.15%
Express Scripts, Inc.(a) 420 23,066
- --------------------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 18 598
================================================================================
23,664
================================================================================
HOME ENTERTAINMENT SOFTWARE--0.36%
Electronic Arts Inc.(a) 40 3,962
================================================================================
HOME IMPROVEMENT RETAIL--1.50%
Lowe's Cos., Inc. 280 16,500
================================================================================
HOUSEHOLD PRODUCTS--3.06%
Colgate-Palmolive Co. 320 17,021
- --------------------------------------------------------------------------------
Procter & Gamble Co. (The) 170 16,709
================================================================================
33,730
================================================================================
HYPERMARKETS & SUPER CENTERS--2.51%
Wal-Mart Stores, Inc. 470 27,707
================================================================================
INDUSTRIAL CONGLOMERATES--2.75%
3M Co. 60 4,732
- --------------------------------------------------------------------------------
General Electric Co. 880 25,529
================================================================================
30,261
================================================================================
INDUSTRIAL GASES--0.62%
Air Products & Chemicals, Inc. 150 6,812
================================================================================
INDUSTRIAL MACHINERY--0.60%
Danaher Corp. 80 6,628
================================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------------
INSURANCE BROKERS--1.20%
Marsh & McLennan Cos., Inc. 310 $ 13,253
================================================================================
INTEGRATED OIL & GAS--3.70%
ChevronTexaco Corp. 130 9,659
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 850 31,093
================================================================================
40,752
================================================================================
INTEGRATED TELECOMMUNICATION SERVICES--3.65%
SBC Communications Inc. 1,020 24,460
- --------------------------------------------------------------------------------
Verizon Communications Inc. 470 15,792
================================================================================
40,252
================================================================================
LIFE & HEALTH INSURANCE--2.68%
AFLAC Inc. 810 29,549
================================================================================
MANAGED HEALTH CARE--0.83%
UnitedHealth Group Inc. 180 9,158
================================================================================
MOTORCYCLE MANUFACTURERS--1.63%
Harley-Davidson, Inc. 380 18,016
================================================================================
MOVIES & ENTERTAINMENT--1.69%
Viacom Inc.-Class B 190 7,575
- --------------------------------------------------------------------------------
Walt Disney Co. (The) 490 11,094
================================================================================
18,669
================================================================================
MULTI-LINE INSURANCE--2.65%
American International Group, Inc. 480 29,198
================================================================================
OIL & GAS DRILLING--0.51%
Nabors Industries, Ltd. (Bermuda)(a) 150 5,670
================================================================================
OIL & GAS EQUIPMENT & SERVICES--0.38%
Weatherford International Ltd. (Bermuda)(a) 120 4,170
================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES--2.28%
Citigroup Inc. 530 25,122
================================================================================
PERSONAL PRODUCTS--0.93%
Gillette Co. (The) 320 10,208
================================================================================
PHARMACEUTICALS--8.89%
Bristol-Myers Squibb Co. 290 7,357
- --------------------------------------------------------------------------------
Johnson & Johnson 600 30,198
- --------------------------------------------------------------------------------
Lilly (Eli) & Co. 130 8,661
- --------------------------------------------------------------------------------
Merck & Co. Inc. 150 6,638
- --------------------------------------------------------------------------------
Pfizer Inc. 1,430 45,188
================================================================================
98,042
================================================================================
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE--1.90%
Ambac Financial Group, Inc. 150 $ 10,611
- --------------------------------------------------------------------------------
Berkshire Hathaway Inc.-Class B(a) 4 10,370
================================================================================
20,981
================================================================================
REGIONAL BANKS--3.86%
Fifth Third Bancorp 300 17,388
- --------------------------------------------------------------------------------
Synovus Financial Corp. 910 25,116
================================================================================
42,504
================================================================================
RESTAURANTS--4.29%
Brinker International, Inc.(a) 690 21,963
- --------------------------------------------------------------------------------
Starbucks Corp.(a) 240 7,584
- --------------------------------------------------------------------------------
Wendy's International, Inc. 480 17,784
================================================================================
47,331
================================================================================
SOFT DRINKS--1.68%
Coca-Cola Co. (The) 400 18,560
================================================================================
SYSTEMS SOFTWARE--3.75%
Microsoft Corp. 1,580 41,317
================================================================================
TECHNOLOGY DISTRIBUTORS--2.07%
CDW Corp. 380 22,819
================================================================================
THRIFTS & MORTGAGE FINANCE--1.76%
Fannie Mae 270 19,356
================================================================================
TOBACCO--2.78%
Altria Group, Inc. 660 30,690
================================================================================
TRADING COMPANIES & DISTRIBUTORS--0.57%
Fastenal Co. 140 6,226
================================================================================
Total Common Stocks (Cost $977,921) 1,061,350
================================================================================
TOTAL INVESTMENTS--96.27% (Cost $977,921) 1,061,350
================================================================================
OTHER ASSETS LESS LIABILITIES--3.73% 41,155
================================================================================
NET ASSETS--100.00% $1,102,505
================================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
See Notes to Financial Statements.
F-4
AIM U.S. GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2003
<Table>
ASSETS:
Investments, at market value (cost $977,921) $ 1,061,350
- --------------------------------------------------------------------------------
Cash 50,631
- --------------------------------------------------------------------------------
Receivables for:
Investments sold 12,161
- --------------------------------------------------------------------------------
Dividends 1,630
- --------------------------------------------------------------------------------
Amount due from advisor 16,483
- --------------------------------------------------------------------------------
Investment for deferred compensation plan 3,462
- --------------------------------------------------------------------------------
Other assets 116
================================================================================
Total assets 1,145,833
================================================================================
LIABILITIES:
Payables for:
Investments purchased 16,983
- --------------------------------------------------------------------------------
Deferred compensation plan 3,462
- --------------------------------------------------------------------------------
Accrued trustees' fees 575
- --------------------------------------------------------------------------------
Accrued transfer agent fees 6
- --------------------------------------------------------------------------------
Accrued operating expenses 22,302
================================================================================
Total liabilities 43,328
================================================================================
Net assets applicable to shares outstanding $ 1,102,505
================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 997,224
- --------------------------------------------------------------------------------
Undistributed net investment income (loss) (18)
- --------------------------------------------------------------------------------
Undistributed net realized gain from
investment securities 21,870
- --------------------------------------------------------------------------------
Unrealized appreciation of investment
securities 83,429
================================================================================
$ 1,102,505
________________________________________________________________________________
================================================================================
NET ASSETS:
Class A $ 440,999
________________________________________________________________________________
================================================================================
Class B $ 330,753
________________________________________________________________________________
================================================================================
Class C $ 330,753
________________________________________________________________________________
================================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 40,295
________________________________________________________________________________
================================================================================
Class B 30,222
________________________________________________________________________________
================================================================================
Class C 30,222
________________________________________________________________________________
================================================================================
Class A:
Net asset value per share $ 10.94
- --------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $10.94 / 94.50%) $ 11.58
________________________________________________________________________________
================================================================================
Class B:
Net asset value and offering price per share $ 10.94
________________________________________________________________________________
================================================================================
Class C:
Net asset value and offering price per share $ 10.94
________________________________________________________________________________
================================================================================
</Table>
See Notes to Financial Statements.
F-5
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2003
<Table>
INVESTMENT INCOME:
Dividends $ 15,079
================================================================================
EXPENSES:
Advisory fees 7,519
- --------------------------------------------------------------------------------
Administrative services fees 50,000
- --------------------------------------------------------------------------------
Custodian fees 1,231
- --------------------------------------------------------------------------------
Distribution fees:
Class A 1,403
- --------------------------------------------------------------------------------
Class B 3,008
- --------------------------------------------------------------------------------
Class C 3,008
- --------------------------------------------------------------------------------
Transfer agent fees 77
- --------------------------------------------------------------------------------
Trustees' fees 8,828
- --------------------------------------------------------------------------------
Professional fees 34,251
- --------------------------------------------------------------------------------
Other 6,975
================================================================================
Total expenses 116,300
================================================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangements (98,761)
================================================================================
Net expenses 17,539
================================================================================
Net investment income (loss) (2,460)
================================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from investment securities 33,177
- --------------------------------------------------------------------------------
Change in net unrealized appreciation of
investment securities 95,453
================================================================================
Net gain from investment securities 128,630
================================================================================
Net increase in net assets resulting from operations $ 126,170
________________________________________________________________________________
================================================================================
</Table>
See Notes to Financial Statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED OCTOBER 31, 2003 AND THE PERIOD AUGUST 30, 2002 (DATE
OPERATIONS COMMENCED) THROUGH OCTOBER 31, 2002.
<Table>
<Caption>
2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,460) $ (364)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 33,177 (11,307)
- ---------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities 95,453 (12,024)
===========================================================================================================================
Net increase (decrease) in net assets resulting from operations 126,170 (23,695)
===========================================================================================================================
Distributions to shareholders from net investment income:
Class A (2,800) --
- ---------------------------------------------------------------------------------------------------------------------------
Class B (2,100) --
- ---------------------------------------------------------------------------------------------------------------------------
Class C (2,100) --
===========================================================================================================================
Decrease in net assets resulting from distributions (7,000) --
===========================================================================================================================
Share transactions-net:
Class A 2,800 400,010
- ---------------------------------------------------------------------------------------------------------------------------
Class B 2,100 300,010
- ---------------------------------------------------------------------------------------------------------------------------
Class C 2,100 300,010
===========================================================================================================================
Net increase in net assets resulting from share transactions 7,000 1,000,030
===========================================================================================================================
Net increase in net assets 126,170 976,335
===========================================================================================================================
NET ASSETS:
Beginning of year 976,335 --
===========================================================================================================================
End of year (including undistributed net investment income (loss) of
$(18) and $6,561 for 2003 and 2002, respectively $ 1,102,505 $ 976,335
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
See Notes to Financial Statements.
F-7
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
AIM U.S. Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently consists of multiple classes of shares. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. The Fund is currently
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 ADRs, and
the bid/ask quotes of brokers and information providers may be reviewed 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.
F-8
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 0.75% 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 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.
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 $7,519 and reimbursed expenses of $82,945.
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") a fee for providing transfer
agency and shareholder services to the Fund. During the year ended October 31,
2003, AISI retained $44 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and Class C shares. Of these amounts, 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. Voluntary fee waivers 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 $1,403, $3,008 and $3,008,
respectively.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
F-9
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 $867 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $878.
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
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 year ended October 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving 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 was as follows:
<Table>
<Caption>
2003 2002
- --------------------------------------------------------------------------------
Distributions paid from ordinary income $ 7,000 $ --
</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 $ 25,830
- ----------------------------------------------------------------
Unrealized appreciation - investments 83,243
- ----------------------------------------------------------------
Temporary book/tax differences (3,792)
- ----------------------------------------------------------------
Shares of beneficial interest 997,224
- ----------------------------------------------------------------
Total net assets $ 1,102,505
================================================================
</Table>
F-10
The difference between book-basis and tax-basis unrealized appreciation is
due to differences in the timing of recognition of gains and losses on
investments for tax and book purposes. The Fund's unrealized appreciation
difference is attributable primarily to the tax deferral of losses on wash
sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the deferral of trustee compensation.
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 $379,065 and $405,462, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ----------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $ 108,470
- ----------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (25,227)
================================================================
Net unrealized appreciation of investment
securities $ 83,243
________________________________________________________________
================================================================
Cost of investments for tax purposes is $978,107.
</Table>
NOTE 8 -- RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of stock issuance cost and
non-deductible excise taxes, on October 31, 2003, undistributed net investment
income was increased by $2,881 and the shares of beneficial interest decreased
by $2,881. This reclassification had no effect on the net assets of the Fund.
NOTE 9 -- SHARE INFORMATION
The Fund currently consists of three different classes of shares that are not
available for sale: Class A shares, Class B shares and Class C shares. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with CDSC. Under 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
YEAR ENDED COMMENCED) TO
OCTOBER 31, 2003 OCTOBER 31, 2002
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A* -- $ -- 40,001 $ 400,010
- ----------------------------------------------------------------------------------------------------------------------
Class B* -- -- 30,001 300,010
- ----------------------------------------------------------------------------------------------------------------------
Class C* -- -- 30,001 300,010
======================================================================================================================
Issued as reinvestment of dividends:
Class A* 294 2,800 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class B* 221 2,100 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class C* 221 2,100 -- --
======================================================================================================================
736 $ 7,000 100,003 $1,000,030
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Currently, the fund is not open to investors and consequently all shares are
owned by AIM.
F-11
NOTE 10 -- FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding during the year ended October 31, 2003 and the period August 30,
2002 (date operations commenced) to October 31, 2002.
<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 $ 9.76 $ 10.00
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) 0.00
- -----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.27 (0.24)
===========================================================================================================
Total from investment operations 1.25 (0.24)
===========================================================================================================
Less dividends from net investment income (0.07) --
===========================================================================================================
Net asset value, end of period $ 10.94 $ 9.76
___________________________________________________________________________________________________________
===========================================================================================================
Total return(a) 12.92% (2.40)%
___________________________________________________________________________________________________________
===========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 441 $ 391
___________________________________________________________________________________________________________
===========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.84%(b) 1.76%(c)
- -----------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 11.21%(b) 22.45%(c)
___________________________________________________________________________________________________________
===========================================================================================================
Ratio of net investment income (loss) to average net assets (0.25)%(b) (0.22)%(c)
___________________________________________________________________________________________________________
===========================================================================================================
Portfolio turnover rate(d) 39% 1%
___________________________________________________________________________________________________________
===========================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(b) Ratios are based on average daily net assets of $401,019.
(c) Annualized.
(d) Not annualized for periods less than one year.
F-12
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 $ 9.76 $ 10.00
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.00)
- ------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.27 (0.24)
======================================================================================================
Total from investment operations 1.25 (0.24)
======================================================================================================
Less dividends from net investment income (0.07) --
======================================================================================================
Net asset value, end of period $ 10.94 $ 9.76
______________________________________________________________________________________________________
======================================================================================================
Total return(a) 12.92% (2.40)%
______________________________________________________________________________________________________
======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 331 $ 293
______________________________________________________________________________________________________
======================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.84%(b) 1.76%(c)
- ------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 11.86%(b) 23.10%(c)
______________________________________________________________________________________________________
======================================================================================================
Ratio of net investment income (loss) to average net assets (0.25)%(b) (0.22)%(c)
______________________________________________________________________________________________________
======================================================================================================
Portfolio turnover rate(d) 39% 1%
______________________________________________________________________________________________________
======================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(b) Ratios are based on average daily net assets of $300,767.
(c) Annualized.
(d) Not annualized for periods less than one year.
F-13
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 $ 9.76 $ 10.00
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.00)
- ---------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.27 (0.24)
===================================================================================================
Total from investment operations 1.25 (0.24)
===================================================================================================
Less dividends from net investment income (0.07) --
===================================================================================================
Net asset value, end of period $ 10.94 $ 9.76
___________________________________________________________________________________________________
===================================================================================================
Total return(a) 12.92% (2.40)%
___________________________________________________________________________________________________
===================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 331 $ 293
___________________________________________________________________________________________________
===================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.84%(b) 1.76%(c)
- ---------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 11.86%(b) 23.10%(c)
___________________________________________________________________________________________________
===================================================================================================
Ratio of net investment income (loss) to average net assets (0.25)%(b) (0.22)%(c)
___________________________________________________________________________________________________
===================================================================================================
Portfolio turnover rate(d) 39% 1%
___________________________________________________________________________________________________
===================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(b) Ratios are based on average daily net assets of $300,767.
(c) Annualized.
(d) Not annualized for periods less than one year.
NOTE 11 -- SUBSEQUENT EVENTS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM") is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("INVESCO"), was, until
recently, the investment advisor to the INVESCO Funds.
On December 2, 2003, each of the Securities and Exchange Commission ("SEC")
and the Office of the Attorney General of the State of New York ("NYAG") filed
civil proceedings against INVESCO and Raymond R. Cunningham, in his capacity as
the chief executive officer of INVESCO. Mr. Cunningham currently holds the
positions of Chief Operating Officer and Senior Vice President of A I M
Management Group, Inc., the parent company of AIM, and he also holds the
position of Senior Vice President with AIM. In addition, on December 2, 2003,
the State of Colorado filed civil proceedings against INVESCO. Neither your Fund
nor any of the funds in the AIM Family of Funds(R), which includes the INVESCO
Funds (the "Funds") has been named as a defendant in any of these proceedings.
The SEC proceeding alleges that INVESCO failed to disclose in the INVESCO
Funds' prospectuses and to the INVESCO Funds' independent directors that INVESCO
had entered into certain arrangements permitting market timing of the INVESCO
Funds. The SEC is seeking injunctions, including permanent injunctions from
serving as an investment advisor, officer or director of an investment company;
an accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG proceeding is also based on the circumstances described above. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from alleged illegal activities; civil
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.
F-14
NOTE 11 -- SUBSEQUENT EVENTS (CONTINUED)
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,
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 to seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunction
relief; disgorgement; equitable relief; interest and the payment of attorneys'
fees 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.
F-15
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM U.S. Growth Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM U.S.
Growth Fund (a portfolio 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
U.S. Growth Fund as of October 31, 2003, the results of its operations for the
year then ended, and the changes in its net assets and financial highlights for
each of the two years in the period then ended, in conformity with accounting
principles generally accepted in the United States.
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) 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 Cortland Trust, Inc.
Trustee Kramer Levin Naftalis (registered
and Frankel LLP investment company)
- -----------------------------------------------------------------------------------------------------
Gerald J. Lewis(3) -- 1933 2003 Chairman, Lawsuit General Chemical
Trustee Resolution Services Group, Inc.,
(San Diego, California) Wheelabrator
Technologies, Inc.
Formerly: Associate (waste management
Justice of the company), Fisher
California Court of Scientific, Inc.,
Appeals Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -----------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief None
Trustee Executive Officer, YWCA
of the USA
- -----------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of None
Trustee Pennock & Cooper
- -----------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice None
Trustee President, Development
and 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 N/A
Senior Vice President President, Secretary
and 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 N/A
Senior Vice President Director of
Investments, 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 N/A
Vice President Chief Research
Officer -- Fixed
Income, A I M Capital
Management, Inc.; and
Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1992 Vice President and N/A
Vice President Chief Compliance
Officer, 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 N/A
Vice President Advisors, Inc., and
President, Chief
Executive Officer and
Chief Investment
Officer, A I M Capital
Management, Inc.
- -----------------------------------------------------------------------------------------------------
Dana R. Sutton -- 1959 1988 Vice President and Fund N/A
Vice President and Treasurer Treasurer, A I M
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>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2003, 6.78% is eligible for the dividends received deduction for
corporations.
<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 USG-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.